Navigating CAISO

The only ISO covering a part of the Western Interconnect, the California Independent System Operator (CAISO) plays a significant role in managing power throughout the West. CAISO was created in 1998 by the California State legislature, in part related to the state’s attempt to restructure its electricity markets. Its current market footprint includes most of California and a small part of Nevada. It also manages the growing Western Energy Imbalance Market.

SUSTAINABLE FERC PROJECT PRIORITIES

  • CAISO rules and practices necessary to ensure that California can meet its climate and other energy policy goals.
  • Growth and evolution of the Western Energy Imbalance Market.
  • Resource adequacy and capacity accreditation programs that fully value all resources on the system (including demand side resources) according to the services they can provide.

Check out CAISO-focused comments and other filings by the Sustainable FERC Project and other organizations in our library.

TRENDS

Among the issues facing CAISO are reliably integrating growing levels of renewable energy (including hundreds of thousands of rooftop solar systems), resilience challenges from wildfires, assuring sufficient resource adequacy, integrating electric vehicles and energy storage, and growing the Western EIM.

FAST FACTS

  • Service territory: 132,000 square miles
  • Generating units: 1,019
  • Miles of transmission: 26,000
  • Peak demand (2019): 44,301 MW

CAISO’s largest transmission owners include:

  • Pacific Gas and Electric Company
  • Southern California Edison Company
  • San Diego Gas and Electric Company
  • Western Area Power Administration, Sierra Nevada Region

GENERATION MIX

Installed Capacity (Winter 2018)

Source: S&P Global Market Intelligence

Generation (2018)

Source: S&P Global Market Intelligence

ELECTRICITY MARKETS

Wholesale Markets

CAISO offers several market products, including day-ahead, hour-ahead and real time. CAISO also oversees the trading of congestion revenue rights, and convergence bidding activities.

Day-ahead Market

The day-ahead market allows participants to secure prices for electric energy the day before the operating day and hedge against price fluctuations that can occur in real time. One day ahead of actual dispatch, participants submit supply offers and demand bids for energy. These bids are applied to each hour of the day and for each pricing location on the system.

From the offers and bids, CAISO constructs aggregate supply and demand curves for each location. The intersection of these curves identifies the market-clearing price at each location for every hour. Supply offers below and demand bids above the identified price are said to clear, meaning they are scheduled for dispatch. Offers and bids that clear are entered into a pricing software system along with binding transmission constraints to produce the locational marginal prices at different points in the system.

Generator offers scheduled in the day-ahead settlement are paid the day-ahead LMP for the megawatts accepted. Scheduled suppliers must produce the committed quantity during real-time or buy power from the real-time market to replace what was not produced.

Likewise, wholesale buyers of electricity whose bids clear in the day-ahead market settlement pay for and lock in their right to consume the cleared quantity at the day-ahead LMP. Electricity use in real time that exceeds the day-ahead purchase is paid for at the real-time LMP.

Real-time Market 

Real-time markets allow utilities to meet last-minute needs as well as providing reserves should they be needed. The real-time market uses final day-ahead schedules for resources within the ISO and imports and exports as a starting point. It then operates a fifteen-minute market to adjust resource schedules, and then a five-minute market to balance generation and loads.

Prices resulting from the real-time market are only applicable to incremental adjustments to each resource’s day-ahead schedule. Real-time bids can be submitted up to 75 minutes before the start of the operating hour.

CAISO’s “Today’s Outlook” provides information on real-time prices.

Ancillary Services

CAISO procures four ancillary services in the day-ahead and real-time markets:

  • Regulation up: Units providing regulation up must be able to move quickly above their scheduled operating point in response to automated signals from the ISO to maintain the frequency on the system by balancing generation and demand.
  • Regulation down: Units providing regulation down must be able to move quickly below their scheduled operating point in response to automated signals from the ISO.
  • Spinning reserve: Resources providing spinning reserves must be synchronized with the grid (online or spinning) and be able to respond within 10 minutes of a CAISO dispatch signal. This is more reliable than non-spinning reserves because it is already online and synchronized.
  • Non-spinning reserve: Resources providing non-spinning reserves must be able to synchronize with the grid and respond within 10 minutes of a CAISO dispatch signal.

CAISO encourages ancillary service bids and energy bids to be co-optimized (a generating resource will not lose money if their bid-in resource is sold in one market and not the other). Ancillary service procurement, by fuel type, depends on the submarket service being rendered (regulation down, regulation up, spin, non-spin).

Energy Imbalance Market

CAISO operates the Western Energy Imbalance Market (EIM), which is a real-time bulk power trading market. The EIM was launched in 2014 and is governed by a five-member body. The EIM helps to more efficiently manage power throughout the region on a same day basis. It will soon include about three-fourths of the electrical load in the entire Western Interconnect serving all or parts of 14 states.

Quarterly Benefits and Greenhouse Gas Reports

As of April 2020, participants include:

Active

Pending

A short video explains how the Western EIM works.

Resource Adequacy

The CAISO does not operate a formal capacity market, but it does have a mandatory resource adequacy requirement, which is based on the California Public Utility Commission’s Resource Adequacy framework. The program requires that load serving entities (LSEs) procure 115 percent of their aggregate system load on a monthly basis, unless a different reserve margin is mandated by the LSE’s local regulatory authority. The program provides deliverability criteria each LSE must meet, as well as system, local, and flexible capacity requirements. Resources counted for RA purposes must make themselves available to the CAISO day-ahead and real-time markets for the capacity for which they were counted.

CAISO’s resource adequacy program, put it place following California’s energy crisis, is now faced with a number of changing market aspects, including: the rise of renewable energy, predicted closures of natural gas-fired power plants, as well as the increasing popularity of community choice aggregators (CCAs). These changes, in combination, have created an increasing fickle situation for the Resource Adequacy program with the program experience increased costs and an uptick in the number of providers unable to meet their RA requirements. As such, efforts are underway to reform the program.

Market Monitor

Like Southwest Power Pool, CAISO uses an internal Market Monitor. The Department of Market Monitoring is responsible for completing quarterly and annual reports, presentations, and providing recommendations ono market design and operational inputs.

PLANNING

The annual transmission planning process, and resulting plan, is intended for CAISO to comprehensively evaluate CAISO’s transmission grid and needs related to reliability requirements, policy goals, and economic benefits. The ISO Board of Governors is responsible for approving the annual plan, which also authorizes cost recovery through transmission rates.

Not surprisingly, these plans rely heavily on coordination from the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC). The CPUC and CEC both provide data related to forecasted demand as well as supply side growth projections.

Other important aspects of transmission planning efforts include reliability assessments, policy-driven need assessments, economic planning studies, and interregional transmission coordination.

GOVERNANCE

CAISO is a California nonprofit public benefit corporation with headquarters in Folsom, California. CAISO is directed by a five-member Board of Governors appointed by the Governor of California (subject to confirmation by the California Senate). The Board conducts a number of different oversight functions, including:

The CAISO-directed Energy Imbalance Market is overseen by a separate Governing Body

Unlike every other FERC-regulated RTO and ISO, CAISO does not have a permanent committee-based stakeholder governance framework. Through both recurring and special stakeholder processes, CAISO seeks input from all stakeholders. At any given time, CAISO is addressing over 60 different initiatives spanning all facets of the operation of CAISO and the EIM.