Despite Customer Opposition, FERC Accepts CAISO’s Proposed Energy

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Despite Customer Opposition, FERC Accepts CAISO’s Proposed Energy Imbalance Market for the Western Interconnection and PacifiCorp’s Proposal To Be the EIM’s First Participant

by: Energy and Public Utilities Group of ArentFox Schiff LLP - Energy and Environmental Law Adviser

Wednesday, June 25, 2014

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On June 18, 2014, FERC issued an order [http://ferc.gov/whats-new/comm-meet/2014/061914/E-4.pdf] conditionally accepting California Independent System Operator Corporation’s (CAISO) proposal to implement an Energy Imbalance Market (EIM). The EIM tariff would allow neighboring balancing authorities to participate in CAISO’s real-time market to buy and sell five-minute real-time energy to meet energy imbalance needs. Participation in the EIM is voluntary, and there is no exit fee for leaving the EIM. Unlike other regional transmission organizations that administer similar real time markets, CAISO will not assume operational control over the transmission facilities in the balancing authorities participating in the EIM, except to the extent a transmission owner may have separately placed them under CAISO’s control. In a related order [http://ferc.gov/whats-new/comm-meet/2014/061914/E-5.pdf], FERC conditionally accepted in part revisions to PacifiCorp’s open-access transmission tariff to reflect the utility’s participation in the EIM as its first participant. CAISO and PacifiCorp conducted a study projecting annual consumer benefits of up to $129 million from economic efficiencies, improved renewable integration and increased reliability.

Although widely supported by entities in and outside of California, FERC raised a few concerns that CAISO and PacifiCorp will need to address in future filings. Among these concerns were the following:

First, FERC rejected CAISO’s proposal to have its Board of Governors exercise discretion as to whether to implement market power mitigation at the interties between CAISO and participating balancing authorities. FERC indicated that it should review and approve any such mitigation and directed CAISO to file an informational filing with respect to any structural market power PacifiCorp may exercise due to intertie transmission limits.
Second, FERC raised questions about the extent to which the EIM might subject resources outside of California to California’s greenhouse gas regulations. Although CAISO had proposed to allow EIM resources to send a price signal through cost based bid adder to avoid being dispatched into California and becoming subject to California greenhouse gas regulations, FERC recognized concerns that the bid adder would not be effective as prices reached the $1000/ MWh bid cap and ordered CAISO to develop a bid flag that would enable a resource to preclude CAISO from dispatching the resource to serve CAISO load and subjecting the resource to California greenhouse gas regulations.
Third, FERC ordered CAISO to make a compliance filing to make clear that CAISO is taking title to energy as the centralized counterparty for the EIM consistent with FERC’s policies related to ISO and RTO credit reforms under FERC’s Order No. 741.
Fourth, in response to concerns that many of the key rates, terms and conditions of PacifiCorp’s participation in the EIM were included in business practice manuals and/or included by reference to CAISO’s tariff, FERC ordered PacifiCorp to refile its tariff to move key provisions that were previously in its business practice manuals and to post CAISO’s tariff and any changes to the tariff so that PacifiCorp’s customers can more easily track those changes.
Fifth, FERC rejected PacifiCorp’s proposal to retain the unilateral authority to withdraw from the EIM if it detects a market design flaw within the first year of operations and suggested that PacifiCorp should address any market design flaws it may discover to CAISO and its department of market monitoring to correct such flaws.
Finally, FERC rejected PacifiCorp’s proposal to require its participating EIM resources to obtain additional transmission service in excess of their capacity reservations. FERC found that such additional transmission charges could be inconsistent with CAISO’s transmission rates and could lead to a double charge to customers.

Although FERC directed these few changes, FERC largely disregarded many other issues raised by customers in protests of the two proposals. These issues included:

Whether the CAISO and PacifiCorp proposals to tag only net dynamic intertie transactions might lead to discrimination in charges for and curtailments of transmission service;
Whether the EIM provisions are properly coordinated with other portions of the CAISO and PacifiCorp OATTs;
Whether it was appropriate for CAISO and PacifiCorp to waive all transmission charges for transactions that cross between balancing authority areas;
Whether EIM transactions that cross between balancing authority areas are allocated an appropriate share of CAISO uplift costs;
Whether CAISO’s administrative fee appropriately allocates CAISO’s costs for administering its real-time energy market to EIM transactions;
Whether CAISO and PacifiCorp have taken appropriate steps to avoid adverse impacts on customers that chose not to participate in the EIM.

In summarily ruling on these and many other issues raised in protests, FERC declined to order a hearing or take any other actions that would impede CAISO or PacifiCorp from implementing the EIM by their proposed start date of October 1, 2014. Instead, FERC accepted many of the factual positions asserted by CAISO and PacifiCorp on the promise that the two utilities will study the performance of the EIM and report back on their findings to FERC and to stakeholders after the first year of EIM operations. It remains to be seen whether any of the protesting parties will continue to press their concerns in rehearing requests, which would be due July 21, 2014.