The California ISO won approval last week to expand its real-time energy imbalance market (EIM) beyond state borders, with PacifiCorp and NV Energy slated to become the first to join.

With the Federal Energy Regulatory Commission’s approval of CAISO’s proposal (ER14-1386) and related PacifiCorp Tariff changes (ER14-1578), the expanded market is set to begin Oct. 1. NV Energy, which sits between PacifiCorp’s two main service regions, plans to join the market by October 2015 under an implementation agreement approved by FERC earlier this month (ER14-1729).

PacifiCorp and NV Energy say they expect economic efficiencies, improved renewable integration and increased reliability from their collaboration with CAISO. With the expansion, the EIM would serve most of Nevada, Utah and Wyoming, along with California and portions of Washington, Oregon and Idaho.

That has some in the West asking the question: Will CAISO’s expanded footprint grow into something more than a simple imbalance market?

Not an ‘RTO West’

FERC Commissioner John Norris said last week the market could bring “a lot of efficiencies” to the 38 independently operated balancing authorities in the western interconnection. But he hastened to add, “This isn’t an effort to push those balancing areas into an ‘RTO West.’”

Indeed, CAISO will not assume operational control over the generation or transmission facilities of PacifiCorp. The utility will also remain responsible for maintaining its reliability, including meeting operating reserve and capacity requirements; scheduling; curtailing transmission; and manually dispatching resources out-of-market to maintain reliability. The company is not planning to join CAISO as a member or to participate in its ancillary service and day-ahead energy markets. There will be no exit fee for EIM participants that leave the market.

But the American Public Power Association is worried nonetheless that CAISO’s market may “morph into a regional transmission organization.”

APPA says RTOs have not lived up to their promises of reducing costs. Instead, the group says, they have created higher profits for merchant generators and high administrative and operational costs for consumers.

‘Scope Creep’

“Scope creep” is the concern of public power members, said Elise Caplan, ‎manager of APPA’s Electric Market Reform Initiative, in an interview yesterday. While the imbalance market itself is not problematic, Caplan said the concern is that the scope would grow to include financial transmission rights and mandatory capacity markets, “which have given our members a lot of headaches.

“Our concern is you start with an EIM and that’s where you get to,” she said.

FERC’s actions, such as the April 2011 orders that took away the self-supply exemption, “makes a lot of our members nervous that they will lose their jurisdiction over what that market looks like,” she added.

NWPP Initiative

Caplan said no APPA members are considering joining the CAISO market, although some are participating in discussions to create an EIM with the Northwest Power Pool (NWPP). “They’re looking at doing their own thing,” including ways to “wall it off” from FERC jurisdiction, Caplan said.

NWPP issued a study last year finding the benefits of an EIM outweighing costs and that no Northwest entity, including the Bonneville Power Administration, would be a net loser. The power pool is currently researching the cost of implementing security constrained economic dispatch (SCED).

Among those in discussions with NWPP is the Western Area Power Administration (WAPA), which serves 15 states in the central and western U.S. with power from 56 hydropower plants operated by federal agencies.

WAPA decided not to join the CAISO market following a study by the Argonne National Laboratory, which concluded it was not well suited for the EIM, in part because federal resources are contractually committed to customers and because water delivery obligations and environmental operating limits reduce WAPA’s ability to respond to market price signals. The study also predicted high startup costs.

“At this time it doesn’t make economic sense to join that market,” WAPA spokesman Randy Wilkerson said.

WAPA-SPP

However, WAPA’s Upper Great Plains region, which sells power in Iowa, Minnesota, Montana, Nebraska and the Dakotas, is planning to join the Southwest Power Pool. SPP’s board last week approved Tariff revisions to accommodate WAPA’s entry, which is projected to be complete in October 2015.

Heartland Consumers Power District and Basin Electric Power Cooperative also are joining SPP.

WAPA’s facilities in the Eastern Interconnection will be fully integrated with SPP, which launched its Integrated Market March 1. The Integrated Market added a day-ahead market and transmission congestion rights to SPP’s real-time imbalance function. Facilities in the Western Interconnection “wouldn’t be fully integrated, at least at the start,” Wilkerson said.

The Argonne study found that while the CAISO EIM was not a good fit for WAPA, it could benefit entities inside WAPA’s balancing areas (BAs) that have flexible resources or excess capacity for bidding into the market, including those with variable energy resources and those that frequently run high-cost peaking resources. Thus, the study said, there was a risk of a “reshuffling of entities within BAs” regardless of whether WAPA joins or not.

Scope

California’s EIM will allow participants to buy and sell energy in five-minute increments. Supporters say the market will improve congestion management and situational awareness as well as reduce the costs of balancing the increasing volume of variable resources in the West. The Western Electricity Coordinating Council estimates renewable energy will more than double from 2010 levels by 2022.

PacifiCorp and CAISO conducted a study that projects annual consumer benefits of $21 million to $129 million from the EIM. Start-up costs for PacifiCorp will be $2.1 million.

PacifiCorp serves about 1.8 million customers in two BAs: PacifiCorp East (Idaho, Utah and Wyoming) and PacifiCorp West (Washington, Oregon and California). NV Energy, the product of the 1999 merger of Nevada Power Co. and Sierra Pacific Power Co., provides electricity and natural gas to 1.3 million customers in Nevada. NV Energy was acquired by PacifiCorp’s parent, Berkshire Hathaway Energy, last year.

Market Explained

FERC’s unanimous orders last week modified some aspects of CAISO’s and PacifiCorp’s proposals. The commission rejected CAISO’s proposal that its Board of Governors would decide whether to implement market power mitigation at the interties, saying any such mitigation would be subject to commission approval. The commission also ordered CAISO to make informational filings on the presence of structural market power in PacifiCorp BAs due to intertie transmission limits.

The order also requires the ISO to create a mechanism for EIM resources to avoid being dispatched into California, where they would be liable for the state’s greenhouse gas regulation costs.

PacifiCorp’s transmission customers will have the option of bidding into the EIM or continuing to serve their loads through self-supply or bilateral trades.

Transmission and generator interconnection customers who do not participate in the EIM will be billed based on the locational marginal prices resulting from the EIM to settle imbalances.

PacifiCorp will use firm transmission rights voluntarily offered by transmission customers to enable EIM transfers between its BAs and CAISO.

The commission rejected PacifiCorp’s proposal to require generating resources in the company’s BAs to purchase additional transmission service from PacifiCorp in order to participate in the EIM, saying this would result in a double-charge to loads and conflict with CAISO’s proposal to use reciprocal transmission rates.