California's independent system operator has offered proposals for a redesigned energy market for consultation. The new structure must be approved by the CAISO board and federal regulators. Known as the Market Design 2002 project (MD02) it is intended to give CAISO a comprehensive view of the changes needed in California's market structure and to develop a new design for the market. Implementation must begin in the second quarter of 2002 so that when FERC's (Federal Energy Regulatory Commission) market mitigation order expires, on 30 September 2002, system operation will be stable.
The MD02 reforms will reduce reliance on the spot market by imposing financial penalties on utilities who do not contract for enough power, encouraging them to sign long-term contracts. They also encompass a price cap, replacing controls imposed by FERC, and revive the state's day-ahead power market.
The new market structure must be compatible with regional transmission organisations now being developed. FERC recently approved the Midwest ISO as an RTO, refusing RTO status to the rival Alliance group on the basis it lacked sufficient scope.
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