California ISO proposes market changes and penalties for noncompliance

b>HOUSTON, Jan. 9 — The California Independent System Operator proposed a change to the California electricity market by assigning responsibility and assessing penalties, if utilities don’t provide sufficient power ahead of time to meet demand.
Generators will also be held accountable if they don’t deliver power as promised. The California ISO is proposing penalties for utilities that don’t schedule enough electricity capacity and for suppliers that don’t deliver power as promised to the utilities.
The new market mechanism called ACAP or available capacity obligation is supposed to ensure electricity is available to serve daily needs. ACAP obligations would also force utilities to provide reserve capacity, too.
The ACAP provision proposed by the ISO is essentially an extension of the traditional “obligation to serve” under the old integrated utility structure, said Lorenzo Kristov, ISO manager of market design. It will take about 2 years to implement, the ISO said.
Under California’s original restructuring plan, no one had the responsibility for ensuring there was enough capacity in the California market. The California ISO said this oversight was partly responsible for market power exercised in the spot market and the supply shortages the ISO encountered at the last minute in the summer and winter of 2000.
The California ISO is proposing an overhaul of the market to correct flaws that may have contributed to the California energy crisis of 2000/2001. The preliminary plan is subject to revision based on comments from market participants and industry stakeholder groups.

Facing September deadline
The ISO said some of the mechanisms need to be in place before the Federal Energy Regulatory Commission price caps and power plant must-run provisions ordered last summer expire Sept. 30. However, the ISO would delay complete implementation of ACAP until 2004 to allow utilities time to arrange for supplies and institute demand management programs. Meanwhile, the ISO would continue arranging for some capacity on a temporary basis.
“The ISO will procure some of this capacity for the utilities until they are in a position to procure all of the power themselves,” Kristov said, adding this part of the proposal is still under discussion.
Once the new ACAP obligation is in operation, the ISO would assess utilities $70/Mw/day or $2,000/Mw/month for any shortfalls.
Suppliers and generators, on the other hand, would be responsible for providing energy as scheduled. If a plant suffers an unexpected outage, then that generator must provide substitute power or pay for replacement energy.
If not, they too will be charged the ACAP penalty. Further, if the outage is not reported to the ISO in a timely manner, they will be assessed more penalties for failing to follow dispatch instructions.
“The idea is to reduce the reliance on the real time market,” Kristov said.
Other provisions of the proposed market design will include a new system to manage congestion and prevent market participants from taking advantage of constraints in the system. The ISO also is proposing creation of a new forward spot energy market to replace the now-defunct California Power Exchange. Details are to be worked out in focus groups with market participants and stakeholders, Kristov said.

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