Economists often seem enamored of economic efficiency, honoring its merits while decrying the lost benefits of inefficient outcomes. But really ... what's the harm in a little inefficiency? Well,...
A Vision for Trasmission: How the RTOs Stand
expected real-time demand for energy, Sempra said, instead of minimizing the "capacity" cost (start-up and minimum load). "Thus, under CAISO's approach, the RUC service would be used to buy both additional energy and capacity. The PJM and New York ISOs, on the other hand, employ an objective function of minimizing the costs of 'capacity'," Sempra pointed out. "By restricting the objective function to minimizing the capacity cost, thereby refusing to purchase additional energy until closer to real time to see if it is actually needed, the eastern ISOs have less cost to uplift."
Sempra won agreement from the California Municipal Utilities Association (CMUA), which also saw the MD02 ACAP scheme as inferior to eastern ICAP rules.
"Certainly," said CMUA, "CAISO made no showing to demonstrate the need for such an intrusive and ISO-centric proposal. To [our] knowledge, this construct is completely at odds with the capacity obligations enforced in eastern ISO's, which CAISO admits." (See FERC Docket No. ER02-1656, comments filed 6/3-4/02)
A New Price Cap. As part of its MD02 redesign, CAISO also has proposed a new test to begin after Oct. 1 (after FERC's West-wide price caps end) to discern whether wholesale power prices are too high and to trigger price mitigation automatically.
The new test would create a new 12-month rolling index of average monthly price markups above cost. Then, whenever the markup exceeded five percent, CAISO would assume that power prices were no longer just and reasonable. CAISO offered statistical evidence to show that the largest price spikes over the past couple of years had corresponded with markups above five percent and vice versa. (See Fig. 2, California Power Prices) Also, it appeared that when prices spiked, the spike could be explained to a great degree by the size of the markup. (See Fig. 3, California Price Markups)
But some, including Lara Skidmore at BPA, heaved brickbats at the CAISO proposal. Skidmore argued that California is so dependent on summer hydro imports as to make the new test unworkable:
"The simple effect of hydro surplus during normal-to-wet years is to bring the real-time price down. … A secondary effect is displacement of relatively higher-cost thermal generation, bringing spot gas prices down … ." Skidmore also pointed out that "[d]uring drought, these effects are reversed, with both power and gas prices increasing due to the greater use of higher-cost generation to make up for the lack of surplus hydro. … This influence is prominent in the high-price periods that occurred in the ISO market in Oct. 1999, May 2000, and in the fall of 2000 when streamflow was less than expected." She added that if "automatic mitigation is triggered simply by an increase in the average price, it may be inappropriately triggered by year-to-year fluctuations in hydro generation." (See FERC Docket No. ER02-1656, motion filed 5/22/02.)
Budget Problems. Meanwhile, CAISO remains beset by budget woes-a problem that may well merit a rethink from FERC.
As a non-profit benefit corporation, CAISO's only source of revenue comes from the grid management charge (GMC) it collects for managing congestion and providing ancillary