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Letters to the Editor

Fortnightly Magazine - December 2006

the need for costly out-of-market operator intervention to ensure moment-to-moment system reliability.

Though some market participants have expressed concerns over the complexity of MRTU, it is important to realize that the new market design greatly reduces the need for out-of-market calls in real-time, which result in significant uplift costs. The complexity of the market design should reflect the complexity of operating the underlying electric grid, no more and no less.

The California grid is a large and extremely complex grid to operate and this unavoidable reality is recognized appropriately in the design of MRTU. In doing so, downward pressure is placed on risk premiums and consequently wholesale prices by virtue of reduced uncertainty through reduction in uplift costs, since these costs cannot easily be predicted and hedged. MRTU leverages state-of-the-art technology with acknowledged “best practices” in electric market design to incorporate as many facets of California’s complex system operation into the day-ahead and real-time energy prices as possible. The intent is to drive out-of-market costs to the bare minimum, while ensuring a competitive market outcome and reliable grid operations at least cost.

Some additional complexity stems from the collaborative process with our stakeholders, through which the MRTU design has addressed certain special needs and requirements. For example, MRTU affirms the principle that in transitioning to the new market, it is important to provide mechanisms to preserve existing contractual relationships and to avoid cost shifting. In addition, the ISO reached out to uniquely situated parties, such as a number of the public-power entities, and as a result has included additional features and functionality to accommodate their needs. The provision of numerous features including Metered-Sub-Systems (MSS), and the accommodation of so-called pseudo-ties provide flexibility for both entities that directly are part of the ISO control area as well as for others such as the Los Angeles Department of Water and Power (LADWP) and the Sacramento Municipal Utility District (SMUD), which are embedded in or adjacent to the ISO control area. The intent is to insure a smooth transition to the new markets for all.

One last point brought out in your article is worth commenting on. Certain individuals have suggested the Cal- ISO is attempting to hide behind the software development process to avoid addressing certain issues and delay or circumvent compliance with specific FERC directives. I can assure your readers that this simply is not the case. The Cal-ISO has and will continue to fully comply with all FERC orders. Our motive for including testimony describing the software process, as it applies to “production grade software” such as that employed at any ISO/RTO, was simply to educate the broader stakeholder community on the breadth, depth, and rigor involved in the software development process. With the increased importance of accounting and financial controls, as demanded by Sarbanes-Oxley, it is to everyone’s advantage that the ISO develop its software and business processes with the sufficient rigor and controls to ensure the appropriate and correct market outcomes upon which market participants can base their financial statements.

The Cal-ISO is working closely with its vendors and stakeholders