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Power Market Choices for the West

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When I began my tenure with WPTF last year, the outlook for market development in the West was bright. The CAISO had grown the Energy Imbalance Market (EIM) and looked like it could even change its governance to evolve from this incremental step into a true regional market. The folks in the Mountain West were set to join SPP. The PEAK Reliability Coordinator (RC) had joined PJM to offer a credible platform for the economical implementation of a regional market. That was sooooJanuary 2018.

How things have changed! The Energy Imbalance Market (EIM) has been up and running for a few years now. CAISO and the members of the EIM have done a great job at enhancing that platform to provide some additional benefits in terms of efficiencies. But while the number of EIM participants continue to grow, the concept itself seems to have stalled.

The legislation needed to change the governance of the CAISO to be independent enough to allow utilities outside California to turn over their transmission for CAISO to operate did not pass last year. Given the wildfire issues, PG&E bankruptcy, and a new Governor in Sacramento, it appears “regionalization” will once again fall by the wayside. Certainly, the idea of a day-ahead component as an extension to the EIM has been discussed but this idea – without hard to imagine changes – suggests the EIM growing into a real regional market improbable (for reasons discussed below).

Mountain West died an unexpected death when Public Service Colorado (PSCo) pulled the plug weeks before that market was to go live. We hear that Western Area Power Administration (WAPA) wants to find a way forward and that Black Hills and others are interested but that is about as far as the information goes. Do they have rekindled interest in SPP? Do parties want to look at other providers like PJM? Perhaps there is there a desire to proceed, but no consensus on the direction.

In the Desert Southwest, Nevada and Arizona are marching ahead with the addition of renewable resources at levels that cry out for a network market to manage the flows, resource sharing and optimization that can only occur in an independently dispatched market. Does this group want to join the CAISO, even with its problematic governance structure that makes a full RTO almost impossible? Or do these entities hope to convince their regulators to build investment costs into rates in order to create the redundancy required to ensure reliability on a grid with high renewable penetration but without a market?

These thoughts were upper-most in my mind when I attended the Winter Policy Meeting of NARUC in Washington D.C. a few weeks ago. Among the attendees, there seems to be universal acceptance that the EIM is as close to an RTO as the West can get for now.  Even so, some companies seemed to hold out hope that the CAISO’s day-ahead market (DAM) enhancements would enable the evolution to an RTO-like entity. Though I hate to rain on the parade, this begs the question of how the EIM can function competitively when participating entities control transmission capacity in the day-ahead and real-time. The problem of unilateral market power is immediately clear; a utility controlling its own generation and transmission could bid in the day ahead in such a way that the only solution in the real-time market would be its own resources!

I know from personal experience that FERC and its staff want to be flexible in getting a Western regional market going, but such a construct would be too problematic even for FERC’s permissive urges.

But wait – there are alternatives to the depressing status quo. The alternatives are within reach because they would be building on the incrementalism forged over the last few years. Consider these alternatives:

  • The Git ‘er Dun Option: The EIM entities publish a request for proposals (RFP) for a market administrator. Consider the breadth of the companies to date and the work they have done to be ready for a network market. This would be a substantial market that already has its own outline of governance. (Consider the independent EIM Board.) FERC would require a joint operating agreement (JOA) to ensure the ability to transact with California with few impediments. CAISO, SPP, PJM and others could bid on it and given the work that has been done, a full RTO with a real-time market, day-ahead market and FTR assignment could be done and in place within two years. The benefits are speed, the ability to command one’s own governance, and the elimination of any California legacy policies that might be unpopular outside the Golden State.
  • The Mountain West Redux Option: WAPA has selected SPP to be its RC following the move to close PEAK RC. One of the problems with the previous SPP was that Mountain West was essentially adopting SPP’s governance. In this scenario, the remaining Mountain West participants could see if SPP is willing to form a separate entity based on the members’ own design. This would be akin to what PJM was offering others in the West – namely, a complete RTO separate from any other and with a governance and design set by the member parties. If SPP is unwilling, try an RFP for a market provider such as CAISO or PJM that would work with SPP or any other designated RC. The telemetry and other information necessary for the RC would be the same as that for a market platform. Again, the benefit would be speed, governance by design of the owners, and an opportunity for state regulators to participate.

  • The Better Yet Option: How about both options? The EIM entities have gotten to know each other and work together. They have worked out systems and procedures that could make a network dispatch work nearly seamlessly. Let the EIM entities establish their market to facilitate sharing of resources with the rest of the West now. The Mountain West entities seem to want their own incremental start. Let them have an RFP for their own EIM from any of the current RTOs with an eye to moving toward a full RTO as experience allows. This would give their state regulators some comfort and some input that does not exist with joining SPP as it currently exits.

The work has been done. It’s time to move on. The needs of the Western grid with the introduction of renewables and the retirement of legacy units requires the next step to be taken.

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