By Robert Mullin

ANCHORAGE, Alaska — Organized electricity markets could provide significant benefits for the West, but state regulators should approach their development with a critical eye, market leaders said last week.

“There is value in markets, and as a result, I’d encourage you to get educated about the benefits of them, and seeing also how it may get to change how you regulate utilities,” SPP General Counsel Paul Suskie said during a panel discussion entitled “Energy Imbalance Market or the Wild West Interconnect” at the annual meeting of the Western Conference of Public Service Commissioners.

‘Healthy Skepticism’

“Have a healthy skepticism. That’s what I used to be required to do,” the former Arkansas Public Service Commission chairman added.

EIM Governing Body member Carl Linvill, formerly a Nevada commissioner, recounted how his career path has imbued him with a dose of skepticism about markets. A former economics professor, Linvill moved to Nevada two decades ago to help build a market monitoring framework for the state’s proposed retail deregulation. In the wake of the Western Energy Crisis of 2000-01, the governor handed him the responsibility for unwinding the experiment in restructuring.

“My interest in coming out to Nevada for the job was [that] I was little bit concerned about over-optimism in the markets,” Linvill said. “I like markets, I think markets can be very beneficial, but I think that you have to have the right … legal structure [and] context for markets to work well.”

Linvill noted that each of the Governing Body’s five members is an outsider to CAISO, which operates the market. Members value the expertise of the ISO, as well as its state-of-the art operations, he said.

“But, also, having been outsiders and knowing that we need to be critical, we also take it as part of our job to question and challenge [ISO] staff and to try to push them to understand the perspective [from] our former roles,” Linvill said.

Linvill described to the audience of mostly commissioners and their staff how the Governing Body maintains independence from the ISO and exercises oversight over the market.

After originally being selected by a stakeholder nominating committee and approved by the CAISO Board of Governors, the body now approves its own members. The body — not the board — exercises “primary authority” over any ISO initiatives that wouldn’t have arisen without the existence of the EIM, meaning it can vote to recommend an EIM-related proposal.

“The Board of Governors can accept or reject, but they cannot amend or alter the proposal,” Linvill said.

Suskie touted the benefits of SPP’s own energy imbalance market — the precursor to the RTO’s current market — which saved members $1.1 billion between 2008 and 2013, far exceeding projections of $600 million.

“The higher the gas prices, the better the benefits of trading,” Suskie said, pointing out that the greatest savings occurred during the market’s early years when natural gas prices exceeded $7/MMBtu.

SPP’s incorporation of the day-ahead market in 2014 yielded another $1 billion in benefits, Suskie said.

While comparatively modest, the Western EIM’s benefits have grown consistently with the addition of new participants. The market now encompasses more than 50% of the region’s load, according to Stacey Crowley, vice president of regional and federal affairs at CAISO.

Crowley said the EIM has saved nearly $174 million since its inception in November 2014, including $31 million in the last quarter — an all-time high. (See CAISO EIM Exports Rise with Spring, Report Shows.)

Other benefits include the reduced curtailment of renewable generation, which can be offloaded into neighboring balancing authority areas, and sharing, which has reduced the need for EIM participants to carry flexible ramping reserves.

“The benefits continue to accrue,” Crowley said. “It really comes down to more efficient dispatch. It’s both interregional and intraregional. So we optimize within the balancing authority and between balancing authorities to really take best advantage of the resources that the Western utilities have.”

Qualitative Benefits

Linvill highlighted the importance of the qualitative benefits issuing from the EIM’s approach to dispatch.

“I think that a side benefit of this is that there’s much greater visibility within the utilities and within the [EIM] footprint region on what’s actually going on and what resources are available, what their capabilities are, [and] what the transmission system capabilities are. I think there’s much better information about that now then there was” before the market, he said.

Those qualitative benefits were enough to swing Arizona’s Salt River Project to join the market after determining that membership would be a financial “wash” for the publicly owned utility, Linvill said.

“I asked them, ‘How important were the non-quantified benefits, these other benefits?’ And they said, ‘Those were the driving benefits. We see this as an essential step to modernize our operations now so we can keep up as things evolve,’” he said.

Linvill said he has respect for markets that work well but recognizes that they can go awry.

“So, job one is to protect these benefits that have been created, to take this step-by-step, to add entities to the footprint, to potentially add services at some point. But we’re not rushing to that or even discussing that at this point,” he said. “Really, we want to make sure that we establish a market that has stability and robustness and continues to produce these benefits.”

Patrick Lyons of the New Mexico Public Regulation Commission questioned Crowley about whether EIM participants face exit fees.

“There is no exit fee. Entities can choose not to participate by just not bidding in resources or they can leave altogether, so that’s a nice benefit as well,” Crowley responded.

“So if a company wants to get out, and you’re counting on them being in there, how does that work? It doesn’t seem very stable,” Lyons said.

“I think that the benefit is that we’re not counting on them,” Crowley said. “This is above-and-beyond optimization that we do normally every day, so we’re going to continue to balance the load and resources based on what resources are available to the market.”