SMUD, Grid Operator Agree to Market Efficiency Deal

By Published On: June 13, 2013

In an attempt to fix a pricing methodology inequity that has cost it millions of dollars over the past four years, the Sacramento Municipal Utility District board approved an agreement with the California Independent System Operator June 6. Under the action, the utility will enter a two-year contract with CAISO for the Market Efficiency Enhancement Agreement. For years Sacramento sold power to the grid operator under an agreement that the muni says didn’t reflect the true value of the energy. The situation began several years ago when the CAISO implemented a market redesign and changed the pricing methodology for sales and purchases made from SMUD’s Integrated Balancing Authority Areas (IBAA). Under IBAA pricing, sales made from the authority received the California-Oregon border price instead of the price where the sale enters the CAISO system; the border price was lower than where Sacramento muni directly connects to the grid operator. Because the grid operator was unable to distinguish between sales sourced from the SMUD system and those brought down from the Northwest over the California-Oregon Transmission Project, the CAISO authority pricing methodology erroneously assumed that all sales from the muni were being sourced from the Northwest. “SMUD uses low-cost power from the Pacific Northwest to serve its load and typically sells generation from our internal resources to CAISO,” muni board member Michael Picker explained. “Pricing SMUD sales at the California-Oregon price does not reflect the locational value of the power sold to CAISO.” The pricing discrepancy, has resulted in close to $3 million in lost revenue for the muni since April 2009, Picker said. The public power agency entered negotiations with CAISO on the agreement in late 2012. The Sacramento muni says the resulting agreement allows it to receive market-enhanced and efficiency enhancement agreement pricing whenever Sacramento schedules power using an agreement resource identification. “By utilizing the agreement resource ID, SMUD is certifying its sale to CAISO is being sourced by SMUD system generation,” Picker explained. Also during the June 6 business meeting, muni board member Renee Nunes Taylor revealed that the agency has had to make a significant adjustment to its planned 2013 expenses, thanks to a below-average water year. “Our power supply costs will be almost $18 million more than budgeted,” she said. The higher power supply costs are expected to be offset by a transfer from SMUD’s Hydro Rate Stabilization Fund and the lower budgeted operations & maintenance costs in other areas of operation, according to the muni. Also during the meeting, board member Larry Carr confirmed a recent Sacramento Bee report that he won’t seek re-election when his current term expires in December 2014. He said it was time to give someone else an opportunity to represent the district’s sixth ward. “There are no personal things going on, I’m not under investigation of any type,” he said in making his announcement. He also stated that he chose to reveal his intentions now—well before election season—in order to give potential candidates adequate time to get campaigns together. Carr was first elected to the board in November 1998 and served as its president in 2000, 2001 and 2008.

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