# Presentation: 064583

## 2003 State of the California ISO Markets ReportFederal Energy Regulatory CommissionMay 5, 2004Anjali Sheffrin, Ph.D.Director, Market AnalysisCalifornia ISO

##  Overview of Control Area for 2003

- 10.5 million households served in PG&E, SCE, and SDG&E
- 25,000 circuit miles of network transmission.CA part of western interconnection (WECC)
- 42,581 MW peak load in July, 2003*
- 230,668 GWh annual energy
- 42,000 MW of available generation capacity at peak after derates for hydro and outages
- 5,670 MW net imports on peak

- *Integrated hourly peak

- Imperial Valley

- Miguel

- N.Gila

- Palo

- Verde

- Devers

- Lugo

- Mohave

- Eldorado

- McCullough

- Market

-  Place

- Sylmar

**Pac DC**

- Mead

- Vincent

**SF**

**NP15**

**ZP26**

**SP15**

***Path 26***

***COI***

***AZ3***

***Path 15***

***Mexico***

***LA4***

***LA2***

## Current  Markets Operated by CAISO

- Real Time Imbalance Energy Market
- Day Ahead and Hour Ahead Congestion Management (Zonal)
- Ancillary service markets: regulation, spin, non-spin, replacement
- Soft price cap at $250/MWh
- Automated Mitigation Procedures (AMP) in place
- Conduct test, bid at least 200% or $100/MWh above reference level for system AMP
- Impact test – bid has at least 200% or $50/MWh impact on market clearing price
- No day ahead energy market, Investor-owned utilities resumed purchasing energy for their own requirements in Jan 2003

## Market Highlights for 2003

- Ample supply and moderate loads yielded market outcomes close to competitive levels. No mitigation of prices occurred using system AMP
- Average load up 1% in 2003, but  second half of year up 3.7% due weather and a recovering economy
- Energy prices increased due to higher natural gas prices
- Real-time prices averaged $70/MWh (inc dispatches). Utility scheduled load within 1-2 % of actual load resulting in low reliance on real-time imbalance market
- Ancillary reserve service prices averaged $9.85/MWh, increase of 38% ; some instances of bid insufficiency
- Increases in real-time intrazonal congestion
- Long outages at Vincent and Sylmar substations, and insufficient transmission at Miguel due to new generation additions in  Northern Mexico and Arizona

## Total wholesale cost of serving load  $12.1 Billion in 2003, v. $10.1 Billion in 2002; Increase in costs affected by natural gas pricesWholesale Energy and Ancillary Service Costs, 1998-2003

## All-in price was $55/MWh in 2003 compared to $45/MWh in 2002; increase due largely to increase in gas pricesAll-In Price Index includes estimated bilateral , real-time,A/S  2002-2003

## Real-time incremental energy prices increased from 2002, following natural gas prices; higher in Southern Calif.

**Real-time incremental energy prices increased from 2002, following natural gas prices; higher in Southern Calif.**
***  ******Monthly Averages, 2002-03***

## Peak real-time incremental prices higher in 2003 than in 2002Top 5%* of prices , 2001-2003

- The California ISO’s market posts separate incremental and decremental prices.  Highest 325 price hours are shown.

**Number of Hours:**

**At least **

**$249/MWh**

**At least **

**$149/MWh**

**At least **

**$91//MWh**

- 2001

- 8

- 2353

- 3194

- 2002

- 0

- 0

- 69

- 2003

- 0

- 25

- 309

## Load grew approximately 1% in  2003 vs. 2002

***Load grew approximately 1% in  2003 vs. 2002***
***Load Duration Curves, 2001-2003***

##  Improved Forced Outage Rates of Existing Generation Equivalent Forced Outage Rate 1999- 2003

## New Transmission Projects

***Generating Capacity Net Additions***

## Net imports strong for second year in a row 2001 through 2003 Average Annual Net Imports 

## Competitive Market Outcomes  in 2003 

***Price-to-cost markups 7% in NP15, 8% in SP15***
***Short-Term Markup Indices:  SP15 (top) and NP15 (bottom)***

## High RSI levels in 2003 indicate a healthy market with 

**RSI_Duration Curve 1999 - 2003_**

- 0.8

- 0.9

- 1

- 1.1

- 1.2

- 1.3

- 1.4

- 1.5

- 1.6

- 1.7

- 1.8

- 1.9

- 2

- 2.1

- 2.2

- 2.3

- 2.4

- 1

- 619

- 1237

- 1855

- 2473

- 3091

- 3709

- 4327

- 4945

- 5563

- 6181

- 6799

- 7417

- 8035

- 8653

**RSI Index**

- rsi_1999

- rsi_2000

- rsi_2001

- rsi_2002

- rsi_2003

**High RSI levels in 2003 indicate a healthy market with **
**suppliers pivotal in fewer than 22 hours in the year**
**Residual Supply Index = **_**Total Supply – Largest Supplier**_
***                     *****Demand**

## 	Net Revenue Analysis, 2002 and 2003 - Profits from ISO spot markets for a new typical combined cycle generation unit fell 30 percent in 2003, combustion turbine unit profits stable*- A significant portion of fixed cost recovery would be from long-term bilateral contract.

- *Net revenue analysis based on units selling solely into ISO imbalance energy and ancillary service markets.

## Reduced ancillary service capacity resulted in higher prices and increased bid insufficiency in 2003 compared to 2002 Monthly Weighted Average Ancillary Service Prices, 2002-2003 

## Interzonal congestion costs dropped 33% in 2003 v. 2002 levels 2002 and 2003 Monthly Interzonal Congestion Costs 

## Major paths with interzonal congestion costs2003 Interzonal Congestion Revenues on Selected Paths 

## Real-time intrazonal congestion surged in August as new generation came online in Northern Mexico and Arizona, and overwhelmed local transmission facilities 2003 Monthly Total Intrazonal Congestion Costs 

## Major Market Issues

- Effective Real Time Congestion Management
- Must-Offer Waiver Process Redesign
- Resource Adequacy Requirement
- Economic Evaluation of Transmission Expansion