Grid Operator Tries for April Wholesale Market

By Published On: December 19, 2008

The California Independent System Operator claims that an April 1, 2009, go-live date for its new wholesale electricity market is possible. The announcement came December 16. The often-delayed start up of the so-called Market Redesign & Technology Upgrade still hangs on the ability of the computer system to handle prices and post-bid settlements, according to utilities. Computer runs of market simulations have been inconclusive, according to those involved. “April 1 is as far as you can go without major delays,” said Mason Willrich, grid operator chair. “Beyond April 1, I get real nervous.” CAISO’s wholesale market, as it is today, accounts for about 2 to 3 percent of electricity trades, and also handles bids for other services, such as voltage support. The proposed market also would allow for day-ahead bidding to set prices. That could greatly expand its use, stakeholders say. Southern California Edison’s representative said the April go-live date is “feasible.” Pedro Pizarro, Edison executive vice president, power operations, added that the utility’s customers are paying $1 million/month for each month the go-live date is delayed. Dede Hapner, Pacific Gas & Electric vice president of CAISO relations, said, “The jury’s still out on the April date.” San Diego Gas & Electric’s representative also demurred about relying on an April launch date. The process of utilities’ ability to absorb the new market into their business plans is “like a snake eating a hamster,” according to Pizarro. He added, “It has to work its way through the snake.” The “hamsters,” in Pizarro’s metaphor, are Edison’s various vendors and subcontractors that are expected to work with the utility to pave the way for its involvement in the new market. In order for the new market to go into effect, the Federal Energy Regulatory Commission has to approve it. CAISO set a January 16, 2009, date for filing the market proposal with federal regulators. In other grid operator news, it appears that the cost of sending energy over transmission lines controlled by CAISO is rising. The increase in the operator’s grid management charge is expected to go from 75.5 cents/MWh to 77 cents/MWh, according to CAISO chief executive officer Yakout Mansour. The cost is rising because use of the grid is dropping, resulting in a smaller base upon which to spread the charges. The decline in usage is attributed partially to the recession and mild weather. CAISO anticipates a reduction in transmission use by 2 percent based on current use, according to Phil Leiber, CAISO chief financial officer. While staff raised red flags about reduced use, grid operator board member Laura Doll noted that the state is striving to decrease electricity use. In response to other fallout from the market decline, CAISO decreased its traders’ unsecured credit from $250 million to $150 million. On December 17, the second day of the board’s end-of-year meeting, Leiber called the $250 million amount allowed for its traders “excessive.” Traders, however, saw the change in a different light. They questioned the move to decrease credit at the same time the grid operator plans to launch a new market in which those entities are expected to trade. They claimed that without more credit latitude, the grid operator was setting up hurdles to participate in its new market. There’s more financial risk with new markets, according to Ali Yazdi, Powerex director of California and Southwest portfolios. Other stakeholders agreed with the increased risk scenario--enough that they may stay out of the new market. In a bit of a compromise, the board agreed to the reduced credit allowance, but at the same time said the grid operator would accelerate settlement payments for transactions. In other words, when traders make or lose money in the new market, they would not have to wait for months to see a true up of their wins and losses.

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