LADWP Eyes Re-Entering CAISO Market

By Published On: November 13, 2009

In a move expected to reduce power prices in California, the Los Angeles Department of Water & Power may rejoin the California Independent System Operator’s energy market. It departed in response to the fallout from the 2000-01 power crisis. “More supply bidding into the CAISO markets is a good thing,” Gregg Fishman, grid operator spokesperson, said in response to LADWP’s possible maneuver. “Competition tends to drive prices downward.” 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’s largest muni’s bottom line, allowing it to help the city of Los Angeles’ ailing general fund LADWP interim general manager David Freeman told the department’s board that the muni should stop withholding power from CAISO. “We’re passing up an opportunity to make rather good sized money.” The department largely ceased participating in the grid operator’s 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’s operations and puts together a strategic plan, expected to be presented to its board soon. The muni’s re-entry would cause “more than a blip” in the CAISO market, but not “turn the market topsy-turvy,” Gary Ackerman, Western Power Trading Forum executive director, told Circuit. Prices on the CAISO market “have been very stable,” 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’s 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’s 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. “That should give them a comfortable margin if they want to increase power production in the future,” he added. Beyond that, the department could purchase additional credits if needed. The department’s 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’s 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.

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