Saving money for electricity consumers in the Western states seems like it should be easy. Department of Energy researchers like Brendan Kirby, Michael Milligan, Kevin Porter, Debra Lew, Brian Parsons, and Lori Bird have been showing us for more than ten years how Western electricity consumers could save money by working together. The measures they suggest are modest (sharing resources when prices are low, using proven technology to share information on a timely basis, and updating forecasts during the day as the weather changes) and the cost saving implications for electricity customers appear large. So what’s the big deal? Why aren’t we taking full advantage of each of these things now?
The answer is that taking even these modest-sounding steps requires people and institutions to change familiar practices, and changing familiar practices in complex institutions requires leaders. Utilities, state regulators, and federal regulators each need to evolve practices within their respective institutions and, ultimately, they all need to work together to think outside their respective boxes. Anyone who has worked within any of these institutions knows that effective change requires solid information, persistent advocacy within and among organizational stovepipes, and pragmatic follow-through. The secret sauce of pragmatism, leadership, and persistence, when effectively concocted, is worth relishing. So I wish to congratulate leaders in the West for taking the region’s first Energy Imbalance Market (EIM) live on November 1.
An EIM facilitates the intra-hour exchange among balancing area authorities (BA) of least-cost electricity, and achieves mutual benefits for participating power sector customers by aggregating the variability of generation and load over many BAs, reducing the total amount of reserves required, and allowing participants to use the lowest-cost resources to balance demand and supply across the BAs. Reducing reserve requirements and ramping demand includes not only a more efficient dispatch of ramping and other flexible capabilities inherent in some existing fossil generation, but also more efficient use of variable generation. In a study for the Western Electricity Coordinating Council (WECC), Energy and Environmental Economics (E3) concluded that increased utilization of variable generation is worth from $8 million to $90 million per year. An EIM can also help reduce congestion problems and provide more efficient use of existing infrastructure. More efficient use of existing infrastructure may sound trivial, but another study by E3 concluded that increasing transmission utilization of one major transmission path by just 100 MW is worth $0.9 to $1.9 million per year.
The EIM between the California ISO (CAISO) and PacifiCorp approved by jurisdictional state public utility commissions (PUC) and the Federal Energy Regulatory Commission (FERC) last year will provide centralized dispatch for imbalances within the combined control areas of the two organizations. The EIM will use a security-constrained economic dispatch that respects transmission and reliability constraints to dispatch balancing resources every five minutes. The 5-minute EIM offers opportunities for multilateral exchange among a larger number of partners, thus offering greater optionality and market liquidity than exchanges that are limited to bilateral exchanges occurring in longer scheduling periods (e.g., 30-minute scheduling).
Leaders responsible for establishing the first EIM in the West include Chair of the State and Provