Attachment A

UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION

The California Independent System	) 	Docket Nos. EC96-19-___
Operator Corporation	)	and ER96-1663-___

AMENDMENT NO. 7

SUBMITTED ON
March 31, 1998

A.	Preservation of Existing Transmission Priorities for Reliability Must-Run Generation and Existing Contracts
The ISO is proposing amendments to the Schedules and Bids Protocol (“SBP”) and the Scheduling Protocol (“SP”) that initially were proposed as part of Amendment No. 3.  Amendment No. 3 principally related to changes in the software to accommodate the ISO Governing Board’s direction that the ISO give Eligible Regulatory Must-Take and Eligible Regulatory Must-Run Generation transmission priority.  The Commission rejected Amendment No. 3 on March 25 on the basis of concerns relating to this proposed priority.
The changes the ISO proposes here, in this Amendment No. 7, describe the manner in which the ISO intends to provide transmission priorities to Reliability Must-Run Generation and Existing Contract rights.  Giving these two types of resources priority is wholly consistent with the Commission’s orders; in fact, the software changes regarding Existing Contracts reflected in the Protocol provisions are consistent with the Commission’s October 30 Order. 
The priority afforded to Reliability Must-Run Generation and Existing Contract rights in the event of Congestion Management will be secured by the Scheduling Coordinator flagging the resource type and submitting Adjustment Bids for Existing Contracts, within assigned ranges and for Reliability Must-Run Generation, at the prescribed value.  This process is described in detail in the proposed language in the two Protocols.  These Adjustment Bids, in combination with the flag, will ensure that the ISO’s Congestion Management algorithm will not curtail Reliability Must-Run Generation until all other uses (both new firm uses and Existing Contract rights) of transmission have been curtailed and will protect Existing Contracts rights as follows:
•	First, economic resources and trades, which have been allocated new firm use transmission service, that submitted Adjustment Bids within the normal range will be curtailed. 
•	Second, schedules that do not have Adjustment Bids and are not Reliability Must-Run Generation, which have been allocated new firm use transmission service, will be curtailed (to zero if necessary on a pro-rata basis).  This category will include Eligible Regulatory Must-Run and Eligible Regulatory Must-Take Generation.
•	Third, any Existing Contract uses (if and to the extent necessary) will be curtailed.  
•	Finally, curtailments of Reliability Must-Run Generation, which have been allocated new firm use transmission service, will be implemented on a pro-rata basis unless otherwise required in instructions received from Participating Transmission Owners.
Accordingly, the Schedules and Bids Protocol and the Scheduling Protocol are amended as follows:
SCHEDULES AND BIDS PROTOCOL (SBP) AMENDMENTS
SBP 2.1.1	Generation Section of a Balanced Schedule and Adjustment Bid Data
The Generation section of a Balanced Schedule will include the following information for each Generating Unit: 
(a)	SC’s ID code;
(b)	type of market (Day-Ahead or Hour-Ahead) and Trading Day;
(c)	name of Generating Unit scheduled;
(d)	type of Schedule:  Preferred or Revised (refer to the SP for details);
(e)	priority type, if applicable, to the Settlement Period (use OTHER if scheduling the use of Existing Contract rights or RLB_MUST_RUN) for Reliability Must-Run Generation;
(f)	contract reference number for Reliability Must-Run Generation or Existing Contract (or set of interdependent Existing Contracts);
(g)	Congestion Management flag – “Yes” indicates that any Adjustment Bid submitted under item (k) below should be used;
(h)	publish Adjustment Bid flag, which will not be functional on the ISO Operations Date.  In the future, “Yes” will indicate that the SC wishes the ISO to publish its Adjustment Bids; 
(i)	Generating Unit ramp rate in MW/minute;
(j)	hourly scheduled Generating Unit output in MWh (the ISO will multiply these values by the hourly Generation Meter Multipliers), including any zero values, for each Settlement Period of the Trading Day (in the case of a Day-Ahead Schedule) and for the relevant Settlement Period (in the case of an Hour-Ahead Schedule); and
