By Robert Mullin

FERC last week approved CAISO’s use of a natural gas price index included in temporary Tariff provisions the ISO implemented last spring in response to the closure of the Aliso Canyon storage facility (ER16-1649).

The ISO revised its index rules to ensure gas-fired generators in Southern California accurately reflect their fuel costs in the event that pipeline restrictions imposed following the loss of Aliso Canyon caused market volatility.

Prior to the revision, the ISO Tariff required gas generators to base the fuel component of their day-ahead unit commitment costs on the previous day’s day-ahead gas index published by the Intercontinental Exchange (ICE).

The updated rule allows those generators to instead use a same-day index produced by ICE by 9 a.m. PT, just before the ISO’s day-ahead market run. ICE’s “official” same-day index is typically posted at 11:30 a.m.

CAISO reasoned that a shorter time lag between the publication of the index and the submission of day-ahead energy bids would reduce the likelihood that generators could lose money under unexpected tight supply conditions by gas price spikes revealed after the market run.

The commission’s June 1 order approving the Aliso Canyon response plan accepted the new index with the qualification that it must be shown to conform to FERC’s policy statement on natural gas price formation, which outlines standards for trade data reporting. (See FERC Approves CAISO’s Aliso Canyon Response Plan Ahead of Summer.)

In August, CAISO asked FERC to extend a previous waiver and allow it to continue using the new index provisions. While the ISO said it could not state that the index conformed with the policy statement, it noted that the volume-weighted average price ICE makes available before 9 a.m. is calculated in the same way as the official index published later in the morning.

In its decision last week, the commission agreed with the ISO’s assessment, pointing out that ICE is a FERC-approved index developer and that the new index meets the minimum threshold for trading volume.

“Based on CAISO’s representations that the volume-weighted average price is generated by ICE between 8:00 a.m. and 9:00 a.m. PT, we expect that the new index, which will include trades between 5:00 a.m. and at least 8:00 a.m. PT, will have sufficient activity to conform to the liquidity requirements of the policy statement,” the commission concluded.

Tariff provisions related to the Aliso Canyon response plan are set to expire at the end of November, but CAISO this month asked the commission to extend most the measures for an additional year. A decision on that request is pending. (See CAISO Seeks to Extend Aliso Canyon Gas Rules Through Winter.)