April 22, 2022
Docket No. ER20-1075-002
In this order on remand from the United States Court of Appeals for the District of Columbia Circuit,[1] the Commission eliminates the 20 percent adder previously allowed for suppliers to justify capacity offers above the “soft-offer cap” in the Capacity Procurement Mechanism administered by the California Independent System Operator Corporation (CAISO).[2] The majority finds that there is insufficient record support for the adder.[3] Rather than reject the adder and inflict another regulatory flip-flop on the power markets, I would have sought additional record evidence for or against the 20 percent adder.
The record is incomplete. It seems likely that parties submitted less record evidence in support of the adder in this proceeding because the exact same adder (and justification for it) has been in use to set the soft-offer cap since 2015.[4] Any such omission could be remedied by soliciting additional evidence now. But the majority takes the blunt hammer approach and simply gets rid of it. In doing so, the majority fails to mention that CAISO has experienced rolling blackouts in the interim and remains in a near perpetual state of emergency, largely because of insufficient generation resources and artificially low prices.[5] There is nothing in the record about any of this, either, but clearly this is a bad time to impose price-suppressing changes on the CAISO markets absent greater justification.
The Commission recently reversed a nearly identical capacity adder in the PJM market, and my dissent in that case offers further reasoning for not reversing the adder here.[6] My primary point there was that the majority ignores the effects of the regulatory uncertainty its reversals impose on already fragile power markets.[7] The situation somehow is even worse in CAISO than in PJM. While the Commission itself has interfered less in the CAISO market design than it has in PJM, the CAISO markets are in worse shape if measured by blackouts[8] and emergency filings.[9]
The majority is interfering now, but when the next blackout hits, I predict that the Commission will be first in line to blame CAISO for its ineffectual markets, wholly ignoring our own role in rejecting perfectly reasonable price formation rules that could have helped prevent the reliability shortfall.
For these reasons, I respectfully dissent.
[1] See Cal. Pub. Utils. Comm’n v. FERC, 20 F.4th 795 (D.C. Cir. 2021).
[2] See Cal. Indep. Sys. Operator Corp., 179 FERC ¶ 61,035 (2022).
[3] Id. P 12.
[4] See Cal. Indep. Sys. Operator Corp., 153 FERC ¶ 61,001, at P 29 (2015) (upholding soft offer cap with a 20 percent adder to allow sufficient recovery of fixed costs plus return on capital to facilitate incremental upgrades and improvement by resources).
[5] See Transcript of the 1073rd Meeting, FERC, at 31 (Dec. 17, 2020) https://www.ferc.gov/news-events/events/december-17-2020-virtual-open-meeting-12172020 (“Overall, the August heat storm brought to life several potential shortcomings associated with the California planning processes, operating protocols, and market design.”) (December 2020 Meeting Transcript); see also Cal. Indep. Sys. Operator Corp., 176 FERC ¶ 61,159 (2021) (Danly, Comm’r, dissenting at P 1) (“CAISO seeks this latest emergency relief because of the ongoing and persistent failure of its markets to attract and retain adequate resources to maintain reliability.”); id. (Danly, Comm’r, dissenting at PP 16-18).
[6] PJM Interconnection, L.L.C., 178 FERC ¶ 61,020 (2022) (Danly, Comm’r, dissenting).
[7] Id. (Danly, Comm’r, dissenting at PP 5-9).
[8] See Staff Presentation on Preliminary Observations on the August 2020 California Heat Storm (AD21-3-000), FERC (Dec. 17, 2020), https://www.ferc.gov/news-events/news/staff-presentation-preliminary-observations-august-2020-california-heat-storm-ad21; Staff Presentation on California Independent System Operator (EL21-19-000), FERC (Dec. 17, 2020), https://www.ferc.gov/news-events/news/staff-presentation-california-independent-system-operator-el21-19-000.
[9] See, e.g., Depart. of Energy, Order No. 202-21-2 (issued Sept. 10, 2021) (emergency order issued pursuant to Federal Power Act (FPA) section 202(c), 16 U.S.C. § 824a(c), determining that an emergency exists in California due to a shortage of electric energy, a shortage of facilities for the generation of electric energy, and other causes and authorizing specific electric generation resources located within California to test and operate at their maximum generation output levels when directed to do so by CAISO notwithstanding air quality or other permit limitations through Nov. 9, 2021); Depart. of Energy, Order No. 202-20-2 (issued Sept. 6, 2020) (FPA section 202(c), 16 U.S.C. § 824a(c), emergency order was issued to CAISO authorizing specific electric generating units located within the CAISO balancing authority area to operate at their maximum generation output levels due to an ongoing “Extreme Heat Event” and to preserve the reliability of bulk electric power system through Sept. 13, 2020); see also Cal. Indep. Sys. Operator Corp., 176 FERC ¶ 61,159 (granting waiver to allow CAISO to immediately interconnect two generating units to address potential capacity shortfalls and maintain reliability); Cal. Indep. Sys. Operator Corp., 175 FERC ¶ 61,245 (2021) (order accepting tariff revisions subject to further compliance filing to modify load, export, and wheeling priorities in the day-ahead and real-time optimization process and establish related market rules); Cal. Indep. Sys. Operator Corp., 175 FERC ¶ 61,168 (2021) (order on tariff revisions to enhance CAISO’s resource adequacy rules by: (1) adopting a minimum state of charge requirement for storage resources that provide resource adequacy capacity; (2) requiring substitute capacity for all maintenance outages of resource adequacy resources; (3) clarifying that extending the scope or duration of an existing outage requires a new outage request; and (4) updating the local capacity technical study criteria and permitting CAISO to designate capacity under the backstop capacity procurement mechanism if there are deficiencies relative to the revised criteria); Cal. Indep. Sys. Operator Corp., 175 FERC ¶ 61,167 (2021) (order on tariff revisions regarding the import capability allocation process); Cal. Indep. Sys. Operator Corp., 175 FERC ¶ 61,160 (2021) (order on tariff revisions to ensure CAISO has the appropriate operational tools and market rules to address tight supply conditions).