FERC Approves NV Energy Request to Join California Energy Imbalance Market

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Summary

On May 14, 2015, the Federal Energy Regulatory Commission (“FERC”) issued an order addressing NV Energy’s proposed tariff changes for joining the California Independent System Operator (“CAISO”) Energy Imbalance Market (“EIM”) in Docket No. ER15-1196 (the “Order”).   In its order, FERC conditionally  accepted NV Energy’s proposed EIM tariff revisions, subject to further compliance filings by NV Energy and any modifications resulting from the conclusion of FERC’s ongoing Federal Power Act Section 206 investigation of CAISO’s EIM  involving the operation of CAISO’s EIM with PacifiCorp (Dkt. Nos. ER15-861-000 and EL15-53-000). 

Background: NV Energy Docket No. ER15-1196

Subject to the conditions set forth in the Order, NV Energy will join PacifiCorp as the second entity outside of CAISO to participate in the CAISO EIM.  The CAISO EIM enables entities with balancing authority areas (BAAs) outside of CAISO to voluntarily take part in the imbalance energy portion of the CAISO locational marginal price (LMP)-based real-time electricity market.  PacifiCorp’s two BAAs—PacifiCorp East and PacifiCorp West—were the initial outside participants in the CAISO EIM. 

To facilitate entry into the CAISO EIM, NV Energy proposed several amendments to its open access transmission tariff (“OATT”) which mirrored many of the tariff revisions adopted by PacifiCorp as the initial EIM entity and that were intended to work in concert with the EIM-related provisions of the CAISO tariff.  Major elements of NV Energy’s proposed EIM-related tariff revisions included: (1) a new Attachment P, setting forth the roles and responsibilities of customers and NV Energy as the EIM Entity, including a new section 8 of Attachment P to recover EIM administrative costs and reflect the use of LMP-based pricing; (2) revisions to OATT Schedule 1 to allocate EIM-related administrative costs charged by CAISO; (3) revisions to OATT Schedules 4 (energy imbalance) and 9 (generator imbalance) to reflect the use of LMP-based imbalance pricing; and (4) other targeted modifications to parts of its OATT. 

While NV Energy adopted elements of the PacifiCorp tariff, NV Energy’s proposed changes differed from PacifiCorp’s in at least a few aspects, the most significant of which were: (1) the proposed use of Available Transfer Capacity (“ATC”) for EIM Transfers (as contrasted with PacifiCorp’s use of transmission capacity donated by interchange rights holders); and (2) use of the full CAISO LMP, including the marginal loss component, to settle imbalances.  

Amongst the several interested entities that participated in the case, key interventions and protests included those made by Western Power Trading Forum (“WPTF”), Truckee Donner Public Utility District (“Truckee Donner”) and Powerex Corporation (“Powerex”).   Specific points raised by protesters and substantively addressed by FERC included: (1) use of ATC for EIM transmission and related impact of timelines for submitting transmission schedules; (2) concerns over the EIM market and NV Energy’s particular readiness to enter it; (3) concerns over NV Energy’s proposed OATT Schedules 4, 9, and 10 (loss compensation); (4) rules proposed to facilitate participation of resources external to the NV Energy BAA into the CAISO EIM; and (5) sufficiency of generation resources.

