On October 29, 2018, FERC approved the California Independent System Operator Corp.’s (“CAISO”) tariff revisions related to its Energy Imbalance Market (“EIM”) bid adders, which reflect EIM participating resources’ costs to comply with the California Air Resources Board’s (“CARB”) greenhouse gas (“GHG”) regulations.  Specifically, FERC accepted CAISO’s proposal to limit the hourly megawatt quantity included in an EIM bid adder to the range between the EIM resource’s base schedule and its effective upper economic bid for that hour.

In 2012, CARB adopted cap and trade regulations that, among other things, regulated GHG emissions for energy generated in or imported into California to serve California load.  EIM resources that are dispatched to serve load in California now incur a compliance cost under CARB’s GHG regulations.  To address these compliance costs, CAISO created a voluntary bid adder that EIM resources submit separately from their energy bid to reflect these compliance costs in locational marginal prices, which permits participating entities to receive compensation for their compliance cost from CAISO.  When dispatching resources outside of CAISO, CAISO’s market optimization would consider only the energy bid, whereas the market optimization for resources dispatched to serve load in CAISO would consider both the energy bid plus the EIM bid adder.  However, CAISO stakeholders expressed concern that CAISO’s bid adder would not always accurately reflect the energy produced by EIM participating entities, because CAISO’s least cost dispatch attributes EIM transfers to lower-emitting participating resources based on their composite energy bid and bid adder.  CAISO explained that this results in other higher-emitting resources backfilling this attribution to serve load in other EIM participating balancing authority areas, known as secondary dispatch.

In response to these concerns, CAISO proposed to limit the hourly megawatt quantity included in an EIM bid adder that can be used in a market optimization to the bid range between the EIM resource’s base schedule and its effective upper economic bid for the relevant operating hour.  CAISO stated in its filing that “[t]his change will result in a more accurate attribution of energy produced by the EIM participating resource to support an EIM transfer serving demand in the combined area of the CAISO or another EIM Entity that operates a balancing authority area within California.”  In addition, CAISO stated that its proposed limit reflects that capacity associated with base schedules is effectively committed to serve EIM load and meet resource adequacy obligations, and that this commitment serves as a base from which the market can determine what incremental capacity is available to serve load in CAISO or the other EIM entities in California.

In approving the tariff revisions, FERC found them to be just and reasonable because the revisions would “accurately attribute EIM transfers to the actual generation being incrementally dispatched to serve California load and will reduce the attribution to CAISO load of EIM resources that would have generation even without CAISO load, as reflected in EIM base schedules.”  In response to comments on the proposal, FERC rejected attempts by commenters to require CAISO to report to FERC about the secondary dispatch that continues to occur and the continuing level of emissions that occur with such secondary dispatch.  However, FERC required CAISO to submit an informational report on or before January 1, 2020 regarding instances where base schedule forecasts are greater than real time energy needs.

FERC’s order approving CAISO’s tariff revisions can be found here.