(k)	the MW and $/MWh values for each Generating Unit for which an Adjustment Bid is being submitted consistent with SBP 4.
SBP 2.1.2	Demand Section of a Balanced Schedule and Adjustment Bid Data
The Demand section of a Balanced Schedule will include the following information for each Demand location: 
(a)	SC’s ID Code;
(b)	type of market (Day-Ahead or Hour-Ahead) and Trading Day;
(c)	Demand ID – Demand location (which must be the name of a Demand Zone, Load group or bus);
(d)	type of Schedule:  Preferred or Revised (refer to the SP for details);
(e)	contract reference number for Existing Contracts (or set of interdependent Existing Contracts);
(f)	Congestion Management flag – “Yes” indicates that any Adjustment Bid submitted for a Dispatchable Load under item (i) below should be used;
(g)	publish Adjustment Bid flag, which will not be functional on the ISO Operations Date.  In the future, “Yes” will indicate that the SC wishes the ISO to publish its Adjustment Bids;
(h)	hourly scheduled MWh, including any zero values, for each Settlement Period of the Trading Day (in the case of a Day-Ahead Schedule) and for the relevant Settlement Period (in the case of an Hour-Ahead Schedule); and 
(i)	the MW and $/MWh values for each Dispatchable Load for which an Adjustment Bid is being submitted consistent with SBP 4.
SBP 2.1.3	External Import/Export Section of a Balanced Schedule and Adjustment Bid Data
The external import/export section of a Balanced Schedule will include the following information for each import or export:
(a)	SC’s ID code;
(b)	type of market (Day-Ahead or Hour-Ahead) and Trading Day;
(c)	Scheduling Point (the name);
(d)	type of Schedule:  Preferred or Revised (refer to the SP for details);
(e)	interchange ID (the name of the selling entity, the buying entity, and a numeric identifier);
(f)	Energy type – firm (FIRM), non-firm (NFRM) or Wheeling (WHEEL);
(g)	dynamic schedule flag – “Yes” indicates the SC will be dynamically scheduling the external import at the Scheduling Point;
(h)	external Control Area ID;
(i)	priority type, if applicable, to the Settlement Period (use other if scheduling the use of Existing Contract rights or RLB_MUST_RUN for Reliability Must-Run Generation);
(j)	contract reference number for Reliability Must-Run Generation or Existing Contract (or set of interdependent Existing Contracts);
(k)	contract type – transmission (TRNS), Energy (ENGY) or both (TR_EN);
(l)	Schedule ID (NERC ID number);
(m)	Congestion Management flag - “Yes” indicates that any Adjustment Bid submitted for an external import/export in item (r) below should be used;
(o)	publish Adjustment Bid flag, which will not be functional on the ISO Operations Date.  In the future, “Yes” will indicate that the SC wishes the ISO to publish its Adjustment Bids;
(p)	complete WSCC tag;
(q)	hourly scheduled external imports/exports in MWh (the ISO will multiply these values by the hourly Generation Meter Multipliers), including any zero values, for each Settlement Period of the Trading Day (in the case of a Day-Ahead Schedule) and for the relevant Settlement Period (in the case of an Hour-Ahead Schedule) and with external imports into the ISO Controlled Grid reported as negative quantities and external exports from the ISO Controlled Grid reported as positive quantities; and 
(r)	the MW and $/MWh values for each external import/export for which an Adjustment Bid is being submitted consistent with SBP 4.
SBP 2.1.4	Inter-Scheduling Coordinator Trades (“Internal Imports/Exports”) Section of a Balanced Schedule 
In the event of an Inter-Scheduling Coordinator Trade, the SCs who are parties to that trade must agree on a Zone in which the trade will be deemed to take place (“Trading Zone”) and notify the ISO accordingly.  If the SCs which are parties to the trade cannot agree on a Trading Zone, the ISO will designate one.  The purpose of designating a Trading Zone is to provide for the allocation of Usage Charges which may arise in connection with the trade.  Any two SCs can only have one Inter-Scheduling Coordinator Trade between them in each Trading Zone.  The Inter-Scheduling Coordinator Trades section of a Schedule will include the following information for each Inter-Scheduling Coordinator Trade:
(a)	SC’s ID code; 
(b)	type of market (Day-Ahead or Hour-Ahead) and Trading Day; 
(c)	trading SC (buyer or seller); 
