By Robert Mullin
CAISO’s regulation costs have quadrupled since the ISO increased requirements to help balance variable output from renewable resources.
Daily payments to regulation service providers jumped from about $100,000 to more than $400,000 after CAISO increased the requirements in late February, according to a report from the ISO’s Department of Market Monitoring.
Regulation prices more than doubled as the ISO increased its daily procurement to as much as 800 MW from 400 MW or less.
The department discounted the likelihood that market manipulation was behind the increase. “We did look at bid behavior and didn’t see it [had] changed,” Gabe Murtaugh, a department senior analyst, said during a call to discuss the report. “We don’t see any evidence of market collusion or anticompetitive behavior.”
CAISO implemented the change Feb. 20, increasing regulation requirements in both the day-ahead and real-time markets to 600 MW. Prior to that, day-ahead requirements were set in the 300-400 MW range, while real-time requirements were consistently pegged at 300 MW.
The Monitor said the ISO procured an average of 617 MW of regulation up and 619 MW of regulation down in the day-ahead market between Feb. 20 and March 31. Procurements reached as high as 800 MW on days when forecasts predicted high variability from renewables.
During that period, day-ahead prices for regulation up and down averaged $14.81/MWh and $12.92/MWh, respectively, compared with $6.50 (up) and $4.16 (down) before the change was implemented. Real-time gained in similar proportion, with regulation up averaging $17.18 and regulation down averaging $21.34.
Regulation up and down are two of the four ancillary services products the ISO procures through “co-optimization” with the energy market, meaning that resources can bid into both markets simultaneously. Most regulation capacity is acquired in the day-ahead market, with the real-time market run used to cover additional needs or replace unavailable resources.
In addition to receiving a capacity payment, resources that provide regulation service are also eligible for a performance — or mileage — award for in the event they are dispatched. Payments for mileage have historically represented just a fraction of those for capacity.
California Energy Commission analyst Christopher McLean questioned the rationale behind the volume of regulation service the ISO is acquiring.
“Is all that’s being procured being utilized?” McLean asked. “Did it offset any [spinning reserve] procurement?”
Keith Collins, ISO manager of monitoring and reporting, responded that expanded regulation reserves did not reduce the acquisition of spinning reserves — nor could he provide estimates for utilization.
“That’s not something we reported, but we can look into that,” Collins said.
McLean pressed his point, asking if the ISO was using “any sort of formula” to set the regulation requirement, something the Monitor could not confirm.
“So you’re saying there is not any formula,” McLean said. “We’ll be interested in any justification for the change in the procurement level.”
