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FERC makes CAISO gas constraint tool permanent as Aliso Canyon limits persist

The California ISO received the go-ahead to make its maximum gas burn constraint a permanent operational tool to help avoid electricity blackouts in Southern California amid continued limited operations at the Aliso Canyon natural gas storage facility.

When conditions warrant, the constraint allows CAISO to limit the amount of natural gas that can be burned by power plants in the Southern California Gas Co. and San Diego Gas & Electric Co. regions.

CAISO was previously authorized to use the tool on a temporary basis. The Federal Energy Regulatory Commission on Dec. 30, 2019, approved (FERC docket ER20-273) the grid operator's Oct. 31, 2019, proposal to make permanent three tariff provisions associated with the constraint.

One of the tariff provisions authorizes enforcement of the constraint, while another gives CAISO the authority to override competitive path assessments based on actual system conditions in order to deem certain transmission constraints uncompetitive when the gas constraint is enforced. The last provision permits CAISO to suspend virtual bidding if the bids are introducing adverse market outcomes in conjunction with the use of the gas constraint.

When CAISO applied for the permanent extension, it asserted that using the maximum gas constraint provides itself and market participants "with a least-cost market solution for dispatch of resources when the gas system is constrained, and it provides a more effective tool for managing the system reliably than exceptional dispatch."

FERC agreed, finding that permanent implementation of the tariff provisions at issue would "help ensure that [CAISO] continues to have the tools necessary to address risk associated with the potential impacts of the continued limited operability of Aliso Canyon on the reliability of [CAISO's] system."

Customer cost concerns

PG&E Corp. filed comments expressing concern with the financial impact on customers from real-time imbalance offset costs generated when the gas constraints are enforced.

But FERC sided with CAISO's argument that those uplift costs correlated to high gas costs in Southern California, not use of the constraint. Because the allocation of those costs was not up for review, FERC found PG&E's comments to be beyond the scope of this proceeding. "Moreover, ... the use of exceptional dispatch, which is the alternative to using the constraint, also generates uplift costs that may extend beyond Southern California," FERC said.

Use of the gas constraint has decreased since it was first employed in 2016, with CAISO enforcing the tool just three times in 2019. While CAISO contends "there was no obvious impact of the gas constraint on real-time energy or real-time congestion offset costs," it committed to filing annual reports to FERC explaining any market impacts of using the constraint in order to provide transparency.

FERC ordered CAISO's first annual informational filing due June 30, with subsequent reports filed to the commission until the grid operator makes such analysis available on its website.

FERC's order noted that gas supply shortages caused by limited withdrawals from Aliso Canyon and pipeline outages were expected to weigh on the Southern California system into the foreseeable future.

Aliso Canyon started leaking in October 2015 in what became the nation's largest methane leak. SoCalGas, which owns Aliso Canyon, halted injections into the underground facility until state regulators deemed the facility safe to partially restore service. The facility continues to operate at around 40% capacity.

Supply challengers

SoCalGas' latest winter assessment, issued Oct. 8, 2019, concluded that Southern California's gas system was insufficient to maintain natural gas reliability to electric generation customers during high demand periods.

Specifically, it forecast 4.95 Bcf/d of demand under the 1-in-10-year cold day design standard mandated by the California Public Utilities Commission during which both core and non-core customers are served. That demand figure falls to 3.51 Bcf/d under the CPUC-mandated 1-in-35-year peak day design standard that curtails all non-core customers.

Available gas capacity to serve customers based on best and worst-case scenarios for pipeline supplies coupled with potential storage field utilization ranges from 3.77 Bcf/d to 4.11 Bcf/d with the support of Aliso Canyon, and 3.20 Bcf/d to 3.54 Bcf/d if Aliso Canyon supplies are unavailable, according to the assessment.

Under no scenario does SoCalGas expect to have adequate supplies to handle the 1-in-10-year cold day demand forecast, which would prompt curtailments of core customers. But the utility "does not believe ... that core service is at risk this winter season" because, with the exception of the worst-case pipeline supply scenario without Aliso Canyon, supplies are projected to be sufficient to meet the 1-in-35-year peak day demand, the report said.

Jasmin Melvin is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.