Admitting the possibilities for market abuse in its currentsystem, California’s Independent System Operator (Cal-ISO) thisweek 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 toaddress the admitted shortcomings in its zonal pricing approach.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).

“Because this is such a fundamental part of the market, it isgoing to be a rather intensive stakeholder process (to determine anew, long-term congestion management plan),” said Cal ISO’s Smith,who added that the generators and marketers are key stakeholderparticipants but participation will be much broader (IOUs,end-users, generators, marketers, et al.).

Smith said the Cal-ISO FERC filing Feb. 7 asks for an interimapproach to address congestion with a filing for a permanent newapproach by Oct. 31 this year. Ideally, a new congestion approachby the Cal-ISO could be in effect by the start of next year, Smithsaid.

“If the outcome is that our zonal management is okay and all weneed to do is add a few more zones, then we could probably do thatpretty fast,” Smith noted. “But if one of the outcomes is that weneed to go to a nodal approach, that would have lots of impacts. Itwould be a much more complex solution.”

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.

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