Stakeholders Ask: Why Rush CAISO Market Redesign?

Despite calls from the California Public Utilities Commission and others to put on the brakes, the California Independent System Operator insisted this week that its revised market redesign conceptual plan will be ready to file with the Federal Energy Regulatory Commission in April. Market redesign, which has been more than five years in the making, may end up being flawed if evaluation of recent revisions is rushed, warned the CPUC, Pacific Gas & Electric, Southern California Edison, The Utility Reform Network, and Calpine in a March 1 letter to the grid operator. More time is needed to incorporate findings from a CPUC report on parameters for resource adequacy and procurement, due out this month. A two-month delay won?t hamper plans to implement reforms in early 2007, they argue. Stalling on sending the plan to FERC ?reduces our ability to manage risk? to the grid, asserted Steve Greenleaf, CAISO director of regulatory policy, at a March 1-2 stakeholder workshop. The current system is causing major operational problems, he stressed. Another month or more won?t completely clarify resource-adequacy plans, he added. Key proposals CAISO expects to send to FERC in April include a change to locational marginal pricing, which entails dividing the grid into thousands of points, or nodes. Distinct prices at the different points show the most cost-effective use of resources to help relieve bottlenecks. The grid operator believes this approach offers more information on the actual cost of delivering power to customers (i>Circuit , Feb. 25, 2005). The plan also recommends a fall-back mechanism to require full day-ahead scheduling if the underscheduling of load is causing problems. Another proposal would give units whose operations are frequently mitigated for market power a bid adder to compensate for loss of fixed costs. Jeffrey Nelson, Southern California Edison project manager, market and analysis, expressed concern that this approach could reward entities that exercise market power. In the long run, the hope is to develop contracts to pay these units for capacity instead of using bid adders, responded CAISO staff. With changes pegged for 2007, the grid operator wants to set energy bid caps, increasing from $250/MWh to $1,000/MWh over three years. This provision aims to prod load-serving entities to sign long-term contracts to hedge against market power, said Keith Casey, manager of market analysis and mitigation. Putting a lid on bids would hinge on assessments by CAISO that the market is competitive?an arguably subjective determination. The prospect of avoiding scrambling for megawatts on the hottest days is another rationale for setting caps higher than $250/MWh, according to Casey. At the same time CAISO staff pledged commitment to a February 2007 time line for initial changes, Greenleaf admitted that the project is behind schedule. But pressed by a stakeholder to confirm whether 2007 is ?truly a viable date,? Bimal Mukherjee, market redesign project manager, acknowledged that there is only a 50-50 likelihood that the redesign will be ready at the target date. ?In some cases, where the risk to the schedule was low, and/or we determined the change was necessary, we immediately incorporated [stakeholder] ideas into release 1 of the design, and in others, where the risk to the schedule was high, and the change less necessary for a functioning market, we deferred the recommendation into release 2,? said Gregg Fishman, CAISO spokesperson. Stakeholder comments are due March 9.

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Stakeholders Ask: Why Rush CAISO Market Redesign?

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