On October 29, 2012, the California Independent System Operator Corporation (“CAISO”) filed tariff changes at FERC to permit generators to include greenhouse gas compliance costs in certain bid cost calculations.  The CAISO currently calculates generating units’ start-up and minimum load costs in order to create default energy bids used for market power mitigation, calculate bid caps for minimum load and start-up costs, and create bids in the event the unit does not submit a required bid.  If FERC accepts the tariff amendment, generators will be able to include these environmental costs in their cost profiles that will form the basis of their bids in these situations.

Pursuant to California’s cap and trade program, each resource subject to the state’s greenhouse gas regulations will incur per-megawatt-hour costs in accordance with its greenhouse gas allowance needed for energy output.  The cap and trade program sets an overall limit on greenhouse gas emissions from several sectors, including electricity generating facilities. Ultimately, the program hopes to achieve an 80% reduction from 1990 emission levels by 2050.

Under the CAISO’s proposed tariff changes, the costs of complying with California’s greenhouse gas regulations may be included as a component of each generator’s start-up and minimum load costs (the costs of running generators at minimum levels), and thus may impact their default energy bids and generated bids for generators.  These proposed tariff changes were the subject of stakeholder discussion beginning in February 2012, and the subject of a Department of Market Monitoring white paper.

CAISO requested an effective date for their tariff changes of January 1, 2013, to coincide with the plans of the California Air Resources Board to implement the cap and trade program.

A copy of CAISO’s filing is available here.