By Robert Mullin

FERC on Wednesday approved CAISO’s plan to temporarily alter its market rules and operations in response to natural gas pipeline restrictions stemming from the closure of the Aliso Canyon storage facility (ER16-1649).

The grid operator last month sought expedited approval for the Tariff changes, designed to ensure reliable operations in Southern California in the face of potential gas shortages this summer — the region’s peak period for power generation. (See CAISO Board Approves Aliso Canyon Response.)

The commission also directed staff to convene a technical conference to evaluate the effectiveness of the provisions and determine the need for additional longer-term measures, addressing a concern of a number of CAISO stakeholders.

“Substantial efforts have been made by CAISO, California regulators and the energy companies to enhance planning and preparation, communication and coordination, and situational awareness,” FERC Chairman Norman Bay said in a statement. “That being said, the situation remains a serious one, and we will continue to monitor Aliso Canyon very carefully.”

Under new pipeline requirements effective June 1, Southern California Gas customers face penalties as high as 150% of daily gas indices when their daily burn deviates from nominated flows by more than 5%. The region’s generators have complained they would likely incur financial losses when the ISO’s real-time dispatch instructions cause them to burn more or less gas than planned for on a given operating day.

The new market rules will help generators manage their burns to avoid system-balancing penalties and allow them to recover costs after the fact, while ensuring the ISO is capable of moving generation into the region when gas supplies are constrained.

Key provisions of the plan include:

• The release of advisory schedules by CAISO two days ahead of an operating day to help scheduling coordinators plan for gas procurement further in advance;
• Inclusion of a gas adder and an after-the-fact cost recovery mechanism for generators connected to the SoCalGas system, allowing those units to recover costs based on same-day gas prices — including potential penalties — rather than day-ahead gas indices;
• Implementation of a new constraint in the CAISO market that limits the minimum and maximum amount of gas that can be burned by generators in the affected area during periods of restricted gas supply;
• Reservation of transmission capability on the Path 26 transmission line linking the Pacific Gas and Electric (PG&E) and Southern California Edison service territories in order to ensure adequate capacity to deliver energy into the southern part of the state during gas restrictions; and
• Suspension of virtual bidding in circumstances when CAISO determines the practice could produce market inefficiencies.

FERC rejected a request by NV Energy and Calpine for CAISO to develop a gas adder for generators located outside the SoCalGas network. The two companies contended that limited gas supplies in that system would likely drive up fuel prices in neighboring areas. The commission instead determined that the adders are designed to specifically address the conditions confronted by Southern California gas-fired generators, which “need a mechanism by which to manage gas-balancing requirements within tightened tolerance bands.”

“This is not the case with resources outside of Southern California,” the commission said.

The commission also rejected PG&E’s request that the ISO perform a market simulation before rolling out the plan, saying that “timely implementation of these market changes outweigh the potential benefits of requiring market simulation in this instance.”

The commissioners additionally declined a request by NRG Energy that CAISO be ordered to implement long-term changes to its market rules related to gas cost recovery by Dec. 1, 2016. During stakeholder calls earlier this year, the company repeatedly raised concerns about its exposure to increased gas costs and balancing penalties.

“We find that it is premature to require CAISO to implement long-term changes by a date certain when the scope and duration of any potential problems are currently unknown,” the commission said, adding that those measures should be addressed in the upcoming technical conference.