April 20, 2014

CAISO and PacifiCorp Move Towards Western Imbalance Market

On February 12, 2013, the California Independent System Operator Corporation (CAISO) and neighboring utility, PacifiCorp, entered a Memorandum of Understanding (MOU) to cooperate on the development of an energy imbalance market (EIM) in each entity’s respective balancing authority areas, in the hopes of laying groundwork for a broader effort across the western region. Hailed by the CAISO as the “first step in bringing PacifiCorp and ultimately other Western balancing authorities into an automated real-time [five]-minute dispatch system” the CAISO and PacifiCorp agreed in the MOU to work towards implementing the EIM by October 2014. In statements issued with the release of the MOU, the parties noted their hope that the EIM will integrate resources efficiently and reliably, including, in particular, the significant renewable resources that have come online in the West in recent years.

The CAISO and PacifiCorp are two of the largest transmission grid operators in the Western United States. The CAISO is the independent system operator in California, while PacifiCorp operates two separate balancing authority areas in six Western states, including California. Under the framework of the EIM, the two parties’ grid resources would be used to respond to grid imbalances in their balancing authority areas in a coordinated, least-cost manner in the five-minute timeframe. Thus, if implemented, PacifiCorp would participate in a co-optimized real-time energy market facilitated by the CAISO. The parties noted that by “capturing a wider portfolio of resources, an EIM optimizes available resources reducing the quantity of reserves required to ensure electricity shows up where and when it is needed.” PacifiCorp is not joining the CAISO, however, and will retain control of its assets and responsibility for operating its balancing authority areas and serving its customers.

Under the MOU, the CAISO will engage with its stakeholders in negotiating an implementation agreement and in ultimately implementing the EIM. The CAISO will present the MOU to its Board of Governors in March 2013 to seek approval to negotiate and file at FERC an EIM implementation agreement and will work with CAISO stakeholders to develop necessary CAISO tariff modifications. 

The MOU also lays out a series of principles that the CAISO and PacifiCorp intend to form the basis for the EIM. In particular, these principles highlight the potential benefits to PacifiCorp and the CAISO from pursuing an EIM, which benefits include: improved dispatch and operation of PacifiCorp’s generation fleet; efficient use and reliable operation of PacifiCorp and CAISO transmission facilities; and benefits to CAISO market participants through greater access to energy imbalance resources in real-time. The parties agreed that implementation of the EIM will be compatible with existing and emerging market initiatives, including FERC’s initiatives in its June 2012 order on the Integration of Variable Energy Resources (Order No. 764) and developments in the Northwest Power Pool reserve-sharing program.

The CAISO states that the MOU is based upon the CAISO’s conceptual proposal put forward to the Western Governors Association Public Utility Commission EIM subcommittee in March 2012. Utilities and other interested parties have been discussing an EIM in the West for some time, to help manage the growing reserve requirements across the Western Interconnection’s almost 40 separate balancing authority areas. These requirements have grown in large part due to the increased amount of renewable resources in the West. This growth has been driven primarily by California’s and other states’ renewable portfolio standards, which require utilities to purchase a set amount of their energy from renewable resources. Remaining to be seen is whether other parties in the region will oppose the CAISO’s and PacifiCorp’s bilateral development of an EIM, or whether the MOU indeed will spur a broader regional effort, which has been elusive to date.

In terms of the project’s costs, the parties agreed in the MOU that PacifiCorp will pay up-front implementation costs associated with PacifiCorp; specifically, PacifiCorp has agreed to pay “about $2 million” initially.  Ongoing costs of the EIM will be recovered through a rate filed by the CAISO with FERC. The MOU expressly provides that other parties may participate in the EIM if they agree to fund their share of implementation costs.

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