(d)	type of Schedule:  Preferred or Revised (refer to the SP for details); 
(e)	contract reference number for Existing Contract (or set of interdependent Existing Contracts);
(f)	hourly scheduled MWh for each Settlement Period of the Trading Day that uses the Existing Contract indicated in (e) above (which values should be less than or equal to the values indicated in (i) below); 
(g)	Trading Zone; 
(h)	Schedule type – Energy (ENGY); and 
(i)	hourly scheduled MWh, including any zero values, for each Settlement Period of the Trading Day (in the case of a Day-Ahead Schedule) and for the relevant Settlement Period (in the case of an Hour-Ahead Schedule), with internal imports into the SC reported as negative quantities and internal exports from the SC reported as positive quantities.
SBP 2.2.1	Stage One Validation
During stage one validation, each incoming Schedule will be validated to verify proper content, format and syntax.  The ISO will check that the SC had not exceeded its Security Amount and verify that the SC is certified in accordance with the ISO Tariff.  The ISO will further verify that the SC has inputted valid Generating Unit and Demand location identification.  Scheduled Reliability Must-Run Generation will be verified against the contract reference numbers in the ISO’s Scheduling Coordinator database.  A technical validation will be performed verifying that a scheduled Generating Unit’s output is not beyond it’s declared capacity and/or operating limits.  If there is an error found during stage one validation, the SC will be notified immediately through WEnet.  The SC can then look at the notification messages to review the detailed list of errors, make changes, and resubmit to review the Schedule if it is still within the timing requirements of the SP.  The SC is also notified of successful validation via WEnet.
SBP 3.4	Validation of Existing Contract Schedules
Each Schedule submitted to the ISO by a SC representing a rights holder to an Existing Contract must include a valid contract reference number in accordance with SBP 3.3.  If the Schedule includes an Inter-Scheduling Coordinator Trade, only one of the SCs should submit a contract reference number.  If a match of the Schedule’s contract reference number is found in the ISO’s database and the Schedule is consistent with the instructions submitted previously by the Responsible PTO, the Schedule will be implemented in accordance with the instructions.  If a match of the Schedule’s contract reference number cannot be found in the ISO’s database,  or if both SCs which are parties to an Inter-Scheduling Coordinator Trade submit contract reference numbers, the ISO will contact the SC and indicate the nature of the problem.  The ISO will assist the SC, within reason, in resolving the problem so that the SC is able to submit the Schedule successfully as soon as possible within the timing requirements of the SP.  If the SC uses a contract reference number for which the responsible PTO has not reserved transmission capacity on a particular path (i.e., the contract reference number cannot be found in the ISO’s scheduling applications table of contract reference numbers), the scheduled use will be treated as a new firm use with a $0/MWh Adjustment Bid. 
SBP 4.6	Use of Adjustment Bids to Establish Priorities
In addition to being used to establish the value each Scheduling Coordinator places on the use of Congested Inter-Zonal Interfaces, Adjustment Bids are also used by the ISO to establish priorities associated with transmission service under Existing Contracts and to establish priorities associated with Reliability Must-Run Generation.  Adjustment Bids have been reserved for use in establishing relative priorities. If the Congestion Management software is not capable of supporting the particular Adjustment Bid values and ranges upon the ISO Operations Date, the ISO will establish alternate values and ranges, which may be changed by the ISO with seven (7) days’ prior notice to Scheduling Coordinators, by way of a notice posted on the ISO Internet “Home Page”, at http://www.caiso.com, or such other Internet address as the ISO may publish from time to time. Otherwise,  the values and ranges for Adjustment Bids to be submitted by Scheduling Coordinators or Adjustment Bids implicitly assigned by the Congestion Management software for these various purposes are as follows:
Adjustment Bid
Value/Range
$/MWh	