Notable Issues Addressed in the Order 
  • ATC for EIM and Submitting Transmission Schedules:  NV Energy proposed to facilitate EIM transfers using ATC instead of donated transmission capacity.  To implement this plan, NV Energy proposed schedule submission rules that would require transmission schedules to be submitted 57 minutes before the operating hour, or by T-57.  These submissions would become financially binding at that point.  The T-57 submission would then form the basis for allocating ATC at T-40 and e-tags would then be assigned and submitted to CAISO.  Protesters argued that ATC and scheduling rules will  result in erroneous loss of transmission capacity for reserved transmission users with higher priority.  This stems from the fact that firm transmission holders are generally permitted to submit schedules and make changes without charge or penalty up to T-20.  Protesters argued that as proposed by NV Energy, the EIM will be assigned transmission capacity that is not truly available.  FERC, however, found that NV Energy’s current Attachment C already sets forth the process to allocate capacity from firm transmission reservations that are not scheduled/tagged, i.e., unused.  Furthermore, FERC commented that schedules submitted at T-20 would not give market models sufficient time to function. Additionally, FERC noted that NV Energy’s proposed rules are consistent with those already applied in CAISO’s real-time market.  Therefore, FERC found that NV Energy’s proposed use of ATC for the EIM to be just and reasonable, but also noted that NV Energy is “encouraged” to continue working with PacifiCorp, CAISO, and other market participants on resolving the concerns raised over these issues.
  • NV Energy’s Readiness in light of Current Challenges in the EIM Market: A general theme amongst protesters was that it was premature for NV Energy to enter the CAISO EIM until CAISO and PacifiCorp have had an opportunity to work through EIM market implementation issues that are still the subject of pending FERC proceedings.  Those proceedings deal with the market problems experienced as PacifiCorp made its initial entry into the CAISO EIM.  FERC acknowledged these general concerns, but noted that NV Energy had committed to making additional compliance filings once FERC issues its decisions in Docket Nos. EL15-53-000 and ER15-861-000.  FERC’s acceptance of NV Energy’s proposed tariff revisions is conditioned on NV Energy providing these and other subsequent compliance filings outlined infra.
  • Use of EIM LMP for Imbalance Charges Under Schedules 4, 9, and 10:    NV Energy proposed to change its OATT Schedule 4 (Energy Imbalance Service), Schedule 9 (Generator Imbalance Service), and Schedule 10 (Loss Compensation Service) to settle energy imbalances using the EIM LMPs for all customers.  Powerex argued against FERC approval and asserted that actual operation of the EIM in the case of PacifiCorp demonstrated that existing EIM market design is insufficient to ensure just and reasonable prices.  Powerex and others argued against FERC approval of the tariff changes until the underlying issues with the CAISO EIM have been resolved through FERC’s pending actions.  FERC, however, disagreed with the protesters on this point, and instead conditionally approved NV Energy’s proposal to use EIM LMPs for imbalance charges under its OATT Schedules 4, 9, and 10, conditioning such approval on NV Energy’s continued engagement in readiness and compliance initiatives.  In particular, prior to beginning any financially binding operations in the EIM, NV Energy must continue to work with CAISO and other stakeholders to test and demonstrate compliance with CAISO readiness and certification criteria.  Furthermore, per FERC’s direction, NV Energy will have to file a sworn affidavit 30 days prior to commencing full activation in the EIM certifying and attesting to the readiness of NV Energy’s EIM processes and systems.   
  • Resource sufficiency:  In its protest, Powerex raised the concern that the EIM framework has failed to ensure that sufficient generation resources are available through the EIM to meet increased imbalance energy needs at a just and reasonable price.  Powerex pointed to statistics regarding claimed resource insufficiency in the PacifiCorp BAAs and resulting effects on prices in the CAISO EIM.  FERC was not persuaded that NV Energy’s participation in the EIM would jeopardize resource sufficiency in NV Energy’s BAA.  However, FERC recognized that issues of resource sufficiency and price spikes were still the subject of ongoing proceedings evaluating EIM operation in the PacifiCorp BAAs.   To the extent that those proceedings reveal the need for any changes to NV Energy’s OATT as conditionally approved, FERC pointed out that NV Energy will have to address any needed changes as a part of its mandated compliance filing following a FERC decision in Dkt. Nos. ER15-861-000 and EL15-53-000.
  • Market-Based Rate Authority:  NV Energy, in its request, announced its intent to file separately for market-based rate authority in the NV Energy Balancing Authority Area (“BAA”).  FERC concurred that NV Energy did not have the authority to make EIM sales at market-based rates in its BAA until it receives FERC approval.  Before commencing any financially binding participation in the EIM, FERC directed NV Energy to submit a market power analysis to demonstrate that it does not have market power in the EIM market, which includes the NV Energy BAA.

While FERC ultimately approved NV Energy’s requested EIM-related tariff revisions, it did so on the condition that NV Energy take several additional actions.  These include:

  • submitting a compliance filing within 30 days after the issuance of FERC’s forthcoming order in Dkt. Nos. ER15-861-000 and EL15-53-000 with any proposed revisions to NV Energy’s OATT that are appropriate based on the outcome of that proceeding;
  • filing a market power analysis as part of a request for market-based rate authority at least 60 days prior to making any EIM sales;
  • conducting an appropriate period of market simulations and non-binding parallel operations, culminating in the submission of a market readiness certificate at least 30 days prior to NV Energy’s full participation in the EIM;
  • continuing to work with CAISO and other market participants to resolve ongoing concerns related to NV Energy’s use of ATC for EIM transmissions;
  • filing an informational report regarding external resource participation;
  • submitting an informational report to the Commission regarding flexible ramping constraint costs within 15 months after NV Energy’s entry into the EIM.

FERC has not yet issued an order in the related proceeding in Dkt. Nos. ER15-861-000 and EL15-53-000.  FERC convened a technical conference in the matter on April 9, 2015, the transcript of which is available on FERC’s website.  The matter is still ongoing, as the parties continue to file substantive reply briefs. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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