?Must Offer? Power Plant Rules Increase Compensation

The California Independent System Operator (CAISO) changed criteria for power plants under the ?must offer? obligation created by the Federal Energy Regulatory Commission toward the end of the energy crisis. The new rules, approved March 25, are expected to end what could be used as a subsidy for market participants although they increase compensation for start-up costs. They are also aimed at avoiding having plants run at all times. Both suppliers and private utilities contend that the old designating units as reliability-must-run in order to meet local reliability needs. Using must-offer units for reliability must-run units has led to cost shifting to regions that didn?t necessarily use the energy, say stakeholders. The federal order requiring generators to offer their capacity to the grid when called upon was meant to keep power plant owners and traders from withholding energy to run up prices during the energy crisis, as well as to avoid blackouts. Since then, CAISO has routinely allowed waivers to that requirement for plants with slow ramp times or maintenance and other problems. Stakeholders were unhappy with the process and leaned on the grid operator to make some of the changes adopted this week. The new rules include: Minimizing start-up costs by implementing software to grant or deny waivers to the must-offer rule after local reliability has been met. Changing the gas price formula for calculating minimum load compensation and start-up fuel costs. Generators have complained that the current formula doesn?t reflect true costs for must-offer units. The new rules would add a cost of $6.3 million to the grid. Parsing the compensation recovery into three tiers?one for local reliability, one for zonal needs, and one for system needs. Allowing for increased information, in part by posting the number and capacity of committed units on a Web site. No consensus was reached on whether generators should receive capacity payments for must-offer requirements. Brian Theaker, CAISO director of regulatory affairs, said CAISO is in the middle of a divide over this issue and does not want to create ?perverse incentives.? On one side, suppliers say units designated as must-offer have value as capacity. On the other side, ?load? says if a new market is created, incentives for withholding are also created. In other CAISO news, software bugs have delayed implementing the automated dispatch system?phase 1B of the grid operator?s market redesign. Instead of its rollout May 1, it is now scheduled for sometime this fall. The system, which would take over real-time dispatch from human operators with a single price at every increment, was originally scheduled for fall 2003. The cost of the delay will be tallied but is as yet unavailable, according to Elena Schmid, CAISO vice president of corporate and strategic development. The delay will not make FERC happy, Schmid added. ?There?s only so much we can do. There has to be a software package that will work.? In an unusual acclamation for FERC by the CAISO board, chair Michael Kahn declared that a combination of FERC and state action, including Department of Water Resources energy contracts, has ?completely restored order to the market.? Although the total cost of energy rose last year, Kahn blamed the increase solely on the price of natural gas. He said that excluding that cost, the market is the same as it was prior to the energy crisis. Lisa Weinzimer also contributed to this report.

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?Must Offer? Power Plant Rules Increase Compensation

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