Admitting the possibilities for market abuse in its currentsystem, California’s Independent System Operator (Cal-ISO) lastweek responded to federal regulators’ criticism of its congestionmanagement approach. The ISO suggested interim changes for the restof this year while it works out a broadly based congestion plan.Both the Federal Energy Regulatory Commission and Cal-ISO agreedthere is “a serious flaw in the existing intra-zonal managementscheme” for the California grid operations.

“This…calls out for the design of a comprehensive replacementcongestion management approach,” FERC said in a Jan. 7 order.”Moreover, the redesign should be pursued with input from allstakeholder groups, as well as from the (Cal-ISO) MarketSurveillance Committee.”

Under the current congestion management scheme, the Cal-ISO’slead regulatory attorney said savvy generators can theoreticallygame the system by creating congestion and then offering extremeabove-market-priced power to relieve the situation they helpedcreate. He did not speculate on how much abuse already hasoccurred.

“The game FERC articulated (in its recent decision on Cal-ISOrates) is where a generator can over-schedule on a path and wewould accept the schedule without looking to see if it werefeasible,” said Roger Smith, Cal-ISO’s senior regulatory counsel.”Then, that same generator could turn around and submit $750/MWhbids to relieve the congestion that it had created by its ownschedule.”

In response, the Cal-ISO will gather input from all majorstakeholders impacted by the state transmission system’s naggingcongestion problems that increase the chances for market powerabuses and can cause added costs and threats to reliability,according to both federal and state officials.

The Cal-ISO has acknowledged and FERC has warned the state gridoperator that its current congestion management system isinsufficient. Eventually, how the Cal-ISO deals with congestion,including modifying its current zonal approach to pricing, couldhave widespread impact on all stakeholders, including its sisternonprofit public benefits organization, the California PowerExchange (Cal-PX).

In its recent FERC filing, the Cal-ISO asks for FERC action onan expedited basis “to ensure that California consumers do notincur excessive and inappropriate costs during the interim period.”In fact, Cal-ISO said during an unseasonal heat wave last Octoberjust one outage event caused additional intra-zonal congestioncosts of about $5.7 million for the state’s electricity consumers.

As the California filing outlines, whatever is done in theinterim period to deal with continuing zonal congestion in theCalifornia grid, consumers will have to pay extra. The Cal-ISOcontends it can keep those costs to a minimum if FERC okays itcalling on out-of-market generation. Longer term, California mustdecide if it will add more price zones and move to a so-callednodal approach as used by PJM, the Pennsylvania-New Jersey-Marylandregional transmission grid, or ISO.

The California Power Exchange (CalPX) contends nodals won’t workin California and adding more zones would raise the price ofelectricity for some geographic areas, but overall it is a muchmore manageable approach because the state can still conductstatewide buying and selling of electricity; with nodals, tradingis restricted within each area or node.

For the longer term, the Cal-ISO plans a redesigned approach tocongestion management that will satisfy FERC, all the stakeholdersand keep added costs down for California consumers. In the interim,however, Cal-ISO wants authority in unusual situations to paygenerators noncompetitive prices to relieve congestion and keepadded costs to a minimum, Smith said. If the Cal-ISO adopted whatit understands as FERC’s preferred option, the increases toCalifornia consumers would be “tremendous amounts,” he said.

Richard Nemec, Los Angeles

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