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CAISO Asks FERC to Help Eliminate Flaw in Intertie Transactions

A ghost from the 2000-2001 wholesale energy scams that permeated the West has revisited the California Independent System Operator (CAISO) as an offshoot of its implementation last October of part of its comprehensive market redesign. As a result, CAISO has incurred unnecessary higher costs for import and export of power between California and other control areas, and the appearance of so-called "wash" trading where fictional deals take place to boost trading volumes for marketers.

CAISO's board of governors Thursday considered options for proposed permanent fixes to the problem, none of which would likely be in place this summer. In the meantime, the state grid operator hopes the Federal Energy Regulatory Commission will respond quickly to its request for an interim fix. The fix would be retroactive to March 24 when the CAISO filed with FERC.

In implementing part of its long-sought market redesign, CAISO's spokesperson said the grid operator "inadvertently created a flaw in the structure" of the way it dispatches the intertie bids moving interstate power. "It is increasing cost beyond what we would consider acceptable," said CAISO's spokesperson Gregg Fishman.

Ironically, the problem results as an offshoot of CAISO wanting to encourage intertie bidding and at the same time avoid some of the possible gaming that plagued the system four years ago during the western wholesale energy market crises. The intertie bidders had to make pre-dispatch bids in order to bid hourly, which worked reasonably well until the difference between the pre-bid price and the market-clearing price began to widen.

Southern California Edison Co., among others, complained to CAISO's market surveillance committee about possible gaming, although Gary Ackerman, executive director of the Western Power Trading Forum, said gaming is not an issue. The forum's members, who include the major generators and power marketers in the West, want to see the problem fixed as quickly as possible.

"A flaw in the system -- and this is a flaw on our part -- allows the [highly complex computerized] system to clear more bids against each other than we actually need on the system," Fishman said. "From an operating standpoint, the [incremental and decremental] bids just offset one another so there is no energy actually being produced, but it still increases the amount of special charges we are paying to an unacceptable level."

Thus, CAISO has asked FERC for its temporary fix, and will soon also seek a permanent one. "We're going to eventually come to the FERC with some long-term ideas, and that is what our board is hearing today," Fishman said.

From the background documents provided to the CAISO board last week, the grid operator indicated the longer-term fix will require software changes in its "real-time market applications" (RTMA) that will take two to three months to implement. For the temporary fix, none of these software changes are required, a CAISO staff paper indicated.

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