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US FERC rejects Cal-ISO waiver affecting adequacy program

The US Federal Energy Regulatory Commission Tuesday rejected a California Independent System Operator request that it be allowed to keep unchanged the hours that it offers incentives for power plants and other resources being available when electric demand is highest.

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The issue centers on the ISO's "availability assessment hours," a five-hour period that covers daily, historical peak load. The grid operator's availability assessment hours for this year are 1 pm to 6 pm from April to October and 4 pm to 9 pm for all other months.

Under ISO's resource adequacy availability incentive mechanism, which FERC approved two years ago, eligible system, local and flexible capacity that is available for 98.5% of availability assessment hours for a month receive incentive payments while resources that are available for less than 94.5% of the hours for that month face non-availability charges.

The incentives and penalties are designed to make sure eligible resources, like natural gas-fired power plants and demand response, are available to meet peak demand.



The ISO estimates that rooftop solar will grow to nearly 12,000 MW by 2020 from about 6,800 MW this year and, because of that projected increase, California's peak period is moving to later in the day.

Earlier this year, as required by its rules, the ISO proposed moving next year's availability assessment hours to 4 pm to 9 pm from April to October, three hours later than they are now.

But the California Public Utilities Commission and demand response companies opposed the shift, saying demand response companies participating in the PUC's demand response auction mechanism have already agreed to commit their resources for next year based on the current assessment hours.

PUC staff also were concerned the agency and ISO would be using different peak load hours next year so they would be assessing resource adequacy compliance differently.

Demand response company EnerNOC echoed the concerns the PUC raised, saying the shift in peak load hours would create market disruptions.

In response, the ISO decided to keep its assessment hours unchanged for next year and sought from FERC a waiver from rules requiring hours be shifted to match historic patterns. The ISO told FERC that, without a waiver, demand response companies would end the contracts they have under the PUC's demand-response program.

Pacific Gas and Electric opposed the waiver request, arguing that leaving the hours unchanged would mean generators and demand-response resources would be rewarded for being available when they weren't needed.

FERC Tuesday rejected the proposal, saying it would benefit only a small amount of resources and that it would reward resources for being available when they weren't needed.

"If the commission were to grant [the ISO's] proposed request for waiver, it could result in weakening the incentives for resources to be available at the times of highest anticipated system need," FERC said. "This could potentially cause undesirable consequences in the form of decreased reliability and increased costs."

FERC noted that the shift in peak hours would affect all eligible resources so the waiver request isn't limited in scope, one of the criteria the commission assesses when considering issuing waivers.

Further, the ISO failed to show that the potential loss of a "relatively small" amount of demand-response resources would undermine grid reliability. FERC said the ISO was free to seek a more narrowly focused waiver.

--Ethan Howland, newsdesk@spglobal.com
--Edited by Valarie Jackson, valarie.jackson@spglobal.com