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Commissioner Tony Clark Statement
March 20, 2014
Docket No.: ER14-480-000

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CAISO’s Integration of Variable Energy Resources

“I generally support the California Independent System Operator Corporation (CAISO) market design changes approved in this order. I write separately to express my concerns about the reimplementation of convergence bidding at intertie scheduling points. While the market redesign addresses several structural issues (such as dual settlement and intertie modeling) that previously contributed to CAISO’s decision to suspend intertie convergence bidding, CAISO has not demonstrated that intertie convergence bidding, even with these changes, is just and reasonable.

“CAISO proposes to reinstate intertie convergence bidding 12 months after implementation of the market redesign, and then only gradually over time. This cautious approach recognizes the significant risks and uncertainty connected to the practice. Due, in part, to congestion and significant imports into California, the interties have been fertile ground for market manipulation.1 Providing opportunities at the interties for virtual bidders expands the number of players and the associated risks without any assurance that anticipated benefits can be realized.

“The order directs CAISO to file a report 12 months after implementation of the 15-minute market “to demonstrate that the new market structure is providing the expected price convergence and that the issues that resulted in the suspension of intertie convergence bidding have been resolved. The report should demonstrate that the new market design is working to reduce systemic price divergence and should also discuss whether the anticipated benefits of intertie convergence bidding outweigh any expected market inefficiencies, including risks of market manipulation.”2 The order also directs CAISO to file a second report detailing the operation of convergence bidding 12 months after its reinstatement.

“While the reporting requirements are appropriate measures given the associated risks, they also demonstrate that the order prematurely accepts intertie convergence bidding without sufficient basis for finding it just and reasonable. There is not a record demonstrating that the market redesign will provide the anticipated price convergence between internal nodes and the interties, or if it will address other concerns such as significant uplift that caused the suspension of intertie convergence bidding. Given this uncertainty, rather than preapproving something that has not been proven to be just and reasonable, I would reject the proposal without prejudice to CAISO proposing intertie convergence bidding once it could provide evidence that the anticipated, theoretical benefits of intertie convergence bidding could be realized.

“Accordingly, I respectfully dissent in part.”

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    1 See, e.g. Deutsche Bank Energy Trading, 142 FERC ¶ 61,056 (2013) (order approving settlement); Gila River Power LLC, 141 FERC ¶ 61, 136 (2012) (order approving settlement).

    2 Cal. Indep. Sys. Operator Corp., 146 FERC, ¶ 61,204, at P 103 (2014).