Transcript Decision on Proposed Congestion Revenue Rights Credit Policy

Essential Features of California’s New
Market Design
Market Redesign and Technology Update (MRTU)
APEx 2007 Program
October 15-16, 2007
Anjali Sheffrin, Ph.D.
Chief Economist & Director, Market Design &
Product Development
Overview of California control area
COI
Pac DC
NP15
SF
SP15
Path 15
Mead
ZP26
Market
Place
McCullough
LA4
Path 26
LA2
Eldorado
Lugo
Vincent
Mohave
Sylmar
AZ3
Devers
N.Gila
Imperial Valley
Miguel
2
Mexico
Anjali Sheffrin
• Serving 30 million consumers in
PG&E, SCE, and SDG&E and many
municipal utilities
• Heat storm in 2006 with peak load of
50,270 MW on July 24,2006
• 43,000 MW of available generation
capacity at peak after derates for
hydro, wind and outages
• 9,260 MW net imports on peak hour
California ISO Markets
 Real-time balancing energy
 Day ahead and hour ahead
operating reserves (Reg-Up, RegDn, Spin, Non-spin)
 Resolves zonal congestion day
ahead
 New locational marginal pricing
market on March 30, 2008
Palo
Verde
Market prices spiked during the Energy Crisis, but have
been stable over past six years
Real Time Market-Clearing Prices
(NP15 Pirces = SP15 Prices, No Market Split*)
450
400
350
($/MWh)
300
250
200
150
100
50
* weekly averages of peak hour real-time prices when there is no market split.
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Anjali Sheffrin
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What were the key causes of the California Energy
Crisis of 2000 - 01?
Acknowledged Causes of the Crisis
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Lack of forward energy contracting
Unexpected dry hydrological conditions
Key transmission constraints
Flawed market rules
Insufficient enforcement tools for market manipulation
and market power
Anjali Sheffrin
Essential Features of MRTU
 Core features of MRTU:
– Use of the Full Network Model
– Day-Ahead Market consisting of an Integrated Forward Market and Residual
Unit Commitment
– Real-Time Market including an Hour Ahead Scheduling Process
– Allocation of Congestion Revenue Rights
– Market Power Mitigation measures
– “Perfect Hedge” of congestion charges for existing contracts and
transmission ownership rights
 Establishes Resource Adequacy requirement but defers

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details to Local Regulatory Authorities (with ISO backstop)
Solicits Demand Response proposals
Anjali Sheffrin
How can California ensure the crisis will not reoccur?
 Significant improvement in infrastructure and forward
contracting issues
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– Long-Term Procurement and Resource Adequacy rules (CPUC,
CEC, CAISO, Legislature, Stakeholders)
– New infrastructure development process (CAISO, CPUC, CEC,
Legislature)
Response to flawed market rules
– MRTU (Nodal design rather than zonal)
New enforcement tools in place
– FERC Market Behavioral Rules
– FERC expanded enforcement under EPAct 2005
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Anjali Sheffrin
How are existing design flaws being addressed?
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Current Flaw
Solution under MRTU
1. Infeasible schedules
Enforce 3,000 node detailed network model
that creates feasible day-ahead transmission
schedules
2. Lack of price transparency
Produces transparent marginal prices that
reflect true cost of serving load, and more
accurately allocates costs to grid users based
on “cost-causation” principles.
3. Disconnect between generators operating
incentives and grid reliability requirements
Aligns market rules and prices with grid
operating requirements (reliability) in
producing locational prices which inform
generator operation
4. Assumption that market-driven investment
will produce sufficient supply
Complements Resource Adequacy
procurement to assure best mix of supply is
operated to serve load
5. Vulnerability to manipulation and exercise of
market power
Local market power mitigation measures
address market power concerns. Combined
with forward-contracting requirements (RA),
protects consumers from market power and
manipulation.
Anjali Sheffrin
Steps in Preparation for MRTU Start-up
 Several FERC Technical Conferences on:
– Seams Issues
– Resource Adequacy Import Capacity Allocation
– Business Practice Manuals
 Long-Term Transmission Rights Final Rule
– Complete stakeholder process and comply with FERC Final Rule by
filing proposal on January 29, 2007

Recent Outreach Activities with Western Parties
– WECC Board and Subcommittee meetings
– Meetings with WestConnect and WestTrans members
– Seams Working Group being formed – first meeting in November
2006
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Anjali Sheffrin
CAISO and Market Participant Readiness
Will ensure that people, processes, and technologies are ready
Market Readiness Metrics
Over 100 metrics being developed to evaluate readiness
Internal CAISO Readiness
Business process definition, training and knowledge transfer
External Market Participant Readiness
Participant Readiness Advisory Group
Implementation workshops and working groups
Market Participant instructor-led and self-study courses
MRTU Bulletin Board (Blog) to facilitate knowledge transfer
Market Participant surveys targeting readiness tasks
Market Simulation Program
Step-by-step process – starting with basic connectivity tests leading to bid-tobill market processes simulations
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Anjali Sheffrin
Conclusion: MRTU is right for California and the West

MRTU combined with the CPUC’s Resource Adequacy
rules directly addresses the causes of the 2000-01
Electricity Crisis.

Complements long-term procurement and transmission
planning processes resulting in efficient and timely
investment
 MRTU will increase reliability, accommodate bilateral
transactions, provide better information to guide locational
operation and investment decisions, promote west-wide
trading, mitigate seams issues, produce just and
reasonable prices.
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Anjali Sheffrin