Use	
10,000	Adjustment Bid value implicitly assigned by the Congestion Management software to Inter-Scheduling Coordinator Trade exports with a valid contract reference number for the amount of the Inter-Scheduling Coordinator Trade equal to or less than the MW amount specified in the Existing Contract (i.e., specified in the “Contract MW” field of the schedule template).  Usage Charges are not calculated for these scheduled uses, except for any quantity of Energy scheduled in excess of the MW amount specified in the Existing Contract (i.e., specified in the “Contract MW” field of the schedule template) which is treated as a new firm use of ISO transmission service which the Congestion Management software values at the Adjustment Bid price and for which Usage Charges may be accounted to the Scheduling Coordinator as a price-taker of ISO transmission service.
	
9,000 to 10,000

4,000
	Adjustment Bid range available for Demand and external export schedules using Existing Contract rights with a valid contract reference number.  Usage Charges are not calculated for these scheduled uses except for quantities of Energy scheduled in excess of the MW amount specified in the Existing Contract (which is treated as a new firm use of ISO transmission service which the Congestion Management software implicitly values at the Adjustment Bid price within this range) and for which Usage Charges may be accounted to the Scheduling Coordinator as a price-taker of ISO transmission service.

Adjustment Bid value implicitly assigned by the Congestion Management software to protect Day-Ahead commitments of new firm uses in the Hour-Ahead Market (specifically with respect to schedules of Demand and external exports).
	
1,500

700	Adjustment Bid value implicitly assigned by the Congestion Management software to Inter-Scheduling Coordinator Trade exports using new firm uses of ISO transmission service.  Usage Charges are calculated for these scheduled uses.

Adjustment Bid value implicitly assigned by the Congestion Management software for Demand schedules of new firm uses when no Adjustment Bid is provided (i.e., a “price-taker”).  Usage Charges are calculated for these scheduled uses.  The Congestion Management software also uses this value to extend the lower megawatt end of submitted Adjustment Bids for Demand schedules to zero megawatts.

600	Adjustment Bid value implicitly assigned by the Congestion Management software for external export schedules of new firm uses when no Adjustment Bid is provided (i.e., a “price-taker”) or to extend the lower megawatt end of the Adjustment Bid to zero megawatts.  This is also the Adjustment Bid value implicitly used by the Congestion Management software to extend the upper megawatt end of a Generator’s Adjustment Bid to the Generator’s physical maximum limit (for external import schedules, and for external export schedules, the upper megawatt end of the Adjustment Bid is treated as the “physical” maximum limit and, as such, is not extended).  Usage Charges are calculated for these scheduled uses.
	
0.01 to 250

	Adjustment Bid range available for scheduling new firm uses of ISO transmission service bid as potential "price-makers."  The high-end value of this range is initially set at $250/MWh, but can be increased by the ISO to $500/MWh, upon seven days notice.  Usage Charges are calculated for these scheduled uses.  This is the “normal” economic range for Adjustment Bids. The default Usage Charge is calculated by the Congestion Management software to fall within this range in accordance with Section 7.3.1.3 of the ISO Tariff.

0.001 to < 0.01	Adjustment Bid range available for scheduling the use of conditional firm Existing Contract rights.  Although available for Existing Contract use, this range is not protected from Usage Charges since the charges would be calculated in fractions of dollars (e.g., 100 MW at $0.01/MWh produces a $1.00 charge).  A contract reference number is not used for scheduling use of conditional firm Existing Contract rights.
	
0	Adjustment Bid value available for scheduling either new firm uses of ISO transmission service or uses of Existing Contract rights and expressing a zero dollar value for adjustments.  This is the Adjustment Bid value implicitly assigned by the Congestion Management software for a Generator or external import that is specified with a contract reference number that cannot be verified in the ISO's scheduling system and submitted with a negative Adjustment Bid outside of the range reserved for Existing Contracts (i.e., -$9,000 to -$10,000)
	
-600	Adjustment Bid value implicitly assigned by the Congestion Management software for Generation and external import schedules of new firm uses when no Adjustment Bid is provided (i.e., a “price-taker”) or to extend the lower megawatt end of a Generator’s Adjustment Bid to the Generator’s physical minimum limit.  This is also the Adjustment Bid value used by the Congestion Management software to extend the lower megawatt end of an external import’s Adjustment Bid to zero megawatts.  If a Scheduling Coordinator is relying partially on Existing Contract rights for an external import or Generator schedule bid and wishes to be a “price-taker” for the balance not covered by those rights, it must explicitly submit this value as its Adjustment Bid for the balance.
	
-1,500

	Adjustment Bid value implicitly assigned by the Congestion Management software to Inter-Scheduling Coordinator Trade imports using new firm uses of ISO transmission service.  Usage Charges are calculated for these scheduled uses.
	
-4,000

-9,000 to -10,000	Adjustment Bid value implicitly assigned by the Congestion Management software to protect Day-Ahead commitments of new firm uses in the Hour-Ahead Market (specifically with respect to schedules of Generation and external imports).

Adjustment Bid range available for scheduling Generation and external imports using Existing Contract rights with a valid contract reference number.  Usage Charges are not calculated for these scheduled uses except for quantities of Energy scheduled in excess of the MW amount specified in the Existing Contract (which is treated as a new firm use of ISO transmission service and values the additional transmission service at the Adjustment Bid price within this range) and for which Usage Charges may be accounted to the Scheduling Coordinator as a price-taker of ISO transmission service.  An Adjustment Bid, for an Existing Contract use, submitted with a price for the first (or single) segment outside of this range will be treated by the Congestion Management software as a zero price bid.
	
