UPDATE: March 29, 2019: The California ISO Board of Governors on March 28 approved its 2018-19 transmission plan, including making enhancements to its reliability must-run and capacity procurement mechanism programs. In a statement, the ISO said the enhanced mechanisms "provide a backstop to ensure critical resources needed for the grid can remain in operation and financially viable."
Dive Brief:
- Management of the California ISO (CAISO) wants to change how and when reliability must-run (RMR) and capacity procurement mechanism (CPM) agreements are used to shore up system reliability, taking steps to keep some generators from potentially gaming the system.
- The proposed changes, outlined in a March 20 memo, would require advance notice of upcoming resource retirements that could trigger ISO backstop procurements, and would update the rate of return for RMR resources.
- The grid operator's RMR provisions were set more than two decades ago during the launch of the ISO and have been "largely unchanged" since that time, according to management's recommendations. If CAISO's board of governors agrees with the proposals, the ISO will file changes to the procurement processes with federal regulators.
Dive Insight:
California's grid operator wants to ensure electric service remains reliable, while at the same time keeping costs down. As more renewable energy puts pressure on gas-fired generation, that means keeping a watchful eye on how some necessary traditional plants are kept online.
Resource adequacy (RA) programs have cut down on the need for RMR agreements in recent years, but market dynamics have shifted, with the increasing prevalence of more intermittent renewables generation. The changes CAISO is considering would modernize backstop agreements at a time when their use is on the rise.
According to the ISO, from 2010 to 2016, there were only "a handful" of RMR resources under contract. That's in line with the development of CPM, which was created almost a decade ago to procure capacity in the event load serving entities under-procured their RA requirement.
RMR provisions are almost two decades old and allow the ISO to keep resources online that would otherwise be retired.
"However, in 2018 there was an uptick in the number of RMR resources — largely because of changes that have occurred on the system and in the market that has caused gas-fired resources to face increasing retirement pressures," according to the report.
Last summer, the CAISO board of directors approved a pair of RMR contracts with NRG California South to save the company's Ellwood and Ormond Beach gas-fired power plants. Before that, federal regulators approved RMR agreements for three Calpine gas plants.
But the state is aiming to supply all retail electricity sales from carbon-free resources by 2045 and has a 60% by 2030 renewables target. Along with the declining cost of renewable energy, market pressure on gas-fired generation has been increasing.
The recent need for additional backstop procurement has "identified concerns about the ISO's current framework for RMR and CPM procurement," management said in its March 20 memo. For instance, there is concern that resources "have some ability to select which backstop procurement construct (RMR or CPM) will provide them with the greatest revenue," management said.
With the proposed changes, the ISO would only use RMR contracts for generation that would "otherwise retire but are needed to maintain reliable grid operations. CPM will be used for all other backstop capacity procurement."
CAISO management said CPM procurements could address load serving entity RA-procurement deficiencies, capacity needed for significant events on the grid that cause an unforeseen reliability need, and exceptional dispatches of non-RA resources.
To address concerns that generators can "fish" to see if their resources are needed for reliability (and could therefore potentially score an RMR designation), the ISO would require a formal retirement notice before the operator would study the need for the resource.
"Any resource that wants to be considered for an RMR designation must submit a formal, notarized retirement or mothball affidavit to the ISO," the proposal says. The affidavit would require a generator to explain if the retirement is due to market pressures or other reasons, such as a loss of license.
The report asks that the ISO Board of Governors approve the backstop procurement enhancements and authorize the ISO to make the appropriate filings with the Federal Energy Regulatory Commission, which would need to approve the changes.
