The Federal Energy Regulatory Commission has approved a California Independent System Operator proposal that will change when scarcity pricing kicks in, finding that Cal-ISO's revised tool will ensure shortage pricing is not triggered when there are no actual shortage conditions on the system.
The revised tool could boost energy prices in Arizona and Nevada. But some stakeholders said any use of the tool unfairly suppresses prices and hurts flexible resources. FERC urged Cal-ISO to follow through on its plan to make changes to reduce or eliminate its reliance on tool.
Cal-ISO in December proposed (ER19-538) to revise its so-called load conformance limiter tool. Balancing authorities sometimes need to change, or conform, their load forecasts before the market runs to account for forecast errors, variations in renewable output, and unpredictable events like outages or weather. The load conformance limiter prevents these changes from triggering scarcity prices.
LIMITER TOOL
The tool is needed because it is impossible for system operators to perfectly match their conformance to the available ramping capability, Cal-ISO said. But the grid operator found that sometimes the limiter was blocking scarcity pricing when it was needed. So Cal-ISO proposed to improve the accuracy of the limiter. As a result, scarcity prices would apply more frequently.
Cal-ISO's Department of Market Monitoring noted that the change could spur significant price increases in two areas of the Western Energy Imbalance Market.
If the change had been in place in 2018, average prices in the Arizona Public Service area would have increased almost $4/MWh, or 11%, in the 15-minute market, and $5/MWh, or 14%, in the five-minute market. In the NV Energy area, average prices would have increased about $2/MWh, or 6%, in the 15-minute market, and nearly $3/MWh, or 8%, in the five-minute market, the DMM said. Powerex had worried that Cal-ISO is relying too heavily on load adjustments, noting the ISO made upward load adjustments in excess of 800 MW on average during the evening peak in 2018. And NRG Power Marketing said Cal-ISO should disable the limiter immediately because the tool suppresses real-time market prices and hurts resources that could address the ISO's need for real-time flexibility.
FERC DECISION
FERC on Thursday approved Cal-ISO's changes to the limiter. "We find the proposed limiter will act to limit the application of shortage pricing during intervals where CAISO's market run indicates a shortage resulting from load conformance where actual supply is not needed," FERC said.
The commission disagreed with NRG's assertion that the limiter is not needed and found that "the limiter is a reasonable mechanism to utilize, given that operators cannot fine tune their conformances to the precise amount of adjustment needed interval to interval."
But FERC acknowledged concerns that Cal-ISO should reduce its reliance on load conformances and the limiter. FERC noted that Cal-ISO intends to disable the limiter in two years, after needed market design and process improvements. "[W]e expect that CAISO will follow through on its commitment to adopt improvements that will reduce operators' reliance on load conformances," FERC said.
