The California Independent System Operator board on March 22 approved a first round of changes to the grid operator’s congestion revenue rights auction process.
Participants in CAISO’s markets use congestion revenue rights to hedge congestion costs, but in recent years the payouts under the program are exceeding how much the grid operator is selling the rights for.
CAISO first allocates congestion revenue rights to load serving entities based on their requests, and then auctions the remaining rights to all eligible participants (including generator owners, marketers, and financial traders). The ISO releases 75 percent of system transmission capacity in the annual allocation and auction process and 100 percent in the monthly process.
Since 2014, the congestion revenue rights sales through the auctions have averaged about $100 million less than the payments the entitlements received from the day-ahead market annually, CAISO staff explained in a memo to its board. In an efficient auction, auction revenue should more closely line up with the payouts, staff said.
CAISO’s board approved two initial changes at its March 22 meeting that can be put in place in time for the 2019 congestion revenue rights auction and allocation process. The grid operator is considering additional changes to address the revenue shortfall issue, Steve Berberich, CAISO president and chief executive officer, told the board.
In one change, CAISO will limit allowable “source and sink” pairs in the auction to combinations that align with hedging physical deliveries of energy, a move that is intended to eliminate source-sink pairs that are not aligned with physical energy deliveries and have been a major part of the auction revenue shortfall, staff said in the memo.
The proposal was opposed by generators, marketers and financial market participants because they say it will make it harder to manage congestion exposure and increase costs, according to CAISO staff.
The Northern California Power Agency, Six Cities and others supported the proposal as an initial measure as a first step to more comprehensive changes, saying it would reduce the revenue shortfall. The CAISO Department of Market Monitoring opposes the proposal because it would still allow auction participants to create portfolios of congestion revenue rights that mimic source and sink pairs that the ISO proposes to not allow. Instead the DMM supports rule changes proposed by Southern California Edison where the CAISO would first allocate all feasible congestion revenue rights to load serving entities based on their nominations, without reserving any rights for the auction process. Then, the CAISO would run a market that would only clear bids to buy and sell congestion revenue rights by willing counterparties.
Second, CAISO will create an additional annual transmission outage reporting deadline that lines up with the congestion revenue rights process. “This will better align the transmission topology in the annual allocation and auction model with the transmission topology used in the day-ahead market, improving the auction’s efficiency,” staff said.
The outage reporting measure was generally supported.
Transmission action
On the transmission side, the CAISO Board approved the 2017-18 transmission plan. In the plan, CAISO identified new projects needed to maintain reliability and economic projects that reduce ratepayer costs, and is canceling and scaling back previously approved power line projects because of falling load forecasts and growing rooftop solar.
The plan affects California’s transmission customers because approved projects are authorized for cost recovery through CAISO rates.
“Overall, the 2017-2018 transmission plan includes a modest increase in new reliability and economic needs, a major downsizing of previously approved projects addressing the ‘backlog’ that accumulated during periods of higher forecast rates of load growth, and an expanded reliance on hybrid solutions incorporating conventional transmission and preferred resources,” the annual transmission plan said.
The plan, for example, cancels 18 Pacific Gas & Electric projects and cuts back the scope of 21 other projects, moves that cut $2.6 billion in expected transmission spending. Also, seven PG&E projects were be put on hold pending more studies.
CAISO canceled two San Diego Gas & Electric projects, including one because of the lower demand forecast.
The plan includes four “economic” projects totaling $89 million that are expected to lower energy costs and local capacity needs.
“Changing economic and industry conditions are creating new opportunities for economic-driven transmission projects,” the plan said. “The evolution of the policy landscape and shifting economic and environmental considerations may lead to further opportunities.”
The plan green lights 13 projects totaling about $182 million that are needed to maintain grid reliability.
California doesn’t need new power lines to help the state to reach its target of getting 33 percent of its electricity from renewable resources by 2020, according to the plan.
The grid operator said it expects to begin studying transmission alternatives for reaching the 50 percent-by-2030 renewable portfolio standard through the California Public Utilities Commission’s integrated resource planning process.