-10,000	Adjustment Bid value implicitly assigned by the Congestion Management software to Inter-Scheduling Coordinator Trade imports with a valid contract reference number for the amount of the Inter-Scheduling Coordinator Trade equal to or less than the MW amount specified in the Existing Contract.  Usage Charges are not calculated for these scheduled uses except for quantities of Energy scheduled in excess of the amount specified in the “Contract MW” field of the scheduling template (for which the amount is treated as a new firm use of ISO transmission service and values the additional transmission service at the Adjustment Bid price within this range) and for which Usage Charges are accounted to the Scheduling Coordinator as a price-taker for ISO transmission service.
	
-30,000	Adjustment Bid value available for scheduling Reliability Must-Run Generation.  Usage Charges are calculated for these scheduled uses.  An Adjustment Bid, for such priority type use, submitted with a price for the first (or single) segment less than this value will be treated by the Congestion Management software as a zero value bid.

SCHEDULING PROTOCOL (SP) AMENDMENTS
SP 7.2.2	Prioritization of Transmission Uses
The following rules are designed to enable the ISO to honor Existing Contracts in accordance with Sections 2.4.3 and 2.4.4 of the ISO Tariff, except as may be limited by the operation of SP 7.4.  Regardless of the success of the application of such rules, it is intended that the rights under Existing Contracts will be honored as contemplated by the ISO Tariff except as may be limited by the operation of SP 7.4.  In each of the categories described in SP 7.2.1, the terms and conditions of service may differ among transmission contracts.  These differences will be described by each Responsible PTO in the instructions submitted to the ISO in advance of the scheduling process in accordance with the SBP.  In addition, Generation, Inter-Scheduling Coordinator Trade imports or external imports in one Zone must be matched by an equal magnitude of Demand, Inter-Scheduling Coordinator Trade exports or external exports in an adjacent Zone (see SP 7.2.3 for a summary of allowable linkages). Scheduling and curtailment priorities associated with each category will be defined by SCs through the use of Adjustment Bids submitted as part of their Schedules as described in the following (see the SBP for a more general description of the use of Adjustment Bids to establish priorities within Existing Contracts and to establish priorities for Reliability Must-Run Generation):
(a)	Transmission capacity for Schedules will be made available to holders of firm Existing Rights and firm Non-Converted Rights in accordance with this SP and the terms and conditions of their Existing Contracts.  In the event that the firm uses of these rights must be curtailed, they will be curtailed on the basis of “high priced Adjustment Bids”.  So as not to be curtailed before any other scheduled use of Congested Inter-Zonal Interface capacity, these high priced Adjustment Bids must fall within a range to be specified by the ISO (for example, a difference of +$9,000/MWh to +$10,000/MWh for Demand or external exports and a difference of –$9,000/MWh to -$10,000/MWh for Generation or external imports).  This range will be reserved strictly for use in association with the prioritization of firm Existing Rights and firm Non-Converted Rights to use available Inter-Zonal Interface transmission capacity.  These high priced Adjustment Bids are only for the ISO’s use, in the context of Congestion Management, in recognizing the various levels of priority that may exist among the scheduled uses of firm transmission service.  These high priced Adjustment Bids will not affect any other rights under Existing Contracts.  To the extent that the MW amount exceeds the MW amount specified in the Existing Contract, the excess scheduled amount will be treated as a new firm use of ISO transmission services as described in (b) below.  Note that, in some instances, for a particular Inter-Zonal Interface, there may be multiple SCs submitting Schedules under several different Existing Contracts on behalf of several Existing Contract rights holders.  In these circumstances, and to the extent the rights holders desire to coordinate the prioritization of their firm uses of the Inter-Zonal Interface (i.e., attribute high priced Adjustment Bids, within the specified range, to each Schedule), their SCs will make the arrangements among themselves ahead of the ISO’s scheduling process.  In the absence of an Adjustment Bid, the ISO will treat the scheduled use of transmission service as a “price-taker” of ISO transmission service subject to Usage Charges.
