By Robert Mullin

SEATTLE — Preliminary findings from a Western Electricity Coordinating Council study indicate that inclusion of day-ahead trading in the Energy Imbalance Market will yield reliability benefits that outweigh any expected risks for the Western Interconnection.

Among the benefits: increased coordination across a broader geographic area; uniform application of advanced scheduling processes over multiple balancing authority areas; and improved positioning of resources for real-time operations.

The working group developing the study shared its initial impressions Wednesday at a meeting of WECC’s Market Interface Committee (MIC).

Working group member Alaine Ginocchio, a policy analyst with the Western Interstate Energy Board, explained the report will be tightly focused on providing a “qualitative” assessment of the reliability impact of incorporating CAISO’s proposed extended day-ahead market (EDAM) into the EIM. It will not examine potential economic benefits or cost savings from the change, she said.

“We’re going to describe changes in the day-ahead processes and the potential impact those processes could have on reliability,” Ginocchio said. The group is examining reliability impacts through the lens of operations; ancillary services; resource sufficiency; transmission and seams operations; and congestion management.

The report’s analysis assumes that existing BAA boundaries and NERC-related responsibilities will remain intact and that CAISO will not take control of transmission facilities. It also assumes that integrated resource planning, resource adequacy procurement, and transmission planning and investment decisions will continue to fall to individual BAAs and their state and local regulators.

Ginocchio said the intended audience for the report is state policymakers, utility regulators and WECC’s Board of Directors. “You are not our target audience,” she told MIC members.

And she offered one important caveat: The report will be released before the conclusion of CAISO’s EDAM stakeholder initiative, which will not even produce a straw proposal until late March.

“We’re out ahead of the market design here,” Ginocchio said, clarifying that the working group has no special insights into what the ISO will produce from the EDAM initiative.

“We didn’t want there to be confusion as we go through this that somehow we have some inside information about what the potential design is and that’s what we’re analyzing. We do feel like there’s enough public information right now to make some high-level assumptions about this market framework,” she said.

Those assumptions include:

• Participation in the day-ahead market will be voluntary for EIM participants.
• The market will rely on security-constrained unit commitment, a full network model and LMPs.
• Ancillary services will be offered in the market along with energy.
• A resource sufficiency evaluation will be required before trading in the market, although the report will make no assumptions about the design of the test.
• The EDAM will operate alongside the existing bilateral day-ahead market.
• CAISO will not be offering a centralized capacity market.

Paradigm Shift

Jason Smith, senior manager of operations at Xcel Energy and a participant in the study, told the MIC the WECC report will go into “good detail” about the three trading “paradigms” currently in play in the West: a highly centralized CAISO, EIM BAAs and non-EIM BAAs.

“The things that the three types of BAAs are doing [before real-time commitment] are really the same process at a high level,” Smith said.

Before committing units, he said, “you’ve got to assess the situation depending on what your constraints are going to be,” including transmission limits, ancillary service obligations, load, and physical requirements for firming up variable energy resources.

A number of factors go into the decisions, including the cost of buying power in the market versus self-supply, opportunities to sell and market positioning.

“And we don’t just make those decisions in the day-ahead and send those guys home. It’s fully reoptimized in any of those scenarios all the way up until real time,” Smith said.

CAISO’s centralized market provides the benefit of coordinated submission of unit data and a single decision-maker dispatching across a wide area. And the ISO requires a lot more unit-specific data compared with the bilateral market, including resource commitment details and transmission availability. “All that information has to come into the market operator in sufficiently advanced time so those decisions can be made,” Smith said.

“There’s a lot of scrutiny on the data when we make it financially binding. I’ve always said, once you make the data financially impactful, the data seems to get better really quickly,” he said.

Smith said the working group had some difficulty in pinpointing the EDAM’s potential reliability benefits around transmission coordination.

“In going through this report, we found it was very, very difficult to carve reliability versus economic benefits.

“We would discuss that what are we doing in the day-ahead [is] … reducing [commitment] down to an efficient level,” he said. “Efficient means less resources online, so is that an economic benefit or a reliability benefit?”

