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FERC OKs California Grid Changes Due to Gas Storage Limitations

FERC on Thursday approved a group of market changes by the California Independent System Operator (CAISO) to mitigate against risks of power outages this summer due to the closure of the state's largest underground natural gas storage facility in Southern California (see Daily GPIMay 19). As a result, generators in the area are expected to pay more for gas-fired generation this summer.

Most of the CAISO proposed tariff changes to avoid the risk of power outages took effect on Thursday, and the remaining two will be triggered July 6, under the plans the state grid operator submitted to the Federal Energy Regulatory Commission in early May. The changes are interim measures that expire Nov. 30 unless CAISO extends them.

Prompted by the closure of Southern California Gas Co.'s (SoCalGas) Aliso Canyon storage facility following a four-month leak, the CAISO reforms "should improve a generator's ability to recover fuel costs" caused by the storage field outage, FERC said.

FERC directed its staff to schedule a technical conference to assess the effectiveness of the CAISO stopgap measures, and to determine if longer-term changes will be warranted.

The assumption behind the changes is that the storage field closure will decrease gas availability this summer, increasing gas costs for generators. Thus, CAISO proposed raising the caps on commitment costs, generated bids and default energy bids, effective July 6, so generators can be assured of fully recovering their fuel costs. It will increase the gas price used to calculate the caps "by an amount necessary to ensure the real-time market [for power] appropriately recognizes the increased constraints on resources in the Southern California region."

Following the federal action, CAISO said late Thursday it was activating the first phase of its Aliso-Electric Coordination initiative in the production environment, giving the grid operator's stakeholders additional market mechanisms and other tools. Phase two functionality is to be deployed July 6.

Calling it part of "unprecedented actions" to fortify grid reliability, a CAISO spokesperson subsequently told NGI the grid operator's measures are a set of temporary steps "to align electric/gas system operations," and as the summer unfolds it intends to "closely monitor" the situation in the Los Angeles Basin. "We also are asking consumers to conserve to keep electricity flowing," the spokesman said. 

CAISO's aim is to (1) improve the dispatch of power resources, (2) better account for systematic differences between day-ahead and same-day gas prices, and (3) better manage generators' gas use within applicable gas balancing rules.

Since the 86 Bcf capacity, 3,600-acre Aliso Canyon facility's closure, the heavily populated Southern California region has faced potential gas curtailments leading to perhaps as many as 14 days of rolling power outages this summer, according to recent assessments (see Daily GPIApril 5).

Those assessments assumed normal summer peak load weather conditions and natural gas/power infrastructure operating conditions, along with an assumption that Aliso Canyon would remain closed as all of its 114 storage wells are thoroughly tested (see Daily GPI, March 29).

Potential regulatory, cost and energy system operational effects on both the gas and power sides are expected, but state officials have no estimates at this time of what those added costs, regulatory and operational changes might be. In addition to CAISO's market changes, state plans have outlined up to 18 other measures to be taken this summer, including calls for voluntary customer energy saving actions, to reduce the possibility of curtailments at a time when 60% of the gas used typically is for peaking generation plants.

FERC said its "conditional acceptance" of the CAISO temporary market changes is based "on the unique set of circumstances CAISO will face this summer. "It is only under this set of unique and widely acknowledged reliability-related circumstances [in addition to the Nov. 30 sunset] that we find the proposal just and reasonable," FERC said.

"We recognize that questions remain regarding Aliso Canyon's return to full capability and that longer-term solutions to some of these fuel-related issues may be necessary."

SoCalGas has projected that the storage field will be reopened by late this summer (see Daily GPIApril 8).

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