(b)	ISO transmission service (i.e., “new firm uses”) will be priced in accordance with the ISO Tariff.  Usage Charges associated with the ISO’s Congestion Management procedures, as described in SP 10, will be based on Adjustment Bids which do not fall within either of the ranges specified in (a) above or (c) below.  In the absence of an Adjustment Bid, the ISO will treat the scheduled “new firm use” of ISO transmission service as a price taker paying the Usage Charge established by the highest valued use of transmission capacity between the relevant Zones.
(c)	Transmission capacity will be made available to holders of conditional firm Existing Rights and conditional firm Non-Converted Rights in a manner similar to that done prior to the ISO Operations Date; that is, allocated, as available, based on the agreed priority.  The levels of priority will be expressed in the Schedules in terms of “near zero priced Adjustment Bids”.  Adjustment Bids with the lowest near zero price will be treated with the lowest priority.  These near zero priced Adjustment Bids must fall within a range to be specified by the ISO (for example, a difference of $0.001/MWh to $0.009/MWh).  This range will be reserved strictly for use in association with the prioritization of conditional firm Existing Rights and conditional firm Non-Converted Rights to use available Inter-Zonal Interface transmission capacity.  These near-zero priced Adjustment Bids are only for the ISO’s use, in the context of Congestion Management, in recognizing the various levels of priority that may exist among the scheduled uses of conditional firm transmission service.  These near-zero priced Adjustment Bids are not intended to affect any other rights under Existing Contracts, nor are they intended to subordinate the ISO’s scheduling of firm uses. To the extent that the MW amount exceeds the MW amount specified in the Existing Contract, the excess scheduled amount will be treated as a new firm use of ISO transmission services as described in (b) above.  Note that, in some instances, for a particular Inter-Zonal Interface, there may be multiple SCs submitting Schedules under several different Existing Contracts on behalf of several Existing Contract rights holders.  In these circumstances, and to the extent the rights holders desire to coordinate the prioritization of their conditional firm uses of the Inter-Zonal Interface (i.e., attribute near-zero priced Adjustment Bids, within the specified range, to each Schedule), their SCs will make the arrangements among themselves ahead of the ISO’s scheduling process.  In the absence of an Adjustment Bid, the ISO will treat the scheduled use of  transmission service as  a “price-taker” of ISO transmission services subject to Usage Charges.
(d)	Transmission capacity will be made available to holders of non-firm Existing Rights and non-firm Non-Converted Rights in a manner similar to that done prior to the ISO Operations Date; that is, treated as the lowest valued use of available transmission capacity.  Non-firm uses of transmission capacity under Existing Contracts will be indicated in Schedules submitted by SCs as $0.00/MWh Adjustment Bids.
SP 7.2.3	Allowable Existing Contract Linkages
As indicated in SP 7.2.2, Generation, Inter-Scheduling Coordinator Trade imports or external imports in one Zone must be matched by an equal magnitude of Demand, Inter-Scheduling Coordinator Trade exports or external exports in the same Zone or in an adjacent Zone.  The table below summarizes the allowable linkages.