But some reliability benefits are readily apparent, including better positioning for real time and improved visibility across the system, helping BAAs avoid “committing their own resources in a vacuum.”

An EIM day-ahead market could also reduce the region’s deployment of flexible resources needed to firm up the output from variable renewable resources.

“We use a phrase: ‘complementary diversity.’ That’s just reflecting solar decreasing in the afternoon as wind is starting to increase,” Smith said.

Risk/Benefit Trade-off?

But the study also points to possible risks, including the development of new seams between different market footprints. That could lead to a breakdown in communication and coordination as utilities inside and outside the EIM unknowingly vie for the same resources.

“We can’t have two entities looking at the same transmission capability and deciding that it’s available for use in the day-ahead. That has to be coordinated,” Smith said. “And congestion management is going to fall out of that. That has to be managed between and across seams.”

Smith also pointed to the working group’s concern about how EIM day-ahead scheduling will allow participating transmission operators to push transmission lines to the edge of their capacity.

“There are probably going to be parts of the transmission system that are run all the way up to their limits. Depending on your point of view, do you consider that a benefit or a risk?” Smith asked. “I mean, we’re more fully utilizing it, but yet we’re staying below any reliability considerations. Economically, that’s pretty apparent, but on the reliability side, it can get a little more gray.”

The same goes for changes that will tighten up the resource commitment process.

“You [currently] have a bunch of entities committing inefficiently, which may lead to excess capacity on the system at a given time,” Smith said. “How much reliability benefit has that given us? How much cushion has that been giving us that we’re going to decide — on an economic basis — to kind of give away?”

MIC member Raj Hundal, market policy and practices manager with Powerex, asked Smith to elaborate on the benefit of improved positioning in unit commitment. “Is that not occurring with the [reliability coordinators] right now? Are they not positioning themselves, or are they not seeing something there that’s going to be different?” he asked.

Smith said the role of the RCs is to keep BAAs “between the digits so you can get out of a problem,” not to minimize the system cost impacts of congestion. “They’re just there to ensure that the congestion can be resolved,” whereas an EIM day-ahead process will position the system so that the operator will have to mover fewer units “out of the way” in real time, he said.

“When we say better positioning in the real-time, there is definitely an economic aspect to that,” he said.

Illiquidity Trap

The study points to another likely risk: reduced liquidity in the region’s bilateral day-ahead market. A similar development has already occurred in the real-time bilateral market as more Western BAAs have joined the EIM, compelling others to sign up. (See EIM Entrants Cite Changing West as Motivation for Joining.)

Andrew Meyers, a public utility specialist on the Bonneville Power Administration’s trading floor, said the study assumes that EIM day-ahead market participants will turn over the day-ahead unit commitments to CAISO.

“As a result of that, we believe you’ll see a natural reduction in day-ahead, physical, bilateral activity as entities join the EIM plus [day-ahead],” creating “different pools of liquidity in the day-ahead arena” and leaving non-EIM entities to trade only among themselves.

And while Meyers said it would be “premature” to say what type of resource sufficiency test CAISO will perform to prevent EIM entities from leaning on each other in the day-ahead market, the working group anticipates there will be some sort of sufficiency check.

“We think entities failing resource sufficiency would be seeking supply to become resource sufficient … by going out to that bilateral pool. If that’s only a few folks or a small number, it may be more challenging for folks to be successful for grabbing the energy that they were hoping to locate,” Meyers said.

“As a part of a BA, and somebody without a huge amount of resources ourselves … I think it would be a problem for us, especially in a day-ahead market when we may have limits to the contracts we have now,” said MIC member Mike Shapley, a short-term power trader with Snohomish Public Utility District, which sits within the BPA BAA.

“I believe you have valid concerns,” said working group member Robert Follini, manager of preschedule and real-time trading at Avista. “It’s going to be something you’re going to have to go to your company with and see how you will position yourself.”

Ginocchio said the working group plans to post a draft of the EDAM report to the WECC website in mid-March. The final report should be released in late May.