California's arcane power markets, partially deregulated in the late 1990s during the administration of Governor Pete Wilson, have offered a notorious range of loopholes by which unscrupulous operators might feasibly game the system. Now, the California Independent System Operator (CaISO), the state's grid operator, has proposed a ban on one such seemingly complex practice, which on examination turns out to be almost fiendishly simple.
The CaISO's proposal, submitted to the Federal Energy Regulatory Commission (FERC) on Wednesday, covers the practice of "Circular Scheduling," which takes advantage of the complex nature of the grid to generate revenue for power sales while not providing any net energy into the grid.
Here's a CaISO description of one form of circular scheduling, taken from an agency document:
This example consists of a market schedule to import power to the ISO using one intertie and export this power at another intertie,... The actual circular nature of the combined import and export schedules submitted in the ISO markets is not apparent based only on review of the schedules submitted in the ISO markets ... Because the power scheduled for export from the ISO would be returned on transmission outside the ISO back to the point where the import was originally scheduled into the ISO, these circular schedules would not produce an actual flow of power. However, a market participant could profit from the circular schedule by earning the price difference between the points at which the energy was scheduled to be imported to and exported from the ISO.
In other words, a company sells power into the CaISO grid at one point, exports it from the grid at another point, then sells the power back to itself outside the grid and pockets whatever gain it's made in the complex transaction -- and it still owns the power, which it can sell again.
FERC is investigating the energy trading arm of Deutsche Bank for allegedly indulging in circular scheduling in 2010..