By Robert Mullin

NV Energy had a smooth integration into the Western Energy Imbalance Market, CAISO said Monday in its fourth-quarter market report.

Department of Market Monitoring (DMM) manager Keith Collins noted that after NV Energy joined the EIM on Dec. 1, Nevada imbalance prices quickly converged with those in CAISO’s broader system, a development that has so far continued into this year. That stood in contrast with the price swings that still beset PacifiCorp’s balancing area, stemming from physical constraints on the system.

“One of the things we noted with the [NV Energy] launch was that the variability [of prices] within the Nevada area was fairly limited,” Collins said.

CAISO attributed NV Energy’s easy adjustment to the high amount of transfer capability between Nevada and California. Limited congestion translates into a freer flow of both imbalance energy and capacity between the balancing areas, avoiding the need to relax CAISO’s flexible ramping constraints in load pockets poorly served by flexible capacity. Relaxation of the constraints ultimately drives up real-time energy prices by forcing relatively fast, efficient units out of the 15-minute energy market queue and into the obligatory market for ramping capacity.

By comparison, flexible capacity issues continue to weigh the EIM’s PacifiCorp East area, with the ramping constraint being relaxed in more than 10% of intervals over the quarter, frequently boosting real-time prices by the maximum $60/MWh adder associated with capacity procurement shortfalls. CAISO did note, however, that relaxations in PacifiCorp East declined during December, reversing the uptrend seen in the previous quarter. While generating units returning from outages likely helped relieve constraints, the DMM suggested that NV Energy’s entry into the EIM might be providing longer-term structural benefits for PacifiCorp.

“The market is more of a regional market with the inclusion of NV Energy because of the increased transfer capacity,” said Collins. “It’s more of a single market.”

Bid Cost Recovery Payments Down

Collins pointed to the decline in bid cost recovery (BCR) payments as the second biggest “theme” of the fourth quarter. CAISO payouts came to $25 million under the market mechanism, compared with $31 million in the third quarter and $25 million during the same period in 2014. BCR payments attributed to residual unit commitments (RUC) fell from $10 million to $3 million quarter over quarter because of decreased payouts to “long-start” units.

“This is a big shift, although virtual supply has played a role,” Collins said.

The DMM report describes the link between the virtual — or convergence — bidding market and bid cost recovery payment volumes, explaining that lower virtual supply volumes in the fourth quarter “primarily” caused the RUC process to commit fewer resources compared with the prior period. The report notes that RUC procurement “appears” to be driven by the need to replace cleared virtual supply bids, which offset physical supply in the day-ahead market.

“Part of that is that renewables tend to be under-scheduled,” Collins said. “Virtual schedules are counterbalancing that.”

The report also showed that real-time commitments accounted for $12 million in BCR payments, in line with historical norms, while day-ahead payments were lower than any fourth quarter since 2011.

Additional highlights from the Market Monitor’s report:

• Day-ahead and 15-minute prices declined to the lowest level of the year, with day-ahead peak averaging $33/MWh. December saw both markets fall to their 15-month lows. Collins noted that both loads and natural gas prices continued to trend lower, with the latter hitting 15-year lows.
• Price spikes increased in the five- and 15-minute markets but remained “relatively infrequent.” October saw an “unusually high” number of intervals in which prices surged to more than $1,000/MWh because of low day-ahead scheduled load and regional congestion.
• Congestion in the ISO was relatively low and had little impact on prices.
• The volume of dispatchable import bids in the 15-minute market increased by 19% compared with the third quarter, while export bids jumped 20%. Most 15-minute import-export activity was submitted by small number of entities on three interties — Malin, Palo Verde and Rancho Seco.