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CAISO seeks to make quick fix to regional energy imbalance market flaw

The California ISO has asked federal regulators to quickly approve a fix to a problem that shifted millions of dollars per quarter among the members of the Western Energy Imbalance Market. While stakeholders generally backed the plan, they said other issues may need to be fixed before the day-ahead market is expanded to the EIM.

At issue is the way CAISO carries out real-time market neutrality settlement, which helps the grid operator balance its books. At the end of the day, the money CAISO collects does not exactly match the money it pays out because, for example, sometimes load or generation is not exactly what was predicted. CAISO, therefore, uses settlement accounts to allocate leftover costs and charges among balancing authority areas, or BAAs, based in part on the value of their transfers.

The problem is that the accounting has been inaccurate, in part because the grid operator measured the value of transfers between BAAs to include the cost of complying with California’s greenhouse gas rules, even if the transfer did not go to California.

CAISO has, therefore, asked the Federal Energy Regulatory Commission to approve a proposal to provide a credit for greenhouse gas compliance costs for transfers between non-California BAAS when calculating the value of EIM transfers. The grid operator also proposed to eliminate an EIM transfer adjustment that is no longer needed.

The proposed changes, if they had been in place in the first quarter of 2019, would have redistributed $9.2 million between BAAs in the EIM, with five entities receiving a higher charge and four receiving a lower charge, CAISO said.

The grid operator asked FERC to let the changes become effective Aug. 1, just two days after the filing, so that market participants can get accurate charges and credits as soon as possible.

CAISO also said it "intends to engage stakeholders to discuss a more comprehensive review of neutrality offsets, and to ensure market confidence in CAISO settlement processes," according to the proposal.

Stakeholders generally backed the plan as an interim solution but said CAISO should keep working on the issue. In comments on a draft proposal, Idaho Power Co. said alternative solutions for dealing with greenhouse gas compliance costs would be a better solution, particularly if other states enact climate policies that need to be reflected in the EIM.

CAISO should launch a second phase of the proceeding to review larger EIM settlement concerns, the Western Power Trading Forum, or WPTF, said in comments on the draft proposal. CAISO could consider creating a separate greenhouse gas account to improve transparency, WPTF said, noting that greenhouse gas accounting is only going to get more complicated when another BAA implements a greenhouse gas program or when CAISO extends the day-ahead market to the EIM.

The day-ahead market represents most of the transactions in terms of capacity and costs compared to the real-time market currently offered in the EIM, said Gridwell Consulting's Carrie Bentley, who represents the WPTF. "It is the difference between worrying whether your mortgage statement is correct versus your cable bill," she said in an email. (FERC docket ER19-2497)

Kate Winston is a reporter for S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.