FERC Approves CAISO-led EIM

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The California Independent System Operator (CAISO) manages about 80 percent of California’s power grid and facilitates the operation of a wholesale energy market, including: day-ahead, hour-ahead, and five-minute energy markets as well as ancillary services and financial transmission rights markets. For the past several years, CAISO has been working closely with PacifiCorp (a regulated electric utility serving parts of Oregon, northern California and southeastern Washington) to develop a regional energy imbalance market (EIM). This market will allow balancing authority areas (BAAs) to pool a broad array of generation resources through CAISO’s five-minute energy market.  CAISO will call on the BAAs to respond to fluctuations in supply and demand, using the most economic resources available anywhere in their shared territories.

Participation in the EIM will be voluntary, though participants will need to enter into a FERC-approved agreement with CAISO. On June 19, 2014, the Federal Energy Regulatory Commission (FERC) issued an order conditionally approving EIM tariff revisions submitted by CAISO. The EIM is expected to go online on October 1, 2014 with PacifiCorp and CAISO. NV Energy is expected to fully join the EIM on October 1, 2015.

A March 2013 study sponsored by CAISO and PacifiCorp projects that the EIM will yield annual gross economic benefits ranging from $21 to $129 million by 2017. Initial implementation costs are estimated to be in the $3-$5 million range and ongoing annual costs in the $2-$5 million range (all amounts in 2012 real dollars). The benefits to customers stem from economic efficiencies in generation dispatch, improved renewable integration, and increased reliability. In particular, the study found that savings would be realized mainly from reductions in transmission charges, efficiency gains from automatic dispatching, and flexibility reserves reductions alongside reductions in renewable energy curtailment. Similarly, a March 2014 study projects that NV Energy’s addition to the EIM would produce incremental net benefits for all participants.

CAISO will run market software to economically dispatch the energy system of any BAA that joins the EIM, which will feature 15-minute scheduling and 5-minute dispatch. CAISO will not assume operational control over transmission facilities of entities that participate in the market, and each balancing authorities will still be responsible for maintaining reliability in its territory.

CAISO has taken the position that there will be no incremental transmission charges for the use of transmission to support EIM transfers between participating BAAs, since imbalance energy is only exchanged as transmission is available. However, CAISO states that within the first year of operation, it will consider, in consultation with stakeholders, whether to adjust this arrangement. CAISO has recognized the need for resources that serve loads in California through the EIM to comply with California’s greenhouse gas (GHG) cap-and-trade regulations. Resources selling into California as a result of bidding supply into the EIM will include the costs of compliance in their energy bids and CAISO will incorporate this cost into its dispatch of generation as appropriate. CAISO will not consider this cost when it dispatches generation that is attributable to serving load outside CAISO. Finally, CAISO will monitor the EIM for market power manipulation.

BAAs and other industry stakeholders around the country are looking forward to the CAISO-led EIM as a testing ground for broad regional markets and their supposed benefits.