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CAISO Tells FERC It Wants to Retain Hard Cap on Adjustment Bids

January 30, 2006
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Seeking to flesh out a key element of an order issued by FERC earlier this month, the California Independent System Operator (CAISO) last week asked the federal agency to clarify that the order was not intended to require CAISO to change the existing Commission-approved "hard" cap on adjustment bids to a "soft" cap.

At issue is an order issued by the Federal Energy Regulatory Commission (FERC) on Jan. 13. In that decision, FERC, among other things, said it would allow CAISO to raise its current $250/MWh bid cap for real-time energy bids and adjustment bids to a $400/MWh bid cap. FERC rejected a proposal by the California grid operator to change the soft nature of the cap to a hard cap during an interim period prior to implementation of a Market Redesign and Technology Upgrade (MRTU) and a resource adequacy mechanism.

Last week, the grid operator said a transmittal letter attached to its Dec. 21 tariff amendment (No. 73) filing mistakenly referred to a current soft cap on real-time energy bids and adjustment bids. In reality, the existing cap on adjustment bids is a hard cap, not a soft one, CAISO noted in its Jan. 24 filing.

CAISO noted that taken as a whole, Commission statements in its Jan. 13 order direct the CAISO to raise the cap applicable to energy bids and adjustment bids to $400/MWh. "Although the relevant paragraphs of the amendment No. 73 order focus on retaining the existing 'soft' cap on energy bids, the CAISO is submitting this filing to address concerns that the order could be construed to make the cap on both energy bids and adjustment bids a soft cap rather than a hard cap."

CAISO said FERC should clarify that it intended for the grid operator to retain the existing hard cap on adjustment bids rather than change the cap to a soft cap. "Since inception the CAISO has applied a hard cap on adjustment bids," the independent system operator pointed out.

"Even when the CAISO implemented a soft cap for energy bids during the energy crisis, the cap on adjustment bids remained a hard cap. This fact is well understood by market participants. The CAISO's systems reject all adjustment bids that market participants submit that are over the cap -- the hallmark of a hard cap rather than a soft one. The Commission has accepted this practice in prior orders." CAISO said that in amendment No. 73, it did not propose to change the existing hard cap on adjustment bids to a soft cap.

CAISO said any ambiguity in the Jan. 13 order arises solely from the two instances where the order repeats a misstatement from the Amendment No. 73 filing's transmittal letter that the then-current caps were a soft bid cap of $250/MWh for real-time energy bids and adjustment bids.

"The Commission should confirm that its reiteration of this misstatement in the Amendment No. 73 order was not intended to direct a substantive change in the nature of the CAISO's adjustment bid cap from the long-standing hard cap to a soft cap."

CAISO said that if FERC does not grant the requested clarification, then the Commission should grant rehearing of this month's order and find that the CAISO should apply a hard cap rather than a soft cap to adjustment bids.

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