On November 26, 2018, FERC partially granted the California Independent System Operator Corp. ("CAISO") a temporary extension of two sets of tariff provisions concerning natural gas system limitations on CAISO's system and corresponding market operations. While FERC temporarily extended six tariff provisions related to the Aliso Canyon gas storage facility ("Aliso Canyon") effective November 30, 2018, and December 16, 2018, as requested, it rejected CAISO's proposal to temporarily extend the tariff revisions regarding gas price scalars.
In June 2016, FERC first accepted proposed tariff revisions from CAISO in response to a large natural gas leak that occurred at Aliso Canyon in October 2015 (see December 6, 2017 edition of the WER). The tariff revisions established market measures, on an interim basis, to address the reliability and system operational risks presented by the Aliso Canyon event. In November 2016, FERC accepted CAISO's proposal to extend the provisions for an additional year. In November 2017, while FERC once again accepted CAISO's proposal to extend the same provisions for another year, it denied CAISO's proposal to make certain provisions permanent. However, FERC did clarify in that same order in 2017 that rejection of the permanent tariff provisions would not foreclose CAISO from proposing to extend the tariff provisions for an additional year.
On September 28, 2018, CAISO filed, pursuant to section 205 of the Federal Power Act, a proposal to extend the tariff provisions until December 31, 2019, with no additional modifications. Specifically, CAISO proposed to extend the provisions as related to: (1) the day-ahead market gas price index; (2) adjustments to commitment cost caps and default energy bids through gas price scalars; (3) after-the-fact recovery of incremental fuel costs; (4) maximum gas burn constraint; (5) competitive path assessment; (6) virtual bidding; and (7) day-ahead commitment schedules.
In its order, FERC accepted in part and rejected in part CAISO's proposed tariff revisions. With one exception, FERC temporarily extended all of the the tariff provisions as proposed, each of which are now set to expire on December 31, 2019. FERC extended these provisions after concluding that these provisions remain a just and reasonable approach to continuing to ensure that CAISO has the measures and tools it needs to address risks associated with the limited operability of Aliso Canyon. However, FERC rejected CAISO's request to extend the tariff revisions related to the gas price scalars. According to a report by the CAISO Department of Market Monitoring, CAISO's use of the gas price scalars over the past year were not only ineffective, but also affected the market by weakening market power mitigation, increasing bid cost recovery, and imposing costs on consumers. FERC found this report persuasive and concluded that the proposed extension would not be just and reasonable.
A copy of FERC's order is available here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.