Turning aside objections made by generators, FERC last Thursday agreed to a request made by the California Independent System Operator (CAISO) that will allow the grid operator to extend its existing market design, including a hard price cap of $91.87/MWh, through the end of October as CAISO continues to work out kinks in mitigation-related software.

CAISO, in a Sept. 20 filing, told the Commission that it needs more time to test its so-called Automated Mitigation Procedures (AMP), a three-phase automated test for bids into its real-time ancillary services market. The grid operator, which received FERC’s approval for the AMP program as part of its July 17 decision on the CAISO’s market redesign, asked the Commission for a limited extension of the current bid cap of $91.87/MWh through Oct. 30 or five days after the FERC is “satisfied that the AMP has been successfully tested.”

FERC, in the July 17 order, voted to continue the must-offer requirement and Westwide power price cap for generators starting Oct. 1 at the $250/MWh level, with some price mitigation between the current cap and the $250 level.

CAISO’s request for an extension of its existing cap came under heavy fire this week from Duke Energy North America and Mirant. For its part, Mirant expressed concerns about how such a proposal would impact the Western Electricity Coordinating Council (WECC). The generator said that the proposed extension of the cap “would effectively hold the rest of the WECC hostage while the ISO works the bugs out of its AMP software.”

Mirant said that the majority of the WECC is “fast approaching” its winter peaking season. “The ISO proposal to extend the existing short-term mitigation measures could hamper the rest of the WECC in its efforts to import power to meet its needs, particularly when the Commission notes that even [a] $250/MWh bid cap is insufficient to attract long-term investment.”

Duke Energy said that CAISO’s motion “fails to respond to the Commission’s express findings that retention of a low price cap will adversely impact the California markets and that sellers are unlikely to change their bidding behavior with the adoption of a $250/MWh damage control bid cap.”

In addition, the generator argued that CAISO’s filing is “bereft of any analysis or evidence” to support the grid operator’s contention that its AMP must be in place before the $250/MWh bid cap is implemented. “Indeed, nowhere in the Commission’s July 17 order did it make AMP a necessary precondition for implementation of the $250/MWh bid cap.”

FERC wasn’t swayed by these arguments. “In light of the software complications detailed in the CAISO’s filing and the need for the mitigation measures described in the July 17 to work in concert, we find that good cause exists to extend the existing California market design, including the hard cap of $91.87, until Oct. 30, 2002,” the Commission said in its order.

FERC pointed out that in its July 17 order, the Commission stated that its intention for the automated mitigation procedures is to have it “complement” the bid cap of $250/MWh. In that same order, the agency also said that its decision to establish a $250/MWh bid cap, together with other mitigation measures, “is a careful balance of the need to provide incentive for market entry by new generation investment with the need to protect markets from the potential for market power abuse.” Moreover, the July order said that the combination of AMP with a $250/MWh bid cap gives the CAISO a comprehensive mitigation plan to guard against economic withholding.

“Given the CAISO’s description of its problems in testing and effectively implementing the automatic mitigation procedures at this time and the effect of these problems on the complete mitigation package, we find that an extension of the existing California market design until Oct. 30, 2002, is warranted,” the order said.

FERC said that based on the grid operator’s description of its software problems, the Oct. 30 date “provides adequate time for the CAISO to complete its testing.”

At the same time, the Commission denied as “speculative and premature,” the CAISO’s request for an additional two-week extension of the existing California market design if FERC orders modifications to the grid operator’s “as-filed AMP.”

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