While politicians were generally endorsing the Federal Energy Regulatory Commission’s westwide market mitigation order, posted late Tuesday evening and effective at midnight that night, those in the trenches spent Wednesday parsing the 60-page order (EL00-95-031), figuring out implementation and strategies.

A California ISO spokesperson said he was under the impression the order did not become effective until midnight Wednesday, and his agency had not determined whether it would be posting a daily market clearing price or whether that would be considered market-sensitive information.

The order extends the Commission’s previous market mitigation plan, which applied only to California during emergency periods (see Daily GPI, April 26), to all of the states in the Western Systems Coordinating Council (WSCC), full time through Sept. 30, 2002 (see Daily GPI, June 19). It was voted out by the Commission at a special meeting June 18.

The FERC order creates two market clearing price formulas, one to be used during emergency, low-reserve periods, and an offshoot for all other times. Under the expanded mitigation plan sellers into the Cal-ISO day-of and day-prior auctions during reserve deficiency (less than 7%) emergencies (Stages 1, 2 & 3) will bid their generating capacity into the market based on a proxy gas price times the unit’s heat rate, with a $6/MWh adder for operating and maintenance expenses. The market clearing price — which will be paid to all participants in the auction — will be the bid of the highest cost generator called on to supply power. For bilateral spot contracts in California and in the rest of the WSCC, the market clearing price will serve as a ceiling, and they will be paid their negotiated price up to that ceiling. The ISO must also add 10% to the market clearing price paid to all generators for all sales in its markets to reflect the credit uncertainty of sales to California entities.

The Commission increased the O&M adder from $2/MWh in its April mitigation plan to $6/MWh, “based on a 17-year average of actual non-fuel O&M expenses for oil and gas-fired steam plants,” noting “the California market primarily consists of older oil and gas-fired steam plants.”

The proxy gas price to be used in the formula will be the bidweek midpoint for that month at three points, Southern California Border-SoCal Gas, PG&E Citygate and Malin as published by Gas Daily. The Commission said it had made the change to using the three points and the bidweek number, as opposed to daily quotes used in the previous formula, at the request of the Cal-ISO. The choice of a bidweek index came as a surprise to some in the market, who pointed out that although Gas Daily is more often used for daily indexing in the aftermarket, “it’s just automatic” that when traders talk about indexing California deals during bidweek, they always mean NGI’s Bidweek quotes.

The latest FERC order removed fuel start-up and emissions costs from the April formula. Those costs will be levied across the ISO load and paid directly to generators by the ISO.

For non-reserve deficiency periods the market clearing price will be set at 85% of the highest hourly market clearing price set during last preceding Stage 1 (not Stage 2 or 3) alert.

Generators can apply to FERC for higher payments if they can justify higher actual gas costs. In this case they must be able “to document and support their gas purchasing portfolio and allocation among all generating units at the relevant time.” Marketers must be “price takers” and cannot apply for prices higher than the clearing price.

All public and non-public utilities which own or control generation in California will continue to be required to offer available capacity in the ISO’s spot markets. “This applies to any non-hydroelectric resource whether owned or under contract to the extent is output is not scheduled (or committed for minimum operating reserves) for delivery in the hour.” Non-hydro generators in the remainder of the WSCC must offer available capacity to the “spot market of their choosing.”

The order clarifies that generators will be exempt from the must-offer requirements if running the unit violates a certificate, would result in criminal violations or penalties, or would result in QF units violating their contracts or losing their QF status. Further, QF facilities must offer capacity that is not already contractually committed or would not violate its contractual obligation to its thermal host.

To monitor compliance through the WSCC outside California FERC directed all public utilities that are control area operators to have their wholesale merchant function calculate on a daily basis the amount of capacity that will be available after load and operating reserve forecasts have been calculated. They should post the information on their company web sites and on the Western System Power Pool web site. Every marketer and independent power producer should also post available capacity on a daily basis on its own web site and on the WSPP site.

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