On October 29, 2013, FERC approved revisions to the California Independent System Operator Corporation’s (“CAISO”) tariff to modify its generator bid cost recovery rules.  The revisions will allow for the inclusion of additional categories of costs in the bid cost recovery and related calculations.

Specifically, CAISO’s revisions permit generators to include market services charge and system operations charge when calculating proxy start-up and minimum load costs, generated bids, and default energy bids.  CAISO also proposed to include an adder for major maintenance expenses a generator incurs when calculating proxy start-up and minimum load costs.  CAISO also proposed to reduce the cost cap under the registered cost option from 200 percent of a resource’s projected proxy cost to 150 percent.

FERC accepted CAISO’s revisions as just and reasonable.  FERC found that the inclusion of the market services charge and system operations charge and the major maintenance adder will improve resources’ ability to recover start-up and minimum load costs.  Furthermore, because CAISO included more costs in the proxy calculations, FERC found that the reduction of the cost cap to 150 percent will safeguard against resources receiving inflated bid recovery uplift payments.  Thus, FERC concluded the proposal stuck a balance between preventing the exercise of market power and enabling recovery of costs. 

FERC rejected stakeholder arguments that the 150 percent cap is too low because certain costs are still excluded from the calculation.  FERC explained that the maintenance adder should increase a unit’s overall projected proxy cost, which increases the amount recovered under the 150 percent cap.  FERC ordered CAISO to file a report one year after the issuance of the order to evaluate the effect of the 150 percent cap on cost recovery.

A copy of the order is available here.