By Robert Mullin

CAISO’s push to become a reliability coordinator (RC) passed its first milestone last week after its Board of Governors approved the proposed rate design for its newest line of business.

The board also passed an “interim” rule change for the ISO’s reliability-must-run program, as well as approving RMR designations for two NRG Energy gas-fired generators in the Southern California Edison service territory.

Approval of the RC rate scheme came just a week after Peak Reliability, the current RC for the Western Interconnection, announced that it would cease operations at the end of 2019. (See Peak Reliability to Wind Down Operations.) Peak made the decision to fold after most of its customer base defected to CAISO, which promised to offer similar reliability services at significantly lower cost.

“That’s compatible with our plan to stand up our own RC and offer those services to others in the West anyway,” CAISO CEO Steve Berberich told board members during their July 26 meeting. “We intend to work very closely with Peak to make sure we have a reliable transition of these services.”

Phil Pettingill, CAISO director of regional integration, told the board the ISO is “uniquely positioned” to provide RC services in the West because of its “very detailed” network model, which can be leveraged “to potentially increase reliability in at least that portion of the interconnection that we’re operating.”

“Because we already have these tools and that infrastructure in place, our projections are showing that we’ve got an opportunity to provide that RC service at roughly 40% of what the current costs are, and provide that higher quality service at the same time,” Pettingill said. The ISO estimates it will be able to provide RC services to the entire interconnection for about $18.5 million, compared with Peak’s current budget of $45 million. (See CAISO Puts $18.5 Million Price Tag on RC Services.)

CFO Ryan Seghesio told the board that CAISO based its RC rate design on the existing rate design, rather than calling out RC services as a distinct function from other ISO operations. He noted that RC services would initially represent about 2% of CAISO’s annual costs upon roll-out to the ISO’s balancing authority area on July 1, 2019, followed by an increase to 9% as others in the West join by the end of next year. The ISO plans to hold its overall revenue requirement to about $205 million, even after introducing RC services.

With the revenue requirement largely stable, Seghesio said RC revenue streams will decrease CAISO’s grid management charge rate — the ISO’s primary revenue source — by $11 million, as well as reduce rates for Western Energy Imbalance Market participants. Supplemental RC services will be billed separately, potentially further reducing other ISO charges.

Seghesio noted that some RC customers have asked the ISO to implement stronger cost containment measures in its proposal, “essentially assuring or guaranteeing some maximum level of cost increase year over year.” But CAISO management “currently believes our existing cost containment measures are adequate,” he said, pointing out that the ISO’s revenue requirement is capped by FERC.

Seghesio said the RC allocation will remain fixed at 9% at least until the ISO performs its next cost-of-service study.

“We’re very confident at this point that the 9% represents a good look at how the 2020 cost-of-service study will look, because that’s the data we’ve used” to arrive at the estimate, Seghesio said.

Speaking during public comment on the proposal, Jeff Rehfeld, senior counsel with NaturEner, expressed “disappointment” that the ISO plans to charge generation-only balancing authorities the same rates as BAs that serve load. The company is a renewable energy developer that operates two generation-only BAs in Montana.

“Our balancing authorities, due to their generation-only characteristics, do not require some of the reliability coordinator services that are required to be provided to other balancing authorities which have load and transmission. And, similarly, the amount of attention and resources that a reliability coordinator must devote to a generation-only BA” is less than required for BAs with load, Rehfeld said.

The proposed rate structure “is not defensible under a cost-causation analysis, [nor] is it fair or equitable,” he said, because it requires generation-only BAs to subsidize other RC customers. He held up Peak’s funding model as more equitable.

“In the case of gen-only and, particularly, your company, the variability of the resources and also the prospect these resources will be operating in two separate RC areas, adds a complexity that justifies our volumetric [megawatt] calculation” for determining rate, Pettingill responded. “I think it’s really the operational engineering analysis that supports our logic.”

Jim Shetler, general manager of the Balancing Authority of Northern California, said his group is “comfortable” with the Tariff changes as proposed. He also pointed to another milestone for CAISO’s RC effort: its first customer commitment.

“In keeping with the concept of early notice on what entities intend to do, I would like to report that at its meeting yesterday, the BANC commission authorized me to go forward with transitioning our services from Peak RC to the ISO, and we’ll be looking forward to making that happen,” Shetler said.

CAISO plans to file the RC rate proposal with FERC at the end of August.

RMR Actions

The Board of Governors on Thursday also approved a modification to the ISO’s RMR program that would replace the existing pro forma RMR agreement with an “interim” version of the agreement. CAISO management sought the change “pending the development of a more comprehensive proposed amended RMR agreement” targeted for board approval in March 2019.

The interim agreement contains a provision allowing for its termination and the immediate re-designation of an affected RMR unit under a “new comprehensive agreement” upon FERC approval, said Keith Johnson, CAISO infrastructure and policy manager.

Pacific Gas and Electric and the Six Cities group of publicly owned utilities in Southern California supported the proposal, while Calpine called it “piecemeal and unnecessary.”

Johnson was careful to note that the interim agreement would not apply to the two gas-fired plants the board on Thursday agreed to designate as RMR — the 54-MW Ellwood Generating Station and one unit at the 1,516-MW Ormond Beach plant. NRG announced in March that it planned to retire the plants, along with its Etiwanda Units 3 and 4. (See NRG Set to Retire California Gas Plants.)

CAISO determined that Ellwood’s retirement would leave a 45-MW deficiency in the local capacity requirement for the Santa Clara subarea next year, while the loss of Ormond Beach would result in a 170-MW shortage for the Moorpark subarea. The ISO expects the units will also be needed in 2020 while the region awaits completion of a 230-kV transmission line and SCE completes the procurement of new resources expected to be online in 2021.

Eric Eisenman, director of ISO and FERC relations for PG&E, said his company was “neutral” on the specific RMR designations but urged CAISO to more quickly address the company’s concerns about the RMR mechanism, such as the lack of a must-offer obligation for RMR units and their existing rate of return.

Eisenman acknowledged that the RMR revision process is moving along, “but not at the pace that matches the urgency PG&E has expressed and continues to express.”

“In all likelihood, if there are any new RMR designations in the PG&E footprint for 2019, PG&E will oppose the terms and conditions before this board and before FERC,” Eisenman said.

CAISO Governor Ashutosh Bhagwat noted the ISO’s expressed concerns about the difficulty of rushing through an initiative as complex as that related to RMRs.

“But I do share PG&E’s sense of urgency. I feel like the faster we can get this done, the better, because we’re essentially [placed] in the position of ad hoc negotiations every single time” the ISO negotiates an RMR, Bhagwat said. “That’s clearly not ideal.”