Generation	Demand	
Generation	External Export	
Generation	Inter-SC Trade Export	
External Import	Demand	
External Import	External Export	
External Import	Inter-SC Trade Export	
Inter-SC Trade Export	Demand	
Inter-SC Trade Export	External Export	
Inter-SC Trade Export	Inter-SC Trade Export	
SP 10.2	Congestion Management Process
(a)	Inter-Zonal Congestion Management will involve adjusting Schedules to remove potential violations of Inter-Zonal Interface constraints, minimizing the redispatch cost, as determined by the submitted Adjustment Bids that accompany the submitted Schedules.  See the SBP for a general description of the use of Adjustment Bids to establish priorities.

B.	Temporary Rule Limiting Adjustment Bids Applicable to Dispatchable Loads and Exports
	As the Commission is aware, the ISO has continued to test its newly-developed systems and procedures in preparing for the ISO Operations Date.  During the ISO's most recent coupled tests on March 27 and 28, an analysis of questionable prices in certain hours based on the results of running Congestion Management software (“CONG”) revealed a problem with Adjustment Bids associated with Dispatchable Loads and exports.
	The ISO has identified a software design flaw relating to the use of incremental Adjustment Bids for Dispatchable Loads and exports available for managing Congestion on a given Inter-Zonal Interface.  As noted above, the problems associated with incremental bids for exports and Dispatchable Loads was not found until the second coupled test.  In both the first and second coupled tests, it was clear that CONG was taking incremental bids for exports and Dispatchable Loads into account.  However, during the second coupled test, the ISO employed a comparative analysis of Adjustment Bids to quantify the effectiveness of incremental versus decremental Adjustment Bids on Generators, Dispatchable Loads, imports, and exports.  From this comparative analysis, it was determined that CONG was not properly implementing incremental export Adjustment Bids to counter-flow power across Congested paths.  Therefore, the degree of Congestion relief, and the resulting transmission prices for Congested paths, was found to be in error.  Removing the incremental export Adjustment Bids in the analysis produced accurate CONG results.  The same was found to be true for incremental Dispatchable Load Adjustment Bids.
	Based on these results of coupled testing, the ISO must temporarily impose a rule regarding the submission by Scheduling Coordinators of Adjustment Bids for Dispatchable Loads and exports.  This rule, to be included in a temporary Section 27 of the ISO Tariff, will require that only decremental Adjustment Bids be associated with Loads and exports (i.e., Scheduling Coordinators cannot submit incremental Adjustment Bids for Dispatchable Loads or exports).
	Accordingly, a new Section 27 is to be added, as follows:

27.	TEMPORARY RULE LIMITING ADJUSTMENT BIDS APPLICABLE TO DISPATCHABLE LOADS AND EXPORTS
27.1	Application and Termination
The temporary change limiting Adjustment Bids for Dispatchable Loads and exports set out in Section 27.2 shall continue in effect until such time as the Chief Executive Officer of the ISO posts a notice (“Notice of Full-Scale Operations”), on the ISO Home Page specifying the date on which this Section 27 shall cease to apply, which date shall not be less than seven (7) days after the Notice of Full-Scale Operations is posted.
27.2	For so long as this Section 27.2 remains in effect, Scheduling Coordinators shall continue to be allowed to specify Adjustment Bids for Dispatchable Loads and exports, conditioned on the rule that the last segment of the Adjustment Bid (i.e., the maximum MW value) must equal the preferred MW operating point specified for the Dispatchable Load or export.

C.	Temporary Rule Disqualifying Certain Energy Bids
	The ISO is proposing a temporary rule affecting the calculation of the Ex Post Prices.  Both the two-week coupled run simulation and the subsequent two-day coupled simulation on March 27 and 28 have generated several unusually high balancing Energy prices.  In brief, the balancing Energy software (“BEEP”) is calculating prices based on assumptions that are not true – that each bid BEEP directs the operator to Dispatch is in fact dispatched by the operator.  The ISO’s proposed temporary rule allows BEEP to set prices more nearly equal to the bids actually used.
	Before the start of the operating hour, the operator will review a merit order list of the bids available for that hour to detect any bids violating the cap. Since the Supplemental Energy market closes 45 minutes before the hour, there will be ample time to produce and review such a list using the existing operator interface screens.  In the first interval of the hour, units that violate the bid cap will be eliminated using an existing tagging procedure available on the BEEP operating screens. The BEEP program will then be re-executed to incorporate these restrictions. The tags will remain in effect for the entire hour without requiring further operator intervention.  This procedure has been tested and found feasible.

The ISO proposes an initial price limit of $125/MWh for Energy bids evaluated in BEEP.  This amount is higher than the respective costs of all resources within the ISO Control Area and close to the top of the range of cost of any resource.  The ISO does not expect this amount to cause any shortage of bids in the market.  The ISO considered a $250/MWh limit, but based on preliminary calculations, has concluded that the higher limit would risk imposing substantial additional costs on the market.  The ISO proposes to change the limit as necessary, for the next Trading Day, based on the recommendation of the Market Surveillance Unit.  The ISO will notify Market Participants of the applicable price level either through WEnet or via the ISO’s Home Page.  The notification will be made for each Trading Day on the previous day during the period between the issue of the Final Day-Ahead Schedule (1 pm) and the issue of the Final Hour-Ahead Schedule for the first Settlement Period of the Trading Day (11 pm).
Accordingly, a new Section 28 is to be added, as follows:
28.	TEMPORARY RULE DISQUALIFYING CERTAIN ENERGY BIDS
28.1	Application and Termination
The temporary change disqualifying certain Energy bids set out in Section 28.2 shall continue in effect until such time as the Chief Executive Officer of the ISO posts a notice (“Notice of Full-Scale Operations”), on the ISO Home Page specifying the date on which this Section 28 shall cease to apply, which date shall be not less than seven (7) days after the Notice of Full-Scale Operations is posted.

