By Robert Mullin

Critics of a proposal to lower CAISO’s energy market bid floor last week questioned the need for the measure and its efficacy in solving the ISO’s increasing intervals of oversupply.

The ISO contends that reducing the bid floor from -$150/MWh to -$300/MWh will provide the market with more “downward flexibility” — or the ability to curtail renewable resources in the market rather than through out-of-market operations.

CAISO hopes that lowering the bid floor will persuade self-scheduled resources to submit bids that reflect the marginal cost of operations when oversupply turns prices negative.

“To ensure the ISO is able to provide accurate price signals to incent a more flexible fleet of resources during this transition, market changes must be implemented to encourage generators to economically participate in the markets rather than self-schedule,” CAISO wrote in its proposal.

Self-schedules often represent renewable resources operating under power purchase agreements with load-serving entities that include take-or-pay clauses. The LSE’s penalty for refusing the power adds to its opportunity cost of not generating a renewable energy certificate (REC).

The ISO has authority to curtail self-scheduled deliveries to protect reliability during periods of oversupply. The ISO said it was compelled to take that step during 2.5% of five-minute intervals between April 2015 and April 2016.

The practice is only growing with the increased penetration of renewables in response to the state’s 50% by 2030 renewable portfolio standard.

“In April [2016] alone we had 11% of intervals where self-schedules were being cut,” Kallie Wells, senior market monitoring analyst in CAISO’s market infrastructure and development department, said during an Aug. 18 stakeholder call. “The shoulder months will likely see increased amounts of that.”

In addition to incentivizing LSEs to bid contracted renewable resources into the CAISO market rather than self-schedule, ISO staff say they also hope the change will encourage LSEs to negotiate renewable PPAs that give them the option to curtail renewables to accommodate the ISO’s operational needs.

Market Monitor not Convinced

CAISO’s internal Market Monitor says the ISO hasn’t made a compelling case.

The Department of Market Monitoring “is right now opposed to lowering the bid floor,” said Ryan Kurlinski, manager of the department’s analysis and mitigation group. “We’re not seeing the evidence that this policy will create additional decremental bids.”

Kurlinski contended that lowering the bid floor will create a greater likelihood for the exercise of market power in decremental bids and expand the opportunity for increasing bid-cost recovery — or uplift — payments, which are shared by load across the ISO.

While a number of stakeholders have commented in favor of the measure, others are skeptical.

“Can you tell me what type of resource would be bidding in at less than -$150/MWh?” asked Eric Little, manager of wholesale market and greenhouse gas market design at Southern California Edison.

“We did look into actual costs, and -$150/MWh did cover a portion of intermittent resources’ costs but didn’t cover another portion,” said Brad Cooper, CAISO’s manager of market design and regulatory policy.

“Whenever we talk about this it comes down to RECs, but there are no RECs worth more than” $150/MWh, Little said.

Greg Cook, CAISO director of market and infrastructure policy, said that “it comes down to the power purchase agreements.”

“We do know that there are those that have contracts that are take or pay, but those contracts are changing,” Little said. “Are you trying to get companies to renegotiate contracts?”

Seeking Evidence

Little also asked the ISO to provide more evidence supporting the change.

“I would like to see something that would show what elements will require a floor below -$150,” he said. “That would help us out.”

Nivad Navid, a principal with Pacific Gas and Electric, also sought more supporting data, asking CAISO to provide statistics showing how often the market clears at -$150/MWh. He also expressed concern about the ISO deterring LSEs from submitting self-schedules.

“We’re not saying you can’t self-schedule,” Wells said. “By lowering the bid floor, economic bids will more likely set the price” rather than out-of-market mechanisms. Wells also said a deeper pool of economic bids would prevent the ISO from cutting self-schedules.

“So when you change the bid floor, are you expecting that you will not need any more curtailment?” Navid asked.

“It sounds like the assumption you’re making is that there are resources that can’t bid into the market because of the bid floor of -$150,” said Josh Arnold, a settlement analyst at PG&E.

“That seems to be a sticky assumption to be making without providing supporting data,” he continued, adding that the ISO’s Board of Governors had previously said the -$150/MWh floor was appropriate.

Arnold questioned whether the renewables-heavy fleet serving California would change its market behavior as a result of the change, pointing out the difficulty in renegotiating contracts within the timeline of the proposal’s implementation. The ISO plans to seek approval from the board this fall, meaning the change could be implemented early next year, pending FERC approval.

“I’m very confused by the way you’re going about this,” Arnold said. “It seems like you’re anticipating an upcoming problem and trying to smash it with a hammer.”

CAISO is pairing the bid floor proposal with a plan to no longer exempt load corresponding with self-scheduled supply from being allocated costs associated with uplift payments. The ISO says the latter proposal will further incentivize economic bids over self-schedules and align allocation with cost-causation principles, as self-scheduled generation is also contributing to the oversupply issue.

The ISO is seeking comments on both proposals by Aug. 25 and plans to present a final plan to the board in October.