On February 18, 2016, on its own motion, FERC instituted an investigation under section 206 of the Federal Power Act to determine whether the must-offer obligation imposed in the Western Electricity Coordinating Council (“WECC”) footprint during the 2000-2001 California energy crisis is still necessary due to changes in circumstances. Based on its preliminary review, FERC does not believe the must-offer obligation is still just and reasonable and, thus, proposes to terminate the obligation. 

In its order instituting the investigation, FERC explained that when it originally adopted the WECC-wide must-offer obligation in 2001, FERC concluded that there was a critical interdependence among prices in the California Independent System Operator Corporation’s (“CAISO”) spot markets and bilateral prices in California and WECC. In order to address this issue, FERC determined at the time that the appropriate remedy was to eliminate California’s excessive reliance on the spot markets to meet its load.

FERC goes on to explain that the passage of time and significant changes in California’s wholesale markets has altered the landscape in the west. As a result, FERC suggests that the must-offer obligation appears to have “outlived its usefulness.” FERC notes that the CAISO market is fundamentally different today, largely because of CAISO’s Market Redesign and Technology Upgrade (“MRTU”) proposal, which went live in 2009. FERC explains that the MRTU proposal created locational marginal price-based day-ahead and real-time energy and ancillary services markets, a day-ahead residual commitment process, and local market power mitigation measures within the CAISO market. Furthermore, FERC also notes that CAISO has reduced its reliance on spot markets through an aggressive renewable portfolio standard and a resource adequacy program overseen by the California Public Utility Commission. As a result, FERC proposes to eliminate the must-offer requirement and the related requirement to post available capacity on the WSPP or utilities’ own websites.

FERC’s order also establishes a refund effective date of the earliest date allowed—that is, the date on which notice of FERC’s 206 investigation is published in the Federal Register. Finally, FERC is also seeking comments regarding the proposed termination of the must-offer obligation. Comments are due within 30 days of FERC’s order, on March 21, 2016.

A copy of FERC’s order can be found here.