On November 8, 2016, FERC approved the California Independent System Operator Corporation's ("CAISO") proposed tariff revisions intended to improve the effectiveness of its local market power mitigation procedures by reducing the frequency of instances where such procedures under-predict congestion. Going forward, CAISO will apply mitigation measures at real-time dispatch intervals.
In its proposed tariff revisions filed June 21, 2016, CAISO explained that to protect against seller-side market power, it had implemented local market power mitigation procedures that rely on non-binding "mitigation runs" to predict congestion patterns for transmission paths for a particular market interval prior to actual "market runs" in which supply offers are binding. At the time of submission, CAISO explained that its mitigation procedure was to conduct incremental mitigation runs for each 15-minute real-time unit commitment interval within an hour, rather than conducting a mitigation run for each five-minute real-time dispatch interval. CAISO explained further that, under that approach, congestion patterns observed in the mitigation run can diverge from congestion patterns that actually arise during the binding market run. According to CAISO, instances where the mitigation run under-predicts congestion can result in artificially high prices and provide opportunities for suppliers to exercise local market power.
CAISO proposed to reduce instances of under-predicted congestion by adding a new mitigation run for each real-time dispatch interval. Specifically, CAISO's proposal sought to apply mitigation measures to the five-minute constituent intervals that comprise a 15-minute real-time unit commitment interval. CAISO asserted that applying real-time dispatch mitigation will reduce the lag time between mitigation runs and market runs, thus reducing the potential for under-predicting congestion.
In granting approval, FERC found that CAISO's proposed tariff revisions "will improve the accuracy and effectiveness of CAISO's local market power mitigation process by addressing situations where CAISO currently under-mitigates in the real-time dispatch process," and agreed with CAISO that "improving the granularity of the mitigation process and improving the information that goes into the market runs will result in a more accurate representation of real-time system conditions that should enhance the overall measure of competitiveness of the market."
The Order on Proposed Tariff Revisions is available here.
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