By Jason Fordney

FOLSOM, Calif. — Current flashpoints over grid reliability, market outcomes and ratepayer costs were on full display last week at a CAISO forum to discuss how the grid operator should overhaul its backstop procurement policies.

Representatives of generators, power traders and the California Public Utilities Commission are raising questions about the scope of an overhaul CAISO outlined in a straw proposal for its reliability-must-run (RMR) and capacity procurement mechanism (CPM) programs. While the ISO is saying changes for 2019 will only address must-offer requirements, most stakeholders contend it should move more quickly to make broader changes.

The ISO is in Phase 1 of the 2018 “RPM/CPM” initiative, saying it needs to get certain changes in place quickly before more fundamental changes are made in a future Phase 2. (See CAISO Floats Reliability Programs Revamp.) Phase 2 will include development of a cohesive RMR/CPM framework and a possible merging of the programs.

CAISO has already filed with FERC a set of updates to CPM that was approved by the Board of Governors in November. (See Board Decisions Highlight CAISO Market Problems.) The ISO’s Keith Johnson said that set of changes will not be modified in the current process but will be informed by it.

“We are not changing the filing as a result of this process,” Johnson said. CAISO’s filing of the CPM changes at FERC is due to be approved later this year, when the new package of enhancements will still be in the proposal stage.

But some at the forum pushed back at Johnson, saying that there seems to be more fundamental issues with the RMR programs, which are unpopular in the market. Two developing debates are whether RMR and CPM units should have a must-offer requirement, and whether settlement terms requiring a broad look at CPM have been triggered.

“We would agree that perhaps there are some things that should be addressed,” Johnson said as forum participants raised various issues, adding that they could consist of clarifications or more substantial changes. He pointed out that the current RMR provisions took years to develop. “I can imagine we will get all kinds of comments as to where we should take this initiative.”

The RMR and CPM have different designs and provisions and are used to keep generators online that want to retire but are still needed for reliability. Misalignments between RMR, CPM and the CPUC’s resource adequacy (RA) programs are creating reliability gaps that are costing consumers and creating tensions in the market.

But utilities such as Pacific Gas and Electric object to the hastily forged RMR agreements and their increasing usage. The ISO signed up 687 MW of Calpine generation to RMRs in 2017, including the 593-MW Metcalf Energy Center and the Yuba City and Feather River gas plants, each with 47 MW of capacity.

CPUC Staff, WPTF Disagree on Must-Offer

The ISO has proposed that Phase 1 explore whether resources under both of the RMR designations — condition 1 and condition 2 — be subject to a must-offer requirement. CAISO’s Department of Market Monitoring has recommended the measure because the condition 2 units are kept online by ratepayers but only used in certain hours.

During the forum, Resero Consulting’s Carrie Bentley, representing the Western Power Trading Forum (WPTF) debated with CPUC staff member Michele Kito over whether generators being paid to supply capacity should be subject to a must-offer obligation in the energy market. WPTF argues that the payments drive down LMPs, reducing incentives to build new generation or keep existing plants online, while the CPUC contends that units kept online 24/7 by ratepayers should be utilized more.

Bentley told RTO Insider that “WPTF believes that requiring 24/7 at-cost offers into the energy market is a means of subsidizing the fixed costs of the RMR resource on the backs on other generators. Forcing in at-cost energy into a market setting will unnecessarily distort prices downward in an already struggling ancillary service and energy market.”

Settlement Provisions Triggered?

Kito also contended that recent actions by CAISO had triggered a provision in a 2014 CPM settlement agreement that requires the ISO to open a stakeholder process to ensure that load-serving entities are not relying on the CPM as a means to meet RA obligations. Section 7 of that agreement stipulates the ISO will open the process “with the first occurrence of use of CPM by an LSE for either an annual or monthly LSE deficiency to meet 50% or more of the LSE’s RA obligation for the annual or monthly period.”

It wasn’t immediately clear what LSE Kito was referring to, and she did not return a follow up email. CAISO in November announced 2018 CPM designations for 1,055 MW of capacity in the PG&E and San Diego Gas & Electric areas. In November, CAISO said LSEs were about 2,000 MW short of local RA requirements for 2018. (See California Utilities Short on Local RA Capacity.)

“I didn’t realize that the conditions of the settlement had been triggered, at least arguably,” said Mark Smith, Calpine vice president of regulatory affairs. He told Johnson that “the scope of Phase 2 could be dramatically larger than what you have said here.”

Smith added that “the whole structure is in question. We have a clean slate, I think is what I’m hearing could occur here.”

PG&E representative Peter Griffiths asked whether the changes in the RMR process are in the scope of Phase 1, adding that he would be “concerned” if they aren’t.

“The history that the ISO has with the latest RMRs leaves a lot to be desired,” Griffiths said, noting that the process could be changed without changing the ISO’s Tariff. “If it is not going to be discussed in this stakeholder process, I would like to know that, because there are other grounds by which the process could be changed.”

Throughout the forum, Johnson advised that the scope of Phase 1 will be limited and will apply to new RMR units as of Jan. 1, 2019. The ISO is taking comments on the straw proposal through Feb. 20 and hoping for approval of Phase 1 by the board in May.