FERC last Thursday signed off on several key elements of a market design proposal previously filed by the California Independent System Operator (CAISO) at the federal agency.

CAISO for several years has been working on a redesign effort to correct fundamental design flaws in California’s energy market. The grid operator’s comprehensive market redesign proposal, which includes a security-constrained innovative forward market and locational pricing managed congestion, would address these problems.

FERC last week approved a draft order addressing seven elements of the CAISO’s market redesign proposal. The seven issues addressed are: the flexible offer obligation; the residual unit commitment process; the simplified hour-ahead market; ancillary services; marginal losses; constrained output generators; and virtual bidding.

“Leading up to this order, [FERC] staff, the CAISO and market participants participated in a number of technical conferences that assisted in the understanding and resolution of these issues,” a FERC staff member noted in a presentation. “However, going forward there are significant unresolved issues, chief among them is resource adequacy.”

The staff member noted that the California Public Utilities Commission (CPUC) has stated that it will issue a decision on resource adequacy this summer. FERC’s order is the first ruling on remaining market redesign issues, including market power mitigation, pending the CPUC’s decision at the end of the summer.

“Among the other unresolved issues are allocation of congestion revenue rights, issues involving existing transmission contracts” and seller’s choice contracts.

In order to facilitate the timely resolution of these issues, FERC established additional procedures. Specifically, the agency directed the submission of additional information on existing transmission contracts “and recognizes that there will be transitional issues associated with incorporating existing contracts, including seller’s choice contracts, into the design,” the FERC staffer noted.

The order directs FERC staff to convene a technical conference on congestion revenue rights and requires CAISO to make a tariff filing within 180 days of the decision.

“This order comes at the right time,” said FERC Chairman Patrick Wood. “I do thinks it’s timely and the cuts [made in the order] are good.” While he recognizes that “a few of the cuts here are not consistent with those we’ve made in some of the other ISO/RTO markets, they are certainly transitional calls such as the flexible must-offer obligation.”

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