Watching Over Power Supplies
California’s electricity suppliers could be fined if they fail to deliver promised power to the state’s grid operator under a new system taking effect today.
The measure, included in a set of new rules issued by the California Independent System Operator, will make suppliers more accountable in a state where they face demands for billions of dollars in refunds for alleged electricity overcharges during the 2000-01 energy crisis.
The rules, which have been months in the making, are designed to plug loopholes in market regulations that power suppliers were accused of exploiting. Slow implementation of the market overhaul contributed to the ouster in June of Cal-ISO Chief Executive Terry Winter.
“We will have authority and a new internal mechanism to penalize energy suppliers if they deviate from scheduled energy production,” Cal-ISO spokesman Gregg Fishman said.
Cal-ISO runs the long-distance transmission grid for about 75% of the state, not including some municipal utilities such as the Los Angeles Department of Water & Power, and operates an electricity market.
California opened up its electricity industry to competition in 1998, creating a primary electricity market run by the California Power Exchange and a backup market operated by Cal-ISO.
The two markets’ operating rules faced a barrage of criticism in the wake of the state’s electricity crisis. The Power Exchange failed during the crisis, leaving only Cal-ISO’s market, which was intended to handle relatively small amounts of electricity.
The Folsom, Calif.-based grid operator responded with an initial set of new market rules in June 2001, which included an automatic procedure designed to prevent price gouging by suppliers.
Under the latest set of rules, fines for a producer that provides too little power amount to 150% of the price of the electricity. A supplier that sends too much won’t get paid for the extra electricity.
Previously, suppliers were paid if they produced too much and weren’t fined if they produced too little.
Fishman said the new rules were designed to help markets run more smoothly and weren’t intended to penalize producers.
Suppliers appeared to be raising few objections because fines would be waived if Cal-ISO was informed in a timely manner that obligations couldn’t be met because of a power plant outage.
“We have been generally supportive,” said Jan Smutny-Jones, executive director of the Independent Energy Producers, a Sacramento-based trade association. “It looks to us as if what they are trying to do is come up with a mechanism for scheduling the system to ensure reliability and it is not going to be designed in a punitive way.”
The other major change is the introduction of a more complex system for helping Cal-ISO choose which suppliers to ask for power, Fishman said.
“We have found that the cheapest bid may not always produce the lowest cost [electricity] because some producers may not be able to operate to the exact specifications needed,” he said.
To further improve system responsiveness, the grid operator will send instructions to power plant operators every five minutes, compared with the previous 10-minute intervals.
