IEEE Power & Energy Magazine - March/April 2021 - 32

CAISO runs both day-ahead and real-time markets using a
cost-minimization problem based on bids submitted by supply and demand. Generating costs include minimum load
costs, start-up costs, transition costs, and variable production
costs. The markets also use energy reference bids for when
market power mitigation triggers. All of these costs rely on
fuel costs. Participants can submit bids between the bid floor
and cap for the variable production component while the
bids submitted for commitment costs are capped at 125% of
the nominal value of estimated costs.
CAISO averages the natural gas next-day commodity
prices published by different providers plus the applicable
transportation costs to estimate fuel prices. The three main
gas hubs used for commodity pricing in CAISO's market are
SoCal Citygate, PG&E Citygate, and Kern River. CAISO's
commitment cost estimates used in the real-time market are
based on these fuel prices. Similarly, reference bids used in
the market power-mitigation process rely on these fuel prices
and include a 10% adder. The 25% headroom on commitment costs and 10% adjustments on reference bids serve as
headroom to absorb any uncertainties or other actual costs
borne by generators.
For the day-ahead electric market, CAISO uses the most
recently available gas commodity prices by 8:30 a.m. Pacific
Prevailing Time before the close and run of the day-ahead
market for the next day. Any change in traded gas prices
afterward, such as those reflected in the intraday or sameday strips in gas trading, are not reflected in CAISO's cost
estimates. If there are strained market conditions, such as
the risk of penalties from deviations from a daily balancing
requirement, the traded gas prices during these procurement
and nomination periods are expected to increase relative to
timely trading. Under this scenario, estimated costs may
not reflect real-time conditions and could lead to inefficient
real-time commitments and dispatches as well as insufficient cost recovery for dispatched resources.

Gas Price (US$/MMBTu)

70
60
50

Average Day-Ahead Electric Price
SoCal Citygate
PG&E Citygate

40
30
20
10

Aliso Canyon Storage
and Gas Limitations
Given the storage limitations at Aliso Canyon, CAISO initiated an assessment of market mechanisms and other tools
to minimize the risks associated with managing limited
gas-fired supply in the CAISO electric system. The objective was to support reliable operation while minimizing
any adverse impact on the markets and assess how limited
gas supply affected generating facilities and what new risks
could arise under these conditions.
With a scenario of limited gas-fired supply as a result
of the need to comply with gas-balancing requirements,
CAISO identified four potential adverse market impacts in
the electric sector.
1) There could be a mismatch between actual gas demand and estimated gas flow. The bid window for the
electric market closes at 10 a.m. Pacific Time; market
solutions are available by no later than 1 p.m. Pacific
Time. Scheduling coordinators managing generating
facilities will not know the electric schedule of gasfired plants until then. Based on the electric schedules, a gas-fired plant can estimate the required gas
burn for the next day. On the gas side, the first cycle
for a gas nomination, known as the timely nomination
cycle, closes at 11 a.m. Pacific Prevailing Time, which
is before the publishing of the electric market results.
Thus, the timing between electric and gas markets
does not allow resources to make gas procurement or
pipeline nominations based on schedules determined
by the electric market. This
creates a risk of the actual gas
demand being different from
280
the nominated gas flow.
2) Electric dispatches from CAI240
SO could not be followed due to
200
gas availability or constraints.
160
As part of the market solutions,
the CAISO market issues com120
mitment and dispatches for re80
sources to follow. This allows
40
the electric market to meet de0
mand at minimum costs while
taking into account all of the
system conditions. Dispatches
for gas-fired resources are
supported with the gas supply;
incremental electric dispatches

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With a significant amount of gas-fired generation by gas,
gas prices will heavily influence electric prices. Figure 4
illustrates the system-wide electric price in CAISO in comparison to the prices at the two main hubs in CAISO's footprint. Prices in Southern California are more dynamic and
directly impact electric prices. The figure displays the strong
correlation between electric prices with gas prices.

figure 4. Gas and electric prices in CAISO's system.
32

ieee power & energy magazine

Day-Ahead Electric Price (US$/MWh)

Commitment Costs and Energy Bids

march/april 2021

IEEE Power & Energy Magazine - March/April 2021

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