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Kicked Off and On Schedule

Cal-ISO files a new market design, but has it traded efficiency for software?

Fortnightly Magazine - June 2006

a wholly different architecture …

“Features employed in Eastern ISOs cannot simply be incorporated into the MRTU markets without substantial effort.” (Status Report on Convergence Bidding, FERC Docket ER02-1656-030, filed March 15, 2006.)

As a result, and in order not to saddle its software developers with moving targets, the ISO has chosen to implement the MRTU in stages, and to postpone until an unspecified day-two release any implementation of virtual trading (also known as “convergence” bidding), by which market participants may bid to buy or sell power without actually possessing any power-producing capacity or load-serving responsibilities. It has done this despite a clearly stated preference from FERC for virtual bidding in RTO markets, and a show-cause order directing the Cal-ISO to explain its recalcitrance.

In similar fashion, owing in part to software complexity, the ISO has decided to decouple the calculation of transmission-line losses from congestion costs (though they play a key role in LMP determination), necessitating certain arbitrary assumptions in the reimbursement of losses and the allocation of CRRs. This decoupling thus will create new and different sets of winners and losers, and in fact has led some critics to complain that the burden of paying for marginal transmission line losses imposed on electric consumers under Cal-ISO’s new market design actually will outweigh objections from having to pay locational prices.

The ISO’s catering to computers, in fact, has become a fault in its own right, irking some opponents. The California Municipal Utilities Association (CMUA), in comments filed April 10, takes notes of the “considerable time” that Cal-ISO has spent it explaining its “dependence” on software development and warns FERC not to defer to the needs of IT vendors.

“The commission,” urges CMUA, “should not allow itself to be held at gunpoint in this fashion.”

Vetting the Issues

In reality, a fair number of MRTU elements proposed by Cal-ISO already have passed muster, as the ISO since January 2002 has been conducting a series of stakeholder conferences and has vetted numerous ideas before federal regulators, winning commitments from FERC in many areas, including:

• Locational Marginal Pricing. Cal-ISO proposal approved Oct. 23, 2003 (105 FERC ¶61,140);

• Market Power Mitigation. PJM-style model approved, July 1, 2005, targeting potential for gaming, instead of the Cal-ISO’s current AMP procedure, that being a form of “conduct/impact” test, as is used in New York and New England (112 FERC ¶61,013); and

• Nodal Averaging for Load. Cal-ISO proposal approved July 1, 2005, to assign LMPs to load based on geographic averaging at three LAPs (“load aggregation points”) corresponding to traditional service territories of major investor-owned electric utilities (112 FERC ¶61,012). Later, on Nov. 14, 2005, FERC allowed the ISO to forgo creating specific LAPs for certain large wholesale power customers to enable special case nodal pricing for load (113 FERC ¶61,151).

This combined process of step-by-step vetting and FERC authorization has narrowed the range of legitimate disagreement, making it more difficult for opponents to use Cal-ISO’s February tariff filing as a forum for rehearing the electric restructuring agenda from top to bottom.

As writes Don Garber,