28.2	Amendment to Section 2.5.22.6
Section 2.5.22.6 shall be amended by the addition of a new paragraph (c) as follows:

(c) the ISO may at any time between the issue of the Final Day-Ahead Schedule for a Trading Day and the issue of the Final Hour-Ahead Schedule for the first Settlement Period in that Trading Day, publish, either through WEnet or on the ISO Home Page, a price level above which Energy bids in respect of any Settlement Period during the Trading Day will be rejected.  If the ISO does not publish a price level for a Trading Day, the price level applicable on the previous Trading Day shall apply.

D.	Reliability Must-Run Charge
Finally, the ISO respectfully requests leave to clarify an ambiguity. In Amendment No. 4, which was accepted by the Commission on March 30, 1998, the ISO amended Section 5.2.7 of the ISO Tariff to delete potentially confusing wording that could be construed to imply that, in relation to Reliability Must-Run Charges,  netting applies only to Ancillary Services revenues.  The California Public Utilities Commission has requested, during recent Reliability Must-Run negotiations, that the ISO make a further clarification.
As explained in the ISO’s Amendment No. 4, the Reliability Must-Run Contracts provide that the ISO will pay the net difference between (1) the amount received by Owners of Reliability Must-Run Units from the market through their Scheduling Coordinators and (2) the amount owed by the ISO under the Reliability Must-Run Contract.  The ISO sends the invoice received from the Reliability Must-Run Owner to the utility that is a party to the TCA in whose Service Area the Reliability Must-Run Unit is located.  The utility referenced in Section 5.2.7 is responsible for all costs incurred under a Reliability Must-Run Contract less payments to the Scheduling Coordinator representing the Reliability Must-Run Unit for Energy or Ancillary Services. The responsible utility pays the difference because the Reliability Must-Run Unit dispatched resolves a transmission constraint in its Service Area.  
The proposed clarification states that payments for Energy and Ancillary Services provided under the Must-Run Contract and purchased by Scheduling Coordinators shall be deducted from the amount recovered from the utilities responsible for the Must-Run payments. The equations for these formulae are set forth in Appendix H to the Settlement and Billing Protocol in Appendix L of the ISO Tariff. 
Accordingly, Section 5.2.7 is to be amended, as follows:
5.2.7  Reliability Must-Run Charge.  The ISO shall recover the costs it incurs through payments under each Reliability Must-Run Contract from the utility that is a party to the TCA in whose Service Area the Reliability Must-Run Generating Unit is located after deducting the amounts received by the Reliability Must-Run Owner from Scheduling Coordinators for Energy and Ancillary Services, as set forth in Appendix H of the Settlement and Billing Protocol.  The ISO shall prepare and send to each such utility in accordance with the relevant ISO Protocols an invoice in respect of all such costs incurred under all such contracts relating to that utility’s Service Area.  Each such utility shall pay the ISO’s invoices by the Payment Date, in default of which interest shall become payable at the ISO Default Interest Rate.

Attachment B

Notice Suitable for Publication in the Federal Register

The California Independent System	)	Docket Nos. EC96-19-___
Operator Corporation	) 	and ER96-1663-___

NOTICE OF FILING
Take notice that on March 31, 1998, the California Independent System Operator Corporation (ISO) filed for Commission acceptance in this docket, pursuant to Section 205 of the Federal Power Act, an application to amend the ISO Tariff, including the ISO Protocols, and a motion for waiver of the 60-day notice requirement.  The ISO requests that the proposed amendments be made effective as of the ISO Operations Date.
The ISO states that Amendment No. 7 would provide (1) certain changes relating to the transmission priority of Reliability Must-Run Generation and Existing Contracts; (2) temporary rule limiting Adjustment Bids applicable to Dispatchable Loads and exports; (3) a temporary rule disqualifying certain Energy bids; and (4) a clarification relating to the Reliability Must-Run Charge.
Any person desiring to be heard or to protest said filing should file a petition to intervene or protest with the Federal Energy Regulatory Commission, 888 First Street, N.E., Washington, D.C.  20426, in accordance with 18 C.F.R. §§ 385.212 and 385.207.  All such petitions or protests should be filed on or before _________.  Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding.  Any person wishing to become a party must file a petition to intervene.  Copies of this application are on file with the Commission and available for public inspection.