FERC has approved CAISO’s request to increase its capacity procurement mechanism (CPM) soft offer cap from $6.31/kW-month to $7.34, which CAISO states would better reflect inflation, labor rights and higher bilateral capacity prices (ER24-1225).The increase also would better position the ISO to maintain reliable grid operations in the summer, the order reads.
The soft offer cap, referenced when load-serving entities bid offers into the market to resolve resource adequacy deficiencies, is based on fixed operation and maintenance costs, ad valorem taxes and insurance costs of a reference unit, plus a 20% adder.
According to its tariff, CAISO is required every four years to conduct a stakeholder process and evaluate whether to update the CPM soft offer cap. In May 2023, the California Energy Commission provided CAISO with a study demonstrating CAISO’s soft offer cap doesn’t adequately reflect fixed costs and should be increased to $7.34/kW-month.
“CAISO contends that the proposed soft offer cap is also high enough to ensure contributions to fixed cost recovery and low enough to provide appropriate market power mitigation,” the April 25 FERC order states. “CAISO adds that the proposed soft offer cap will create greater incentives for resources to accept voluntary CPM designations.”
Motions to intervene were filed by consumer advocacy organization Public Citizen, Calpine, Pacific Gas and Electric, the California Department of Water Resources’ State Water Project, the city of Santa Clara and the Northern California Power Agency. CAISO’s Department of Market Monitoring filed comments supporting the tariff provision.
“DMM supports the proposed tariff revision to better position the CAISO to maintain reliable grid operations and increase incentives for resources to accept voluntary CPM designations,” DMM’s letter to FERC reads. “In addition, accepting the amendments will allow for the CAISO and its stakeholders to focus on a more comprehensive set of changes needed in the overall CPM and resource adequacy framework.”
CAISO plans to implement the changes by early June.
