On June 21, 2018, FERC approved tariff provisions proposed by the California Independent System Operator (“CAISO”). Specifically, the Commission’s order approved, subject to compliance filing, CAISO’s proposals to revise the definition of which resources qualify as use-limited and to allow those resources to include opportunity cost adders in their bids, while rejecting CAISO’s proposed revisions relating to the Master File, an electronic database of generator-provided data on resources participating in CAISO markets, as well as its proposal to remove ramp rates as components of daily bids.
CAISO dispatches resources in its market based on a resource’s energy bid and start-up cost (also described as the commitment cost). Under the prior tariff, resources that have limitations on start-up or run hours, or on overall energy output, had no mechanism to reflect opportunity costs associated with these limitations. Such use-limited resources were given the option to bid their commitment costs through a proxy cost or a registered cost methodology, each of which had its own limitations. The proxy cost allowed for daily bids that could reflect the variability of fuel costs, such as daily natural gas prices, but CAISO’s market optimization tool would only recognize daily use limitations. The registered cost methodology allowed for the recognition of monthly and annual use limitations but did not provide a method to reflect fuel price volatility. Historically, use-limited resources could manage their limitations by bidding the resources into the CAISO market for only a subset of hours based on predictions of when CAISO would need resources to meet peak load. With the increase of variable energy resources joining CAISO grid, this method of management became problematic because the CAISO system’s needs have become increasingly unpredictable, and CAISO may have a need for use-limited resources at any time.
To provide greater flexibility for use-limited resources, on March 23, 2018, CAISO filed proposed tariff revisions under section 205 of the Federal Power Act providing use-limited resources that have established a sufficient energy price history, the ability to include an opportunity cost adder in their market bids for start-up and minimum load costs. CAISO stated that this will enable all use-limited resources with a sufficient energy price history to bid 24 hours a day, seven days a week using the proxy cost methodology. Further, whereas previously under CAISO’s tariff, some resources were classified as use-limited resources by default, CAISO proposed to require documentation demonstrating that a resource qualifies as use-limited, such designation being restricted to limitations that the CAISO market process is unable to separately recognize. CAISO also proposed changes to the Master File by replacing “physical characteristics” with “design capability values,” and to allow for the registration of “market values” for certain parameters, explaining that including values other than design capability in the Master File may be useful for market optimization. CAISO also proposed revisions to its tariff to remove all ramp rates as components of daily bids, claiming that enhanced modeling capabilities of resources in the CAISO markets have reduced the need for daily bid-in ramp rates.
FERC approved, subject to certain conditions, CAISO’s proposed methodology to allow use-limited resources to include opportunity cost adders in their bids and the proposed revision to the definition of use-limited resources. The Commission found that the proposal offers an improvement over the existing commitment cost-recovery mechanism because the market optimization tool will be able to dispatch use-limited resources when they are most needed. FERC rejected CAISO’s proposal regarding resource characteristics registered in the Master File, finding that the use of these parameters may permit market participants to withhold capacity in order to benefit their affiliated resources. It also rejected CAISO’s proposal to remove all ramp rates as components of daily bids because that proposal was not severable from the Master File proposal.
A copy of the order is available here.