On October 21, 2016, FERC terminated the West-wide must-offer requirement imposed on public and non-public utility sellers in the Western Electricity Coordinating Council (“WECC”) during the California Energy Crisis of 2001. FERC also terminated the associated requirement that all sellers in WECC must post daily the amount of capacity that they have for sale. In terminating the requirements, FERC found that “[i]n light of the passage of time and significant improvements to California’s wholesale electricity markets over that time,” the requirements produce “little or no benefits today.” The termination of the requirements is effective February 24, 2016.
During the California Energy Crisis of 2001, FERC established a prospective mitigation and monitoring plan for California wholesale electricity markets to address the serious market dysfunction that the Crisis had created. A central component of the plan was the implementation of a “must-offer” requirement, which mandated that most resources serving California markets must offer all of their capacity in real-time, during all hours, if they were available and were not already scheduled to run through bilateral agreements. FERC later extended the must-offer requirement to all public and non-public utilities in WECC, and required that all sellers post daily the amount of capacity that they have for sale. While the must-offer and posting requirements were originally scheduled to expire on September 30, 2002, FERC extended them for an unidentified period of time until “long-term market-based solutions can be fully implemented.”
On February 18, 2016, FERC instituted an investigation under section 206 of the Federal Power Act to determine whether, due to changes in circumstances, the West-wide must-offer requirement is no longer necessary and has, by extension, become unjust and unreasonable (see February 23, 2016 edition of the WER).
In its October 21, 2016 order, FERC found that the must-offer and posting requirements were no longer just and reasonable, and terminated them effective February 24, 2016. FERC stated that, when it extended the West-wide must-offer requirement, it stipulated that it would “consider removing the must-offer requirement in the future after we determine that adequate infrastructure and market design improvements have been made.” FERC noted that in the intervening years after the California Energy Crisis, the California Independent System Operator Corporation’s (“CAISO”) markets had undergone significant improvements including: (i) locational marginal price-based day-ahead and real-time energy and ancillary services markets; (ii) a day-ahead residual unit commitment process; and (iii) local market power mitigation measures. FERC also observed that while the primary objective in implementing the must-offer and posting requirements was to eliminate California’s excessive reliance on the spot markets to meet its load, California had largely done so through, in part, the adoption of a robust renewable portfolio standard and a resource adequacy program.
Lastly, FERC denied requests to relieve parties of the available capacity posting requirement retroactively, noting that the February 18, 2016 order established a refund effective date of February 24, 2016, and “[a]ccordingly, the requirement to post available capacity will be terminated as of that date.”
A copy of FERC’s October 21, 2016 order can be found here.