In a move expected to reduce power prices in California, the Los Angeles Department of Water & Power may rejoin the California Independent System Operator\u2019s energy market. It departed in response to the fallout from the 2000-01 power crisis. \u201cMore supply bidding into the CAISO markets is a good thing,\u201d Gregg Fishman, grid operator spokesperson, said in response to LADWP\u2019s possible maneuver. \u201cCompetition tends to drive prices downward.\u201d With more megawatts from LADWP, the grid operator also would gain greater operational flexibility, Fishman added. Hooking back up with the CAISO is expected to bolster the state\u2019s largest muni\u2019s bottom line, allowing it to help the city of Los Angeles\u2019 ailing general fund LADWP interim general manager David Freeman told the department\u2019s board that the muni should stop withholding power from CAISO. \u201cWe\u2019re passing up an opportunity to make rather good sized money.\u201d The department largely ceased participating in the grid operator\u2019s market after collecting payments for power became a problem during the crisis nearly a decade ago. The possible return to the market comes as Freeman undertakes a review of the department\u2019s operations and puts together a strategic plan, expected to be presented to its board soon. The muni\u2019s re-entry would cause \u201cmore than a blip\u201d in the CAISO market, but not \u201cturn the market topsy-turvy,\u201d Gary Ackerman, Western Power Trading Forum executive director, told Circuit. Prices on the CAISO market \u201chave been very stable,\u201d Fishman noted, averaging under $40\/MWh on a day-ahead basis and less than $50\/MWh in real time, even over the summer. Freeman told his board that the department needs to improve its program to market surplus power and engage more with the grid operator. To achieve its goals of providing clean, reliable power to its own customers at low rates, the department should maximize business opportunities, he added. LADWP could begin participating in the market by becoming one of about 100 certified scheduling coordinators or by bidding through a separate scheduling coordinator, according to Fishman. By participating in the market, the muni could reduce congestion and lower the locational marginal price of power in some places, according to Ackerman. However, he noted that CAISO might seek to impose an integrated balancing authority area pricing correction for the LADWP, similar to one now in place for the Sacramento Municipal Utility District. CASIO maintains the correction is needed to manage congestion revenue rights in areas where sub-grids beyond its control interconnect with its system. Ackerman said such a correction would be beneficial to CAISO, but likely financially unfavorable to the LADWP. Nevertheless, the muni\u2019s excess generating capacity could prove attractive in maintaining system reliability in Southern California, where a tight energy supply is projected in the years ahead as construction of new power plants remains stymied by air quality restrictions. This year, the department has a reserve margin of some 20 percent, with 7,400 MW of generating capacity and a projected peak demand of 6,148 MW, according to its resource plan. As the department continues to re-power its existing gas plants and add to its renewable generation portfolio--plus meet load growth through greater efficiency and demand side management--that surplus capacity could grow to as much as 26 percent over the next two years. During the last five years LADWP\u2019s in-basin plants have operated at a level that used 60 percent of their nitrogen oxide emissions rights, said Sam Atwood, South Coast Air Quality Management District spokesperson. \u201cThat should give them a comfortable margin if they want to increase power production in the future,\u201d he added. Beyond that, the department could purchase additional credits if needed. The department\u2019s re-entry would come at a time when it is under pressure to green its operations and achieve a 35 percent renewable energy standard by 2020. At the same time, the department wants to keep its power rates at least 15 percent below the cost of electricity in investor-owned utility territory. Freeman also wants to offer a promotional discount rate to businesses as an incentive for them to locate in Los Angeles, where unemployment stands at 11.9 percent, according to the federal Bureau of Labor Statistics. At the same time, the financially strapped city of Los Angeles is leaning on the department to send more money from power sales to the city\u2019s general fund. The city budget target for fiscal 2009-10 is to transfer $232 million of power revenue to the city general fund, up from $222 million last year and $182 million the year before. The city faces a deficit of some $400 million this fiscal year and is seeking to slim its workforce to close the financial gap.