The Western Energy Markets Governing Body approved a set of revisions to CAISO’s Gas Resource Management program after two years of work with stakeholders in the West.
The approved proposal provides gas resource entities with more opportunities to reflect their fuel costs and conditions in the day-ahead and real-time markets. It also revises day-ahead advisory market runs to improve fuel procurement forecasts, among other items.
“Gas resources face unique challenges in managing uncertainty across [the] independent but linked gas and electric markets,” CAISO Vice President of Market Design and Analysis Anna McKenna said in a Dec. 10 memorandum. “When gas prices are volatile or the gas system experiences constraints, energy offers from gas resources can quickly become obsolete if those bids do not adequately account for price uncertainty.”
Currently in the Western Energy Imbalance Market (WEIM), participants manage their fuel-cost procurement risk by submitting hourly base schedules and only bid for real-time dispatch based on the availability and cost of gas imbalances, McKenna said.
But in the Extended Day-Ahead Market (EDAM), set to open in May 2026, base scheduling is not available, which means that energy resources will use market offers for day-ahead commitments.
In a Dec. 9 memorandum, the ISO’s Department of Market Monitoring added that EDAM might “create additional challenges for gas procurement in regional markets outside of the CAISO area.” These challenges include an increased uncertainty about gas procurement requirements, more frequent purchasing of gas after the close of the morning gas market and more exposure to higher levels of gas price variability, the DMM said.
The approved proposal allows gas resources to more easily customize cost inputs, access cost-adjustment mechanisms and recover costs, McKenna said. The revisions try to also guarantee that all gas systems, regardless of location within the Western footprint, have equitable access to the market, she said.
While stakeholders supported the overall process proposed for customizing fuel volatility covered in reference levels, some raised concerns about certain design details, McKenna said. The DMM cautioned that frequent cost-adjustment requests could be subject to gaming.
“It’s fair to say this is a really complex policy,” Danny Johnson, CAISO market design manager, said at the Governing Body’s meeting Dec. 16. “The proposed methodology balances implementation feasibility and needed flexibility sought by stakeholders. As part of the audit process, the ISO will monitor for any adverse or unintended consequences.”
CAISO management agreed that the audit process is an important feature of the proposal, McKenna said.
As part of its stakeholder process, the ISO studied the existing tools for accommodating fuel-cost variations for gas generators in parts of the WEIM, where “physical gas system characteristics and fuel supply arrangements are diverse,” the proposal says. It addresses “exceptional circumstances” on the grid when gas-fired resources face more uncertainty than usual. Under such circumstances, CAISO might anticipate that gas resources will need additional flexibility to request cost adjustments.
“As a general principle, gas resources either need more certainty for fuel procurement or more flexibility to manage uncertainty related to fuel procurement,” the proposal says.
CAISO’s proposal therefore provides gas generators with additional flexibility to request cost adjustments when the ISO forecasts that same-day gas will be needed to support day-ahead commitments and incremental real-time dispatch, the proposal says.
The proposal also includes a customizable multiplier on the gas price index because some resources face more gas price volatility than others. The multiplier will cover specifically the volatility of a gas resource’s circumstances to ensure that reference levels and the reasonableness threshold all reflect a resource’s adjusted gas price volatility, the proposal says.
The proposal also grants gas resource entities the ability to request after-the-fact cost recovery, but only if they can demonstrate that a physical gas disruption occurred.
