Energy Legal Blog

FERC Conditionally Approves CAISO MRTU Filing

In a September 21 order, a full panel of five FERC commissioners unanimously accepted the California Independent System Operator's (CAISO) long awaited Market Redesign and Technology Upgrade (MRTU) tariff.  While directing the CAISO to make some changes around the edges, FERC approved the core of MRTU proposal.  It includes a day-ahead energy market, revised hour-ahead scheduling timelines, a form of locational marginal pricing (LMP), a new congestion management system with long-term firm transmission rights, redesigned market power mitigation measures, and resource adequacy backstop provisions that would allow the CAISO to procure power to meet forecasted load.  The MRTU tariff would also provide for gradual increases of the energy bid cap.  The CAISO proposes to implement MRTU in November 2007.

But several issues need more work, according to FERC.  It directed the parties to convene technical conferences on "seams" issues (how CAISO interacts with neighboring western markets), the allocation of transmission capacity available for imports, and the CAISO's Business Practices Manuals.  FERC also complained that the CAISO's proposal for offering long-term firm transmission rights ─ something that FERC mandated ─ remains mired in stakeholder negotiations.  In addition, FERC directed the CAISO to implement "convergence bidding" within 12 months and to develop measures to counteract incentives for load-serving entities to underschedule, and invited interested parties to file demand response proposals within 60 days.  Responding to commenters that expressed concerns that the necessary software would not be ready and operational by the CAISO's proposed November 2007 implementation date, FERC directed the CAISO to certify at least 60 days in advance of implementation that software and markets will work as expected.

FERC's approval of MRTU comes after a long summer of intensive lobbying by public power groups and public officials in the west who oppose California's market revisions.  Opponents argued that features of the market structure proposed by the CAISO, particularly LMP, were not well suited to western energy markets, and that the changes in California would drive up prices across the west.  In light of the size and importance of the California marekt in relation to the rest of the west, opponents also fear that wherever California goes the rest of the western states will have no choice but to follow.  The FERC commissioners disagreed, and several expressed their views that MRTU would not have adverse impacts on the rest of the west.