On November 28, 2017, FERC accepted in part and rejected in part the California Independent System Operator Corporation’s (“CAISO”) two sets of tariff revisions concerning natural gas system limitations on CAISO’s system and market operations. Specifically, FERC accepted CAISO’s proposed extension, for one additional year, of temporary Aliso Canyon tariff revisions that FERC previously accepted on an interim basis. However, FERC rejected CAISO’s proposal to make other interim measures permanent and to extend their application to the entire CAISO-operated western grid, including the CAISO-operated Western Energy Imbalance Market (“EIM”).

In October 2015, Aliso Canyon, a natural gas storage facility in Southern California experienced a large natural gas leak and now maintains limited operability. In May 2016, in response to this event, CAISO proposed tariff revisions establishing market measures, on an interim basis, to address reliability and system operational risks posed by the Aliso Canyon situation. On June 1, 2016, FERC accepted CAISO’s proposed revisions on an interim basis. In two separate “phases,” FERC later accepted CAISO’s proposal to make certain interim measures permanent (Phase I) and extended for an additional year certain other, interim measures (Phase II).

In the instant filing, CAISO proposed two sets of tariff changes. First, CAISO proposed to continue, on an interim basis, the existing interim tariff provisions related to the limited operability of Aliso Canyon that were due to expire on November 30, 2017. These revisions included: (1) improving generators’ ability to reflect gas cost expectations in commitment cost bid caps, default energy bids, and generated bids in the day-ahead market; (2) the continued use of a gas adder that allows CAISO to ensure that the real-time market takes into account the increased constraints of resources in southern California when calculating commitment cost caps and default energy bids for these resources; and (3) after-the-fact cost recovery for scheduling coordinators due to incremental fuel costs associated with default energy bids. Second, CAISO proposed certain tariff revisions to be made permanent and applied to the entire CAISO landscape, including the EIM. These permanent revisions included tariff provisions relating to maximum gas constraints and two-day-ahead advisory schedules.

In its order, FERC accepted the one-year extension of the interim tariff revisions, but rejected CAISO’s proposed permanent tariff revisions. Regarding the one year extension of the interim tariff revisions, FERC reasoned that these measures continue to be a just and reasonable approach for addressing the ongoing risks presented by the limited operability of Aliso Canyon. According to FERC, continuation of the interim measures for an additional year would improve scheduling coordinators’ ability to manage gas procurement and enhance their recovery of gas procurement costs, and would enable CAISO to maintain reliability. As a result of FERC’s order approving the extension of the interim tariff provisions, these provisions will remain in effect until Nov. 30, 2018.

However, FERC rejected CAISO’s proposed tariff revisions to make the measures relating to gas constraints and two-day-ahead advisory schedules permanent. In particular, FERC concluded that CAISO had not shown that its proposed application of the tariff revisions to the EIM were just and reasonable and not unduly discriminatory. FERC reasoned that CAISO failed to demonstrate how it would a prevent an EIM entity from having “too much discretion” over the development and enforcement of a constraint, or from using the constraints to improperly influence the market’s operation. Furthermore, FERC found that CAISO failed to demonstrate how it would monitor and enforce the maximum gas constraints. FERC rejected CAISO’s proposed permanent tariff revisions without prejudice, thereby allowing CAISO the opportunity to propose further revisions consistent with FERC’s order.

A copy of the order is available here.