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California ISO proposes to ease congestion costs

From the March 22, 2013 issue of Public Power Daily

Originally published March 22, 2013

By Robert Varela
Editorial Director
Faced with no end in sight to soaring real-time transmission congestion costs, the California Independent System Operator wants to reduce the point at which it "will relax a transmission constraint rather than rely on increasingly expensive and ineffective supply bids to resolve congestion." The ISO has asked the Federal Energy Regulatory Commission for permission to cut its real-time transmission congestion relaxation parameter from $5,000 per megawatt-hour to $1,500 per megawatt-hour.

"Equivalent congestion relief can be obtained through use of a lower parameter setting, which will greatly benefit ratepayers by reducing the costs they appear to be bearing unnecessarily," the CAISO said in a March 8 filing.

The ISO said its analysis "revealed that in highly constrained conditions the current parameter setting leads to the use of less effective energy bids to relieve system congestion that come at a higher cost. Use of such ineffective bids provide de minimus incremental congestion relief compared to the result from lower parameter settings and can significantly and unnecessarily increase real-time congestion offset costs."

Congestion charges that had averaged $5 million per month soared to $25 million in July 2012 and to $55 million the following month. Many of the increased constraints "are attributable to the change in operational practices resulting from the need for greater regional coordination with neighboring balancing authority areas, e.g., new constraints resulting from lessons learned from the system outage events experienced on September 8, 2011," the ISO said. The constraints are expected to continue "into the foreseeable future."

The transmission constraint relaxation parameter establishes the cost threshold at which the CAISO’s market software will relax an internal transmission constraint in order to avoid ineffective but costly market solutions. When the cost of the next one megawatt reduction reaches the transmission constraint relaxation parameter (currently $5,000 per megawatt-hour), the software will relax the transmission limit so that it can produce a less costly solution, the ISO explained.

Analyses showed that a reduction in the parameter to $1,500/MWh would produce significant savings (up to 36 percent) and with only a marginal reduction in effectiveness of resources bid into the market to relieve congestion (at most 5 to 6 percent reduction under acceptable redispatches), the CAISO said. Lowering the parameter to $1,000/MWh "would be counterproductive because it could prevent the dispatch of economic bids at the $1,000 bid cap and would interfere with the ISO’s ability to establish schedule priorities," the ISO said.

CAISO said it did "not propose to change the day-ahead transmission constraint relaxation parameter, currently set at $5,000, in order to ensure the full utilization of economic bids in the day-ahead market."

The ISO stressed that the transmission constraint relaxation parameter does not act as a price cap and therefore energy prices still may exceed $1,500 per MWh. While the change will reduce prices, any resource that provides effective congestion relief will be compensated "appropriately," receiving at least its bid or better, the CAISO said.


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