A Western Energy Market Milestone

Today's memorandum of understanding also provides an invitation to other balancing area authorities that may be interested in joining the market.

The two largest western U.S. power grid operators today announced a commitment to work toward creating a real-time energy imbalance market, which will allow for cheaper and more reliable integration of renewable resources onto the electric transmission system.

The announcement from the California Independent System Operator (ISO) and PacifiCorp represents landmark progress toward addressing a significant issue identified in last week's Bipartisan Policy Center Grid Initiative Report (and in a lot of other places) – that the lack of coordination between balancing authorities in the West is making the cost of integrating renewable resources onto the grid unnecessarily expensive. As co-chair of the report issued by the bipartisan think tank, I have learned how important this commitment to create an energy imbalance market, also known as an EIM, by October of 2014 is to system reliability and satisfaction of existing state Renewable Portfolio Standards and other renewable generation goals.

Without related energy storage capability, which has not yet been deployed broadly, wind and solar generating facilities provide electricity only when the wind blows or when the sun shines. Like all types of generation, integration of wind and solar electricity onto the grid involves costs. In their case, the costs include ensuring that there are resources to balance out the variability of their output and maintain overall system reliability.

The market would allow PacifiCorp, in order to balance supply and demand on its system, access to the lowest cost power available not only within its entire footprint (parts of Oregon, Washington, California, Utah, Wyoming and Idaho), which it hasn't been able to do before, but also across the entire ISO. Today's memorandum of understanding also provides an invitation to other balancing area authorities that may be interested in joining the market. I think PacifiCorp CEO Greg Abel said it best: "[i]ncreased coordination of energy systems in the West is critical if we are to meet important challenges such as ensuring reliability, keeping costs down for customers and effectively integrating renewable resources."

Balancing authorities are the entities responsible for reliability (they maintain the load-interchange-generation balance and interconnection frequency) within their footprint or "balancing area," and are regulated by the North American Electric Reliability Corporation. In the East and Texas, balancing areas are mostly large and diverse, which allows for the effective management of variability across a given region. In fact, most of the Eastern Regional Transmission Organizations are a single balancing authority. Of course, existing real-time and day-ahead energy markets, and other markets also help solve the variability issue in the East.

However, in the Western Interconnection, there are 38 balancing authorities. While some are large, many are the size of only one relatively small vertically integrated utility, and a few are the size of only generating facility. Although the integration of a significant amount of renewable generation in WECC has led to calls for balancing area consolidation, fears over start-up costs, cost shifting (generation paid for by customers in one region will now be dispatched to benefit other customers) and new reliability problems, among other things, have kept balancing area consolidation in the West to a minimum.

One alternative to actual consolidation is coordination among different balancing authorities. Many entities, notably the Western Governors' Association, have been developing the proposal for a WECC-wide EIM. Recent modeling cited in the BPC Report estimates that a Western EIM would generate electricity production savings to the tune of $146 to $300 million annually. The Southwest Power Pool, which operates an EIM for multiple balancing authorities within its footprint, has found approximately $100 million in annual benefits over several years.

We applaud this milestone action by the California ISO and PacifiCorp. We appreciate the commitment to a stakeholder-driven process to inform the market's formation, and we hope other balancing authorities will join the effort.

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