On April 25, 2024, FERC approved the California Independent System Operator Corporation’s (“CAISO”) request to increase its capacity procurement mechanism (“CPM”) soft cap offer from $6.31/kW-month to $7.32, which will become effective in June 2024.

In its Order, FERC found that the proposed tariff revisions account for inflation, reflect labor rates, and higher bilateral capacity prices.  Additionally, FERC noted that reasonable price signals can incentivize resources to accept voluntary CPM designations to preserve reliability.

According to CAISO, the tariff revisions will better position the operator to maintain reliable grid operations in the summer.  CAISO’s tariff includes resource adequacy requirements to ensure that load serving entities procure capacity to meet their forecasted peak load plus a reserve margin, as established by local regulatory authority.  Additionally, CAISO provided that its proposed tariff grants authority to designate backstop capacity under its CPM and reliability must-run mechanism, which remedies unresolved resource adequacy deficiencies and meets specified reliability needs.

In its request, CAISO explained that under the proposed CPM tariff provisions, resource owners submit bids in a competitive solicitation process.  Based on the bids submitted, CAISO offers CPM designations to address one of the circumstances specified in the tariff.  CAISO’s tariff proposal provides two options for the compensation of CPM resources.  Under the first option, a resource can bid into the competitive solicitation process and receive compensation based on its capacity bid price up to the CPM soft offer cap.  The second option is for the CPM resource to offer capacity into the competitive solicitation process at a cost above the soft offer cap and to cost-justify that offer by making a FERC filing based on the resource’s going-forward fixed costs, using the same cost categories used to establish the CPM soft offer cap.  Further, CAISO stated that its tariff proposal requires it to conduct a stakeholder process at least every four years to evaluate whether to update the level of the CPM soft offer cap.

In its Order, FERC also accepted CAISO’s proposal to remove certain language defining “CPM Soft Offer Cap” in section 43A.4.1.1 of the tariff, stating that it is unnecessary since it is already a defined term in Appendix A. FERC’s order in docket ER24-1225 can be accessed here.