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CAISO aims to boost intertie bidding

The California ISO is proposing a change to its tariff to boost liquidity in its 15-minute market by reducing disincentives for bidding at its interties.

The proposal grew out of a review looking for ways to increase convergence bidding, also called virtual bidding, at the grid operator's interties, which has been consistently low since it was allowed starting in May 2014.

The grid operator first held a workshop on the issue in 2015, the ISO explained in a Jan. 25 filing with FERC. One of the issues that emerged from the process was a concern about the automatic adjustment of congestion revenue rights, or CRRs.

When the ISO settles CRRs, the grid operator adjusts a market participant's CRR revenue for any virtual awards that affect the value of its CRR holdings to prevent "undesirable conduct," according to the grid operator. This automatic adjustment, called the CRR settlement rule, applies to actual and implicit virtual bids.

The current rule for determining what makes up implicit virtual bidding is overly broad and creates disincentives for economic intertie bidding, the ISO said.

"Market participants are reticent to bid economically at the interties in the fifteen-minute market out of concern for triggering the CRR settlement rule," the ISO said.

Once a day-ahead schedule is awarded, any economic bid into the real-time market could lead to a schedule reduction, according to the ISO. The CRR settlement rule would then treat the market participant as having submitted an implicit virtual bid even if that was not what the market participant intended, the grid operator explained.

Further, stakeholders told the ISO that they couldn't predict how unanticipated schedule reductions might affect congestion on paths where they hold CRRs. "In their view, the combined impact of these unknown factors makes submitting economic bids on interties in the real-time market an unjustified risk," the ISO said.

Proposal sets conditions for adjustments

The proposal aims to make the CRR settlement rule less stringent by changing the criteria for determining what bids are implicit virtual bids at interties to reduce the number of those types of bids, which would reduce disincentives for intertie bidding.

Currently, the ISO considers any reduction in the amount of a day-ahead import or export schedule in the real-time market to be a virtual award for purposes of the CRR settlement rule, the grid operator said.

Under the proposal, to trigger the CRR settlement rule, there must be a schedule reduction, and at least one of three conditions must be met. The first condition is that an economic import bid in the real-time market is at a price above the day-ahead locational market price. The second is a bid below the day-ahead locational market price. The third condition is that the total quantity of the real-time bid does not at least include the full quantity of the day-ahead schedule.

The ISO said it also wants to end the exemption from the CRR settlement rule for virtual bids submitted at trading hubs and load aggregation points.

The ISO asked FERC to make a decision by March 27 with an April 1 effective date. Starting Feb. 3, the day FERC Commissioner Norman Bay plans to leave the agency, FERC will have only two commissioners, depriving it of a quorum for making major decisions. (ER17-853)

Ethan Howland is a contributing reporter to S&P Global Platts which, like S&P Global Market Intelligence, is owned by S&P Global Inc.