By Robert Mullin

PORTLAND, Ore. — For years after CAISO rolled out the Western Energy Imbalance Market in 2014, Avista took a wait-and-see approach to joining the effort to bring comprehensive real-time trading to the West.

Once the Northwest Power Pool scrapped its work on a competing regional market initiative in 2016, Avista “went into monitoring mode,” the utility’s director of power supply, Scott Kinney, told the EIM’s Regional Issues Forum at Bonneville Power Administration headquarters Tuesday.

“The needs and risks that were driving other utilities to join — we just didn’t see those same needs and risks ourselves,” Kinney said.

Hydroelectric resources currently comprise about 50% of Avista’s generation, while other renewables make up only 4%, providing the utility with ample flexibility to firm up its small wind portfolio. That meant it “didn’t have a driver from that perspective,” Kinney said.

“We had done some assessments around costs and benefits, and the economics at that time just weren’t compelling enough for us to join, so we continued to just engage,” he said.

That engagement included being “heavily involved” in the public meetings around the EIM and performing “outreach” to learn from the market’s existing participants. Avista also became a CAISO scheduling coordinator in 2016, allowing it to trade in that market.

But in late April, the Spokane, Wash.-based utility was finally compelled to commit to the EIM in response to a series of “drivers and risks” taking shape in the Pacific Northwest, Kinney said. (See Cold Forces NW to Dip More Deeply into EIM as Avista Joins.)

What changed?

“We started to see some market liquidity concerns in the summer of 2018. We had several days and several hours in those days where it was really difficult to find a counterparty in the near term,” Kinney said, adding it was the first time the utility experienced that problem.

“That had a lot to do with the current EIM participants having to meet their ramping and resource sufficiency tests, so they weren’t willing to do business with those nonparticipants during the stress times. That started to show as a possible risk for us,” he said.

Avista also faced the prospect of further isolation, with neighboring utility NorthWestern Energy last year agreeing to join the EIM, and BPA — by far the largest transmission provider in the Northwest — advancing toward a commitment. (See NorthWestern Energy to Join Western EIM and BPA Marches Toward EIM Membership.) Avista’s other neighboring balancing authorities, Idaho Power and PacifiCorp, already participate in the market.

“That meant that basically all of our neighboring utilities were going to be in the market, and so this liquidity risk really became a concern,” Kinney said.

Kinney also noted that Avista is anticipating a surge of new renewables coming into its BA area, with wind and solar comprising all of the nearly 1,100 MW of proposed generation in its interconnection queue — a “fair amount” of that being small projects falling under the Public Utility Regulatory Policies Act.

“We see that definitely there’s that risk for additional renewables integrating into our BA, and as others have seen who are participating in the market, there’s a lot of benefit to help balance those renewables and bring down that cost to integrate,” he said.

Avista has also signed a power purchase agreement to next year bring on 145 MW of capacity from the Rattlesnake Wind project in Central Washington and recently issued a PPA for additional renewables.

“Another thing for us is we did recently issue our own clean energy goals of being 100% clean by 2045 and being carbon neutral by 2027 … so that will probably drive some additional renewable integration into our system,” Kinney said.

Avista is also anticipating the future impact of state policies, including the likely expansion of cap-and-trade in the West. Kinney pointed to Washington’s recent passage of Senate Bill 5116, which bars the use of coal-fired generation by 2025 and requires the state’s utilities to be emissions-free by 2045. Coal currently accounts for 9% or Avista’s generation.

Cost of Joining vs. not Joining

But Avista’s decision to join the EIM may have been sealed by the economics.

“We’ve been monitoring how the market’s been operating and seeing there’s significantly more benefits being achieved by participants than what was anticipated through studies. We think the cost-benefit ratio is starting to change based on just the maturity of the market,” Kinney said.

And the utility foresaw increasing downsides to not participating.

“Not only the liquidity, but the higher dispatch costs for us if we aren’t a participant,” Kinney said, noting that Avista expects fewer market resources to be available for the utility to perform its own grid optimization.

“As more and more entities join the market, there’s less counterparties to do business with.”

Jennifer Gardner, a senior attorney with Western Resource Associates, asked whether Kinney could pinpoint either the liquidity or the renewable integration issue as a bigger factor in Avista’s decision to join the EIM.

“I think it’s probably that they’re equal. The liquidity risks and concerns that we started to see last summer happened at about the same time we saw significant upturn in interconnection requests in our transmission queue,” Kinney said. “I think since they both kind of happened together, it really made that decision for us probably easier, because we had several drivers.”

Avista estimates it will earn $3.5 million to $9.2 million in annual net benefits from participating in the EIM. It expects to incur about $21 million in start-up costs to join the market, with technology expenses — largely software — accounting for about half. Ongoing expenses are estimated at $3.5 million to $4 million annually, mostly for new staff. The utility will bring on 12 new full-time equivalent employees to manage its EIM efforts.

“The focus that we’ve got going on right now is change management. We’ve heard from those we’ve visited [that] that’s a big component of this project, so we’ve taken that advice seriously, and we’re really working on training and staffing,” Kinney said.

RIF Chair Therese Hampton, executive director of the Public Generating Pool, asked whether Avista is still exploring how its transmission assets will participate in the EIM, including the potential for “donating” transfer capacity to the market.

“We haven’t determined it yet. Still to come,” Kinney said.

Kinney said Avista hopes to secure FERC approval by next April to join the EIM. It is slated to commence participation in the market in April 2021.