CAISO launches initiative that could lend support to struggling generators

Dive Brief:

  • The California ISO this week launched an initiative to explore how it could lend support to struggling generators in its wholesale power markets. 
  • The new Temporary Suspension of Resource Operations program will examine ways for generators to pull their plants out of service for extended periods of time without mothballing or retiring them. The initiative was sparked by the 2016 bankruptcy of the La Paloma gas plant, which applied for an extended outage but closed after rejection from CAISO and FERC. 
  • The initiative comes as generators in CAISO and other markets feel increasing pressure from low gas prices and greater penetrations of subsidized wind and solar generation. The initiative will kick of May 19 with a stakeholder call. 

Dive Insight:

Thanks to flush hydro reserves and an ever-expanding base of variable solar generation, the California ISO is experiencing more bouts of negative pricing and resource curtailment this spring than ever before. 

Those conditions are sparking concerns that generators may not be able to make sufficient revenues to stay online. The La Paloma plant is often offered as Exhibit A — the plant filed for bankruptcy in December 2016, citing an "inhospitable regulatory environment."

The issues surrounding that closure are now the subject of a new initiative at CAISO, labeled Temporary Suspension of Resource Operations.

In an issue paper launching the program, CAISO officials explain that in May 2016, La Paloma filed with the grid operator for multi-month outages at several generating units, expecting they would not be economic to operate. 

CAISO denied the requests because its Business Practice Manual rules only allowed for extended shutdowns due to physical issues like new construction or maintenance. The plant owners appealed to FERC, which sided with CAISO, ruling that its tariff rule "does not permit CAISO to grant requests for outages for economic reasons."

During the FERC case, CAISO agreed to open a process to consider whether it should "allow for economic outages and compensate generators when it denies an outage for a non-resource adequacy resource."

That means once the Temporary Suspension of Resource Operations program is completed, CAISO could allow generators not needed for reliability to shut down for long periods when they are not profitable, and could establish a type of capacity payment to plants if CAISO denies those requests. 

CAISO will also examine whether it should set minimum and maximum times for outages, among other questions outlined in the issue paper. The first deadline for stakeholder comments is set for May 30, with a final proposal for the CAISO board expected in November. 

Anxiety over plant revenues in wholesale power markets to ensure reliability is not unique to California. Earlier this week, NRG and Calpine filed a proposal for fixes in the Texas power market, saying low gas prices and subsidized wind could lead to reliability problems by pushing dispatchable plants offline. 

And last week, generators told a Federal Energy Regulatory Commission technical conference that subsidized nuclear generation and renewable energy supports could threaten price formation in eastern RTO markets. Stakeholders there centered on a robust carbon price as more market-friendly alternative to state subsidies for clean energy. 

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Filed Under: Generation Regulation & Policy
Top image credit: California ISO