Letters to the Editor

Fortnightly Magazine - December 2006

To the Editor:

Your recent commentary, “ Kicked Off and On Schedule (June 2006) reasonably captures many of the implementation issues and stakeholder concerns surrounding the California Independent System Operator (Cal-ISO) Market Redesign and Technology Upgrade (MRTU) program. However, I was somewhat disappointed that the article offered few details about the benefits MRTU will provide and instead focused primarily on remaining implementation issues and other issues that are to some extent unrelated to the MRTU, such as capacity markets. While the article does reluctantly mention the broad support that continues to be expressed publicly by California’s three investor-owned utilities, numerous other load-serving entities, nearly all the independent generators, and state policy-makers at the California Energy Commission (CEC) and the California Public Utilities Commission (CPUC), it glosses over, and in some cases ignores, the many benefits MRTU will bring to California and the Western electricity markets.

The redesign of the California energy market has a long history, punctuated by the energy crisis of 2000-2001. Prior to that time, the Cal-ISO recognized the need and actually began an effort with its participants to redesign the original model introduced in 1998, which featured a bifurcated Power Exchange/ISO structure and a highly imprecise zonal congestion management approach. That design process was interrupted and profoundly influenced by the crisis in 2000-2001, particularly with the sudden demise of the California Power Exchange.

Fallout from the crisis resulted in the ISO scrambling to shore up its market design due to the loss of the day-ahead market, while state regulators wrestled to stabilize the state’s resource needs, initially through long-term power contracts and more recently through the development of a resource adequacy program. As the dust settled, these two efforts—ISO market reform and resource adequacy—have more or less developed in parallel, with the Cal-ISO, the CEC, and the CPUC working closely to ensure coordination.

The ISO recognizes the importance of long-term investment in both generation and transmission and as such is working closely with all of our stakeholders to address both regional transmission planning and capacity procurement processes. It is important to note that these efforts are being conducted in parallel with MRTU and have not been “left out,” as suggested in the article.

Release 1 of MRTU, which will start up in November 2007, will incrementally build on several improvements already made to the ISO market structure in the past few years, and will add entirely new and broadly desired elements, the most important of which is a day-ahead energy market to fill the void left by the demise of the Power Exchange. Though it is true that the price signals generated by MRTU will provide guidance for long-term investment; it is most important to recognize the role these price signals play in improving real-time operation through their ability to align market participants’ financial interests with the ISO’s physical operation. With MRTU we are striving for a system in which the right amount of generation is committed and dispatched in the right locations to reduce (but not necessarily eliminate) congestion on the transmission system, and more importantly, minimize