7. Background on MRTU and
Its Implementation Timeline
PG&E's MRTU implementation activities were driven by CAISO's Federal Energy Regulatory Commission (FERC)-mandated implementation of MRTU. Therefore, an overview of MRTU and its implementation timeline provides a necessary backdrop for evaluating the reasonableness of PG&E's implementation expenditures.
Following the California energy crisis, FERC ordered a comprehensive redesign of the California electricity market structure.9 In response to FERC's order, CAISO developed the MRTU initiative. On September 21, 2006, FERC approved the implementation of the MRTU initiative.10 This mandated that all participants in the CAISO markets, including PG&E, make the necessary changes required to participate in the newly redesigned markets.
MRTU fundamentally changed the manner in which energy is procured and sold by energy market participants. The new market design changes necessitated major changes to CAISO's underlying technology systems. These changes, as well as the market design changes themselves, required significant changes in PG&E's systems as well as modifications to PG&E's business processes to support the requirements set by CAISO.
The initial implementation of MRTU occurred on April 1, 2009, and was the beginning of a part of a multi-year process that CAISO has undertaken to implement additional market design features as part of the FERC-mandated MRTU initiative.
7.1. Basic Structure of MRTU
The processes required to support MRTU are dramatically more complex than the previous processes that CAISO used to balance electric demand and generation on the transmission grid under its control. Implementation of MRTU required PG&E to significantly modify the systems and business processes it uses to procure, schedule, and deliver electricity to its customers. Significant changes in the CAISO process compared to those used prior to MRTU include:
· The move from three zonal areas (zones) to approximately 3,000 nodal price points (nodes), including the move from pricing for the three zones to pricing for each of the nodal price points.
· The re-introduction of a centralized day-ahead energy market, which has been non-existent since the California Power Exchange filed for bankruptcy in January 2001.
· Co-optimization of three markets simultaneously - energy, ancillary services (operating reserves), and grid congestion - which prior to April 1, 2009 were managed separately by CAISO.
· Introduction of a Residual Unit Commitment (RUC) market to commit additional generation resources in the day-ahead market if insufficient resources had been committed by the day-ahead market to meet CAISO's forecast of the next day's demand.
· The introduction of an entirely new financial mechanism, called Congestion Revenue Rights (CRR), designed to enable market participants to better manage their congestion costs.
The primary changes that most affect PG&E's operations include Locational Marginal Pricing (LMP), the Full Network Model (FNM), the Integrated Forward Market (IFM), the RUC Market, Hour-Ahead Scheduling Process (HASP), the Real-Time Market (RTM), and CRR. Each of these changes has a significant impact on how PG&E manages its scheduling, procurement, and settlement of energy transactions.
7.2. MRTU's Implementation Timeline
MRTU's redesign of the California energy market entailed a significant increase in complexity to PG&E's energy procurement operations. The changes required the development of entirely new business processes and policies, significant Information Technology (IT) software and hardware changes, and the creation of new risk management models - all while maintaining the existing energy market model on a parallel basis. Many of these components involved changes for which details were not fully understood at the outset of the project in 2006. This drove the CAISO to propose a series of evolutionary changes to the MRTU structure that PG&E was required to implement.
On September 21, 2006, FERC approved CAISO's MRTU proposal. Subsequent to September 21, 2006, FERC issued over 50 orders addressing various aspects of MRTU design. In fact, FERC issued nearly 20 orders between the beginning of 2009 and the MRTU go-live date of March 31, 2009.
Given the number of follow-up and clarification orders issued by FERC relating to MRTU, the MRTU implementation timeline included a significant number of rescheduled Release 1 (initial) go-live deadlines. CAISO's original go-live date for Release 1 of MRTU was November 2007. After establishment of the initial go-live date, CAISO changed the go-live date six times.
The overall impact of CAISO resetting this deadline was a 17-month increase in the duration of the project, which increased the cost of the project. As it worked to implement MRTU, CAISO issued Business Practice Manuals (BPM) addressing key areas of MRTU. The BPMs reflected the business policies and procedures that market participants would be required to adhere to in order to participate in the newly redesigned markets. These procedures provided the basis for the business requirements that drove new PG&E business functions and technology changes to support those requirements. Over the course of the implementation, both the BPMs' content and release deadlines changed on a frequent basis. For example, certain BPMs were modified up to 11 times.
7.3 Timing of MRTU Releases
As originally envisioned by CAISO, MRTU would be fully implemented in three releases. Release 1 was to be the initial implementation. Release 1A, which was to include convergence bidding, was to be implemented within 12 months of Release 1. Release 2, including any remaining features of MRTU, was to be implemented within three years of Release 1. The initial implementation of MRTU, Release 1, was March 31, 2009, for trade day April 1, 2009. However, CAISO has substantially modified its vision for subsequent releases. CAISO now envisions a much more complex set of "Market and Performance" (MAP) phases of releases, occurring several times per year over the next several years. Each MRTU MAP phase release includes a number of initiatives with a specific scope of effort.
The initial implementation of MRTU, Release 1, went live on March 31, 2009, for trade day April 1, 2009. The only release from the MAP phase that became operational in 2009 is the Pre-Summer Release. On the CAISO side, the 2009 Pre-Summer release included certain patches or fixes to resolve variances or to implement system improvements, and changes to improve the flexibility of the Automatic Dispatch System (ADS) including a new client (front end). There were also certain changes to the MRTU participant portal and modifications to Open Access Same-Time Information System (OASIS) to streamline processing and enhance reporting. PG&E is not seeking recovery of costs incurred in connection with the subsequent releases of MRTU in this proceeding.
9 See, e.g., San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services, et al. (2001) 97 FERC ¶ 61,275 at 62,245.
10 In re California Independent System Operator Corp. (2006) 116 FERC ¶ 61,274.
