By Jason Fordney

CAISO’s proposal to provide transmission revenue to balancing authority areas (BAAs) that wheel power between other BAAs received a wary response from Western Energy Imbalance Market (EIM) stakeholders last week.

Currently BAAs that wheel power are only paid if the system is congested.

The compensation change is part of a package of refinements that CAISO is developing, including fundamental changes to the way transmission is treated in the developing market. EIM entities filed comments on the proposals Thursday.

Wheeling is on the increase as the EIM grows and more regions are added. When Powerex is integrated in April 2018, for example, Puget Sound Energy will be positioned to wheel power from British Columbia to the south. Powerex markets a BC Hydro portfolio of about 17,000 MW of generating capacity, about 12,000 MW of which is hydro.

FERC staff tentatively approved the integration of Powerex in a delegated order Aug. 9. (See Wary FERC Approval for Powerex EIM Agreement.)

Powerex said it supports the compensation proposal and wants CAISO to adopt a net wheeling charge on all EIM transactions to pay for it. The Province-owned company said that such transactions represent a significant portion of import and export volumes, “which suggests that such transactions may be critical to the EIM’s ability to generate benefits.”

But the company said that any wheeling charge should not impede economic dispatch and reduce EIM benefits. It is “critical that any such charge be designed in a manner that ensures that the incremental hurdle rate that is created is as small as possible. Such transactions may be critical to the EIM’s ability to generate benefits,” it said.

PacifiCorp, which has been operating in the EIM since the market went live in November 2014, said it has concerns about the proposal, arguing that “it is too early to understand if there is truly a market problem to be solved.” The company said CAISO should wait until after Portland General Electric, Powerex and Idaho Power are integrated to get a better understanding of how resources will be scheduled in the expanding market. PacifiCorp owns about 10,600 MW, including about 2,500 MW of wind, and plans to retire 3,650 MW of coal-fired capacity by 2036.

It is possible that the increased wheeling over the past nine months was related to “anomalies” such as excess hydro or the outage at the Aliso Canyon natural gas storage facility, the Berkshire Hathaway-owned company said.

“PacifiCorp recommends that the initiative be postponed and continue to be monitored so that new entrants can make informed comments that truly reflect transfers across their systems,” the company said.

The company also noted that CAISO had proposed market changes to accommodate the integration of Powerex, but that most of the additional functionality would not apply to PacifiCorp. The company believes Powerex will not be required to participate in security-constrained economic dispatch in its BAA like other EIM entities.

CAISO has two plans for the charges: an added “hurdle rate” into transmission costs that is distributed to participants in the transaction through a congestion offset; and an “ex-post” payment to entities facilitating the transmission that would be collected directly from the source and sink BAAs.

Monitor, Public Interest Groups Oppose

CAISO’s Department of Market Monitoring said both approaches would cause inefficiencies. The charge appears to be a proxy for other EIM benefits, the department said, and is “overly simplistic” for cost allocation. “These inefficiencies may result from a per-megawatt-hour fixed cost recovery approach influencing bidding behavior, or more directly through the hurdle rate, which may lead to inefficient dispatch of EIM resources,” the Monitor said.

A collection of public interest organizations also opposed the proposal, saying it could reduce overall EIM benefits and possibly reduce investment. The group includes Western Resource Advocates, the Natural Resources Defense Council and Western Grid Group.

“Not only will these schemes unnecessarily complicate the EIM’s market design, thereby undermining its benefits, but they appear to be a solution in search of a problem, given that all EIM BAAs are importing and exporting more than they are facilitating wheeling,” they said.

They also said that CAISO should not focus on minor inequities in the EIM because it distracts stakeholders from the benefits the market brings. If the ISO does pursue it, the groups support the ex-post payment approach, saying it is least disruptive to the market and would adapt well to a changing EIM.

Seattle City Light voiced strong opposition, saying that a more robust stakeholder review is needed before making such a change, noting that CAISO has not identified free riders or cost shifts. The municipal utility owns 2,000 MW of hydro and transacts in the EIM.

“City Light is particularly concerned with the proposal to address a benefits-related issue by implementing an additional cost to EIM entities. The addition of a new cost is an imprecise tool to address a concern over inequitable distribution of benefits,” the publicly owned utility said.

Portland General Electric in its comments said it “is not convinced that this initiative has been appropriately scoped, or that the market design, policy and regulatory considerations have been fully considered, and therefore does not believe it is prudent at this time to move forward with either of the ISO’s policy recommendations.”

Southern California Edison (SCE) also opposed the changes, saying that participating in the EIM does not guarantee uniform benefits to all entities and CAISO.

“While SCE understands that examining the actual benefits and costs after the fact rather than relying on estimates prior to EIM is a good practice, SCE believes that in this case, the data support the current practice and policy and that no changes are warranted,” the company said.

Arizona Public Service supported the proposal but said it should apply equally across the EIM and not offset the market’s benefits.

Most stakeholders support CAISO’s decision to eliminate from the package of market rule changes a plan to allow third-party transmission owners to participate in the EIM. There was lackluster interest from current EIM entities and it was thought the provisions would be little-used. (See CAISO Drops EIM Third-Party Transmission Plan.)

The ISO Board of Governors is due to review the package of changes at its Nov. 1 meeting.