FERC Filings
REQUEST FOR CLARIFICATION OR IN THE ALTERNATIVE REHEARING OF THE ELECTRIC POWER SUPPLY ASSOCIATION-Docket No. EL00-95-012, Docket No. EL00-98-000, Docket No. RT01-85-000, Docket No. EL01-68-000
3. The Commission Needs To Clarify The Functioning Of its Price Mitigation Measures
In the April 26th Order, how the price mitigation mechanism is intended to operate is confusing and amenable to several interpretations. It is unclear, for example, whether the CAISO is expected to post gas and emission prices every day, or when it anticipates an emergency will be called on the following day, or only when an emergency for the next day has already been called. Is the CAISO expected to predict which unit is likely to be the marginal unit and calculate the predicted proxy price on the day ahead of the emergency? Or will the CAISO apply the posted gas and emission prices to what turns out to be the marginal unit in real-time and then post an after-the-fact proxy market-clearing price once its calculations are completed? Or, as proposed in Attachment G to the CAISO May 11th compliance filing, will the CAISO post a proxy price for each gas-fired generator, with whichever one turns out to be the marginal unit setting the market clearing price for that hour?
The actual operation of the market clearing auction procedures has generated much confusion and uncertainty. To provide more certainty and clarity to the market, the Commission should clarify how these provisions of the Order are intended to operate and, if possible, provide examples of how various hypothetical bids will be treated.
The Commission needs to acknowledge as well that this process of determining a proxy marginal cost will significantly understate the true market-clearing price for power. First of all, the proxy price understates gas costs by using an average of all California receipt points and excluding local gas transportation costs. The Commission should allow each generator to identify its point(s) of receipt and to specify local transport costs. The emission adder understates emission costs as well, which are driven by more complex market considerations than the Cantor Fitzgerald index reflects. The Commission should be open to alternative methodologies to determine emission costs.
Second, the Commission’s methodology will often exclude the highest costs actually paid for power. By establishing the proxy price as the “market-clearing price,” but allowing bids that exceed that cost to be accepted and then justified, the market-clearing price fails to accurately reflect the cost of power. This, in turn, dampens price signals and results in higher demand and less supply.