FERC Approves Mitigation Measures for CAISO Exceptional Dispatch, Refers Behavior to Office of Enforcement

FERC has approved tariff revisions from the California ISO which grant additional mitigation authority related to exceptional dispatch, and FERC also referred behavior intended to be curbed by the tariff revisions to its Office of Enforcement for formal investigation.

As previously reported, CAISO had proposed the tariff changes to address behavior which could lead to inflated payments under the existing exceptional dispatch and residual imbalance energy mechanisms.

Specifically, FERC accepted CAISO's proposal to expand the circumstances under which it is permitted to mitigate the amount of exceptional dispatch energy payments to include all exceptional dispatches that are needed to move a resource from its minimum physical operating level to its "minimum dispatchable level," at which the ISO is able to use the resource effectively to meet certain reliability criteria.

Additionally, residual imbalance energy shall be paid the LMP unless the LMP is lower than the resource's bid, in which case the ISO will pay the resource the lesser of the resource's bid price or the default energy bid. Previously, residual imbalance energy was paid as bid.

"[W]e find that CAISO has shown that under certain market conditions and due to the relative frequency of CAISO's use of exceptional dispatch for this purpose, a resource can predict with a high degree of certainty that CAISO will need to exceptionally dispatch it up from minimum load to its minimum dispatchable level. In fact, CAISO highlights that 95 percent of the time, the same 10 resources have been exceptionally dispatched for this purpose. This pattern suggests a frequent and regular use of exceptional dispatch that could be predictable, and therefore create a plausible potential to exercise market power under the current bidding rules. At times there may be limited resources to respond to real-time needs. CAISO explains that its market software only looks ahead 60 minutes and may not capture the ramping constraints of certain resources beyond the 60-minute time horizon. Therefore, in certain circumstances, resources that have minimum dispatchable levels above minimum load, and have been committed at minimum load, can submit high bids for peak periods in real-time and be relatively certain that CAISO will need to exceptionally dispatch them up to minimum dispatchable level. Thus, these resources have the opportunity to influence the price received for involuntary backstop capacity by bidding at the cap," FERC said.

FERC shared capacity owners' concerns regarding CAISO's use of exceptional dispatch. "As originally approved, exceptional dispatches were intended to be 'rare and infrequent' and reserved for 'genuine emergencies.' CAISO's Filing suggests that its use of exceptional dispatch may be too expansive," FERC said.

"[W]e are concerned with the extent of CAISO's reliance on out-of-market solutions, which tend to artificially depress market prices," FERC said.

FERC "strongly encourage[d]" CAISO to continue evaluating new market products, including a 30-minute ramping service, that may reduce CAISO's reliance on exceptional dispatches. FERC also encouraged CAISO to continue to work with stakeholders to develop a long-term solution to the settlement of residual imbalance energy

Because CAISO continues to use exceptional dispatch more extensively than originally anticipated, FERC directed CAISO to submit, within 12 months, a comprehensive report describing in detail the steps it has taken to reduce its reliance on exceptional dispatch

Docket No. ER12-2539