Matrix of Options
Export of PIRP Energy Issue, July 20, 2006
This paper provides a packaging of the ideas that were initially included in the June 28, 2006 white paper and written comments from stakeholders that were due July 18, 2006. Stakeholders are encouraged to add their input into this matrix and send it to the ISO.
Option / Stakeholder Comment / Entities Indicating Support#1
Do not allow exports of PIRP Energy. A resource must demonstrate that it has a contract to serve a commensurate amount of CAISO load as a condition of participation in PIRP. / SMUD: ISO should reject the notion that exports should be excluded from PIRP. First, it is a State policy to expand the development of renewables. PIRP was developed as a buffer to its imbalance procurement, which can be very costly to an intermittent resource. Secondly, PIRP has the additional benefit of pooling a large number of intermittent resources, which ostensibly lessens the impact of intermittent resource portfolios as to the ISO’s PIR imbalance procurement due to the often negative correlation between intermittent regions. Moreover, there are other economies of scale, including data sharing. The ISO should be trying to foster PIRP participation; this participation should not stop at the ISO border. A parochial rule which excludes participants is severely short-sighted. Additionally, SMUD customers also pay for renewable energy programs that provide them no direct benefit. Finally, SMUD has truly appreciated and benefited from the program and the ISO has benefited from SMUD’s participation as well. The ISO created the program and knew SMUD wind generation would be exported to SMUD’s customers. There were no objections to this until far more recently. To suggest that the involvement of exports in the PIRP was never anticipated is false.
SCE’s understanding during the development of PIRP was that PIRP energy would serve load within the CAISO. SCE participated in many of the discussions leading up to this filing and was left with the distinct impression PIRP was in fact, consistent with the FERC filing, design for participation “in ISO markets”. In contrast, it was not designed to facilitate intermittent exports for participation outside of ISO markets. To ask CAISO load to pay subsidies for power that is then exported outside of the CAISO, particularly in light of a design that was promoted for intermittent participation “in ISO markets”, is clearly inequitable and SCE maintains its objections. Moreover, proposals to simply change cost allocation or to apply surcharges to PIRP exports remain inconsistent with the original design which made significant accommodations in order to facilitate intermittent participation “in ISO markets”. Consistent with our understanding of the PIRP program, we continue to believe that PIRP energy must serve CAISO load. However, SCE does not see any clean mechanism in which the CAISO can actually track exports of PIRP energy through their market and enforce a “no export” rule. This becomes particularly difficult in light of the proposed MRTU design in which all energy is sold to the CAISO’s pool and all energy is then purchased out of the pool. As a result, proposed MRTU rules do not currently allow purchases from the pool to be traced back to a specific generator. To allow for administration of a “no export” rule, SCE believes that only intermittent resources that can demonstrate a contractual obligation to sell power to loads within the CAISO should be allowed to participate in PIRP. In MRTU it might be possible to expand this such that, absent an explicit contract with CAISO load, special PIRP Self- Scheduling rules could be developed for the HASP process to ensure the power served CAISO load.
FPLE objects to this proposal. FPLE believes that this policy would reduce generation investment and enhance monopsony power. In particular, FPLE believes that the liquid market envisioned in MRTU designs and the removal of balanced scheduling requirements provides an opportunity to invest in wind generation without load-based off-take agreements. FPLE has advocated and implemented an investment structure wherein a renewable generator could sell the renewable attributes to one party (potentially, but not necessarily, an LSE) and sell the energy separately (either in CAISO markets or to mid-market counterparties.) A contract demonstration, if applied as in Option 1 would inhibit investment under this model. In addition, the requirement to demonstrate that a LSE has a contract as a pre-condition to PIRP participation simply elevates buyer market power by giving the buyer the control over whether a generator can qualify for the beneficial aspects of the PIRP.
PG&E recommends that the CAISO not implement any option that precludes the export of renewable energy. It is important that regional trading protocols for renewable and intermittent energy be consistent throughout the WECC. No other control areas that California depends upon are precluding export of renewable energy. Unilateral actions by the CAISO to exclude the export of renewable energy may ultimately harm California and its LSEs, as other control areas may well follow suit with reciprocal export restrictions, reducing the availability of economically and environmentally optimal resources. Furthermore, restrictions on exports of renewable energy would likely be inconsistent with FERC policies, as well as with federal proscriptions against restraint of interstate commerce.
CalWEA: With respect to the intention of PIRP, it is apparent to us that the PIRP Export Issue was not specifically contemplated. Just like the parties did not expressly address the treatment of GMC market usage charges for PIRP participants during the development and initial implementation of PIRP, the parties did not address the circumstances in which PIRP participants might sell their output outside of the CAISO control area. / SCE
#2
Continue to allow exports of PIRP Energy, require that all exports be reported, and assess a control area service charge to PIRP Export schedules to cover uplift and integration costs / SMUD agrees that these costs should be better aligned with cost causation. SMUD therefore looks forward to a stakeholder process on quantifying the incremental costs of PIRP and balancing the system for intermittent resources, as well as comparing the alternatives for better allocating these costs to PIRP participants. We do believe it is incumbent on the ISO to first attempt to identify and differentiate these costs as much as possible. For example, what are the quantifiable benefits that off-set these costs, such as pooling and the negative correlation of PIRP resources? It may well be that the costs associated with exports are significantly reduced by their benefit to the PIR pool and that their withdrawal from the program may result in little change in net PIRP subsidies. There needs to be more precise quantification of costs and offsetting benefits to get a real picture of the net impacts before a cost allocation method is prescribed. This must precede any proposed solution. Finally, assuming we can deal directly with the cost issues, there were no other entities objecting to export participation. SMUD expects that the results of any polling of stakeholders by the ISO as to their views on exports will be made fully transparent so we can quantify these objections.
SCE continues to support the PIRP program we believe that certain refinements to the program are necessary to address the cost impact to CAISO participants related to PIRP exports.
There is a concern over perverse incentives created by the current program. The current treatment of PIRP exports encourages external control areas, including out-of-state control areas, to locate their wind generation within the CAISO and then export firm power. External parties can then generate intermittent power within the CAISO control area and have the CAISO manage all of the associated resulting imbalance energy, ancillary services, and other operational and planning activities necessary to accommodate the intermittent power. Finally, these parties can simply export firm power out of the ISO grid. In doing so these external parties potentially shift significant costs away from their own customers and/or shareholders, and instead force load within the CAISIO grid to pick up the bill. SCE is encouraged by statements from other parties that they do not desire to shift costs on to ISO load, but rather they desire to work with the ISO and other stakeholders to address this PIRP issue in an equitable manner.
PG&E is a strong proponent of transparency, clear economic signals, and cost causation principles. PG&E therefore believes that, as a general matter, specific types of renewables should not be favored over others and, to the extent possible, costs associated with renewables should be accurately identified and assessed to the entities that have caused and benefited from them. In other control areas in the WECC, the generator, and in turn the importer of power, is responsible for bearing the cost of exporting the associated energy from the control area. The CAISO should be consistent with other control areas in the WECC, and properly assign the costs of such exports.
FPLE would prefer mechanisms that allow PIRP exports under reasonable and not unduly restrictive nor discriminatory conditions. FPLE believes that Option 2 is discriminatory. Since all exports are hourly quantities deemed delivered, they all require control area services in order to ensure that the hourly block is delivered to the receiving control area. Charging wind or PIRP without charging other exports is unjust. In addition, a detailed and highly controversial study would need to be undertaken in order to establish a just and reasonable “control area services” charge. The cost of such a study alone dwarfs the benefits one would expect by charging exports. / SMUD
PG&E
#3
Change the current allocation of PIRP monthly netting costs such that all Loads and Exports would pay / FPLE: This proposal seems to assess the reallocated costs to all parties that intrinsically and extrinsically benefit by the introduction of wind to the system and therefore FPLE would not object to this change. / FPLE (would not object)
#4
Establish a dedicated account for all uplift and integration costs for allocation to all loads served on the CAISO system / FPLE: Option 4 appears to suggest that CT 721 be allocated only to CAISO load. FPLE takes no position on this option.
#5
Require that PIRP resources serve load in the CAISO control area, and allow exports of PIRP Energy only through dynamic schedules or pseudo-tie arrangements / SMUD: The ISO Tariff only provides for the dynamic import of energy from a host control area into the ISO control area. It does not provide for exports. A pseudo-tie arrangement pilot program is underway for a “single” export resource from the ISO control area. However, a pseudo tie export (and import) requires a firm transmission path from the resource to the receiving control area boundary. In the case of Solano, there is no long-term firm transmission right to cover the potential capacity of Solano, or even the current capacity beyond a couple more years. It is presumed that a dynamic scheduling arrangement, even if allowed under the ISO tariff, would also require a firm transmission path as well.
(See SCE comments under Option 1 above.) SCE continues to believe the most appropriate way of dealing with exports from intermittent resources is to require dynamic schedules. Dynamic schedules ensure that load within the CAISO does not subsidize the external party, and rather, that the true benefits and costs of the wind generation are properly borne by the external control area receiving the wind Energy.
PG&E: Option 5 should be considered as an alternative for LSEs procuring intermittent renewable generation that is dynamically scheduled in a way that completely transfers the burden of energy regulation to the receiving control area.
FPLE: Option 5 offers what FPLE believes is a tariff condition that pre-exists, that wind energy be dynamically scheduled out of the control area. FPLE does not understand the reference to PIRP participation within the context of a dynamic schedule – in which the imbalance service would be provided by the receiving control area, not the CAISO. / SCE
PG&E (2nd choice):
#6
Make no changes to PIRP until CAISO provides additional information on problem and options (provided by CalWEA) / CalWEA is concerned that the CAISO is rushing to judgment that there is indeed a problem needing fixing. From CalWEA's perspective, there appears to be the potential for legitimate arguments on both sides of the PIRP Export Issue debate. However, until CAISO presents additional information concerning the magnitude of the purported problem, whether it can be addressed through technical changes (as opposed to cost allocation or rate design changes) to PIRP and the likely impact of its alternative proposals on existing and new wind generators, it is premature to be forming opinions on any one proposal. The worst thing, from CalWEA's perspective, would be the adoption of a mechanism that hampers even a small wind project to address an issue that may be of trivial consequence.
SMUD believes that it is premature to select a specific cost allocation before all of the costs and off-setting benefits are as transparent as possible. In other words, it remains unclear what the universe of costs and benefits are. We know from historical data what the various charges, such as 721, are. However, we do not know how forecast improvements, greater participation in the pool, etc., will affect the numbers. Put another way, we need a better understanding as to the severity of the problem before fashioning a solution. / CalWEA
SMUD
# 7
CAISO to establish a threshold level of exports or reallocated dollars that is deemed to be significant and defer action on the “export ban” until that threshold is reached (provided by FPLE) / FPLE: The data presented by the CAISO indicate that of the roughly $3 million in reallocated costs, an export ban would have reduced the amount by 3 percent (roughly 15MW /500MW), or $90,000 – an amount long-since exceeded by attorney’s fees in this investigation alone. A much higher threshold should be established – one that would be related to the total costs of litigating a tariff revision. / FPLE
CAISO/MPD/KGJ Page 1 of 6 Created July 20, 2006