Cal-ISO seeks forward contracting authority
  
09/20/2000 
Generation Week 
(c) Copyright 2000 Pasha Publications, Inc. All Rights Reserved. 
The California Independent System Operator (Cal-ISO) "most reluctantly" asked 
FERC last week to approve tariff amendments that would allow the system 
operator to obtain forward contracts. 
Further, in an effort to discourage utilities from leaning on the ISO for 
power, The ISO wants to allocate the costs of those contracts to scheduling 
coordinators whose forward schedules do not reflect their actual real-time 
demands. The allocation of those costs would be proportional to the sizes of 
the deviations. This would be a change from the current system, in which 
energy purchasing to balance load is spread among all market participants. 
"Fairness, as well as providing appropriate economic incentives to scheduling 
coordinators to align their forward and real-time schedules, dictates this 
allocation," the Cal-ISO's filing states. 
Recently, Cal-ISO President and CEO Terry Winter had unsuccessfully sought 
approval from the ISO Board of Governors to approve an amendment to the ISO's 
tariff to require scheduling coordinators to include at least 90% of actual 
loads, with generation and imports sufficient to balance their schedules, in 
final day-ahead schedules, and 95% of actual load in final hour-ahead 
schedules. Scheduling coordinators would have had to bear the costs of the 
ISO's out-of-market power purchases to balance the load. Coordinators would 
have been allocated the costs of those arrangements in proportion to the 
deviations of their actual real-time loads from their scheduled loads (GW 
8/30). 
The ISO is asking for authority to enter into forward contracts without first 
soliciting bids because a formal bid process would take too long in a 
fast-moving market. 
FERC has directed the ISO to enter into forward contracts as a means of 
better assuring that load requirements are met. FERC expressed its concern in 
an order refusing San Diego Gas & Electric's request for a cap of indefinite 
duration on energy sold in the California Power Exchange. FERC ordered "the 
ISO to immediately institute a more forward approach to procuring the 
resources necessary to reliably operate the grid." 
The ISO said it is in total agreement with FERC's observation that a 
reasonable supply portfolio would make use of forward contracting as a hedge 
against price volatility. The ISO noted that the grid operator and FERC are 
in agreement that fulfillment of forward contracting is a responsibility that 
best resides with load-serving utilities. 
"Unfortunately, and for reasons not at all apparent to the ISO, the utilities 
thus far have been denied that authority," the Cal-ISO filing stated, noting 
the decision to empower the utilities rests California Public Utilities 
Commission. The ISO said it is applying for the tools to enter into forward 
contracts, but expressed hope that load-serving entities would "receive and 
exercise the authority to discharge a responsibility that more properly is 
theirs." 
The ISO said it doesn't want to be placed in the position as a competing 
market player. 
"The ISO continues to believe that its market activities should be 
constrained to an absolute minimum and that, most particularly, it should not 
be competing against load-serving entities for the energy needed to satisfy 
load that is reasonably predictable," the Cal-ISO said. 
The Cal-ISO wants forward contracting authority because the grid operator 
needs to buy increasing amounts of power at the last minute to balance supply 
and load on the grid. The ISO has been scrambling through real-time and 
ancillary services markets to find this balancing power. 
Originally, the California market system was set up so that utilities would 
buy most of the state's power needs through the California Power Exchange's 
(Cal-PX) day-ahead market. State regulators have not given utilities 
authority to do extensive forward contracting outside the Cal-PX, and 
utilities have been increasingly inclined to under schedule their actual 
needs in the Cal-PX and lean on the ISO to provide the balance of the power 
for their customers. 
Saying that underscheduling of load continues to be a problem and cautioning 
that unseasonably warm days occur in the fall, the ISO asked FERC to waive 
the typical 60-day notice required for tariff amendments and allow the 
changes to take effect immediately. 
"What the ISO seeks are the tools necessary to enable it to contract if 
available forward commitments appear reasonable," the system operator's 
filing says. The ISO said it does not believe other, related FERC orders 
require it to forward contract.