CAISO’s Energy Imbalance Market Has Taken Big Steps but Faces Competition

By Published On: December 2, 2020

California’s energy imbalance market had a good 2020. It passed $1 billion in total benefits, added two powerhouse participants, and filed its first plan for expanding into day-ahead trading.

But the question of how California can share decision-making with other states continues to block that expansion and potential participants are looking at alternatives.

The voluntary EIM was launched by PacifiCorp, a subsidiary of Warren Buffett’s Berkshire Hathaway Energy, and the California Independent System Operator in November 2014 to optimize real time dispatch. At the end of the third quarter of this year, the real-time market had generated $1.1 billion in energy savings and other benefits.

The EIM operated by CAISO has 11 active participants. Xcel Enery subsidiary Public Service Co. of Colorado and Avangrid applied for entry this year, making for 11 applicants and an expected 22 participants by the end of 2022.

After the 2018 California legislature’s third rejection of proposed CAISO governance changes to allow it to work with other states in a regional market, CAISO and stakeholders began developing a voluntary Extended Day-Ahead Market that would expand the EIM’s 5% of energy trading in the West’s 38 balancing areas to almost 100%.

Multiple solutions to the two key challenges: 1) transmission planning and charges across jurisdictions and 2) guarantees among participants that they will meet their obligations have been proposed.

But expansion will only be possible if the conundrum of market governance is resolved. The difficulty is that California leaders want to protect the state from federal regulation and other states’ control while other Western leaders require a more open CAISO governance structure that allows them to participate in decision-making.

Reconciling this contradiction will require new market rules agreed to by the EIM Governing Body and the CAISO board, an October 2019 CAISO paper reported. Advocates have found no consensus on those rules but a second phase of the process is underway.

Why Xcel joined

A 2019 Brattle Group study showing greater production cost savings with CAISO’s EIM than with a proposed Southwest Power Pool Western Energy Imbalance Service was decisive, Xcel Colorado President Alice Jackson said. The CAISO’s greater resource diversity, lower administrative costs, and planned EIM expansion to “day-ahead market services” were also factors, Jackson added.

The estimated production cost benefit for Xcel from joining the EIM are $1.98 million a year. The estimated benefits of joining SPP’s proposed energy imbalance service would be about $1.62 million a year. The difference, confirmed by newer Energy Strategies work, is due to the EIM’s size and resource diversity and the better “transfer capability” between the Colorado and California, Brattle said.

But production cost benefits “are only one element of evaluating participation,” Brattle also reported. Congestion-related factors, load uncertainties, implementation, administrative, and transaction costs, and governance are also important, it added.

Southwest Power Pool was formed in 1941 with 11 regional utilities and now manages electricity across 17 Central and Western U.S. states in both the Eastern and Western Interconnections.

SPP members have decision-making say

Over decades of expansion, SPP has developed a governance framework that, unlike the current CAISO governance, gives all its member states’ commissions and utilities a voice in decision-making, former SPP COO Carl Monroe, said. “It relies on a federalism model that allows shared jurisdiction” which “reduces the risk associated with participation,” added Monroe, currently an independent consultant.

SPP’s 2020 application to federal regulators for its Western EIS anticipates participation by current regional market members Tri-State, Basin Electric, and the Western Area Power Administration. The reduced risk those utilities see in SPP were key to their decision to join its EIS, Brattle Group Senior Associate and report co-author John Tsoukalis said. “Familiarity makes a big difference.”

Basin Electric found that SPP’s “proven track record and collaborative stakeholder process,” made it “the obvious choice,” Basin Electric Sr. VP of Transmission, Engineering, and Construction Tom Chistensen agreed.

But neither SPP’s EIS or CAISO’s EIM EDAM expansion is approved. New data shows a separate and new joint dispatch agreement unifying Colorado utilities can provide benefits nearly as good as those from the regional real time markets.

Another option

Thanks to its abundant low-cost renewables, Colorado’s 2018 retail rates are expected to drop by $0.027/kWh in 2040 with its power providers divided between systems, according to the October Vibrant Clean Energy study. If all the providers join the EIS, rates would drop an additional $0.0069/kWh but if they join the EIM, rates would fall an additional $0.0084/kWh.

Joint dispatch between Colorado entities would only reduce rates an additional $0.0035/kWh in 2040, but it would be “a very easy first step,” Vibrant Clean Energy CEO and report co-author Christopher Clack, a former National Academies of Science researcher, said.

Until the regional market unknowns are clarified, a single Colorado market solution could “be preferable,” Xcel’s Jackson said.

The new president is committed to addressing climate challenges and “national policy is building from the states toward 100% clean energy and zero emissions,” Western Grid Group Managing Director Amanda Ormond said.

“To go big, we have to go differently, but even incremental steps will lead to a future we can’t see now,” she added. “The only bad option is no change.”

The competition between the SPP, CAISO, and the Colorado-centric proposal will help drive that change, she added. It remains to be seen which will win the huge market expansion opportunity.

–Herman K. Trabish

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