Federal energy regulators approved an expansion of the California Independent System Operator's reliability must-run program, with one Democrat dissenting over what he said was a "carte blanche" for CAISO to enter into out-of-market contracts with generation resources without review.

The Federal Energy Regulatory Commission on Sept. 27 approved CAISO's modifications to its RMR program, which has been controversial because it keeps natural gas-fired units from retiring, paying them to meet reliability needs. Much of the need for the gas plants comes in late evening, when demand is rising just as the state's solar portfolio is diminishing. RMR contracts are one method CAISO is using to keep the lights on, along with other measures to keep gas plants alive (see CEM No. 1557).

FERC approved the decision on a 2-1 vote with Republicans Chairman Neil Chatterjee and Bernard McNamee voting in favor, while Democrat Richard Glick dissented. The commission currently has two open spots. President Donald Trump this week nominated FERC General Counsel James Danly to one spot (see related story).

"We find CAISO's proposed revisions to the RMR process to be just and reasonable measures that will offer a longer timeline for resources that are considering retirement or mothballing and should protect against harmful impacts on the bilateral resource adequacy market or the opportunity for resources to toggle between RMR and market participation," FERC said in the order [ER19-1641].

CAISO proposed removing a stipulation that RMR can only be used for meeting local reliability needs or managing congestion on noncompetitive paths, and adopting an approach giving CAISO the right to issue any dispatch notice for any product or service.

FERC's approval is the latest in a long-running process to develop the RMR changes that has sparked a larger debate about the contracts, with the California Public Utilities Commission often on the questioning end. CAISO spent much of 2018 developing the package of RMR changes that it submitted to FERC on April 23. CAISO's Department of Market Monitoring and the CPUC filed protests to CAISO's filing, with the market monitor saying it did not represent comprehensive changes and the CPUC attacking various aspects and saying CAISO should develop a more robust retirement process for natural gas plants.

Glick, who has pushed for FERC to consider climate change in its decisions, in his dissent said: "I am not aware of any commission precedent giving an RTO or ISO comparably broad authority to perform an end run around the commission-approved market structures in order to retain particular resources."

"Making matters worse, CAISO is not required to justify its decision to enter an RMR agreement in a filing before the commission, as is required in other RTOs and ISOs. Instead, the only matter that will come before the commission is whether the rate established for the RMR agreement is just and reasonable, not whether that agreement is needed or appropriate in the first place," Glick said.

He added that sacrificing any authority to review a system operator's assessment of the perceived need for an RMR agreement abdicates FERC's basic responsibilities to ensure the reliability of the grid and that customers' rates remain just and reasonable.

CAISO in a filing to FERC said that maintaining reliability on a rapidly transforming system might involve meeting flexible and system capacity needs beyond the local capacity needs traditionally met by RMR resources. It said that examples of flexible and system capacity needs include insufficient system operating reserves to meet established reliability criteria and insufficient ramping capability.

"The CAISO anticipates that local reliability needs in local capacity areas will generally drive any RMR designations, but the CAISO must be able to utilize its RMR authority to designate a retiring resource that the CAISO needs to comply with all reliability criteria," the grid operator told FERC.

In other actions, FERC denied a rehearing request for a September 2017 commission order that granted Pacific Gas & Electric a financial adder for its TO19 transmission rate filing based on its participation in CAISO [ER17-2154]. The CPUC, the Sacramento Municipal Utility District and the Transmission Agency of Northern California had filed for rehearing, saying FERC erred in granting the adder. But California law does not mandate PG&E's participation in CAISO, and the utility could unilaterally leave CAISO without obtaining CPUC authorization, making participation in the ISO voluntary, FERC said in the Sept. 30 order. 

"Thus, in order to incentivize PG&E to continue its membership in CAISO, granting the RTO-Participation Incentive for the TO19 filing is appropriate," FERC said.

The commission in a separate Sept. 30 order also denied rehearing requests for an ISO-participation adder it had granted to Southern California Edison for its TO18 transmission rate filing in a December 2017 decision [ER18-169-001, EL18-44]. The CPUC and TANC had also filed rehearing requests in that proceeding.

Glick, who had dissented in the original order granting the adders, voted in favor of the Sept. 30 order, issuing a concurring statement that FERC had adequately shown that the utility's membership in CAISO was voluntary, and not required by law, qualifying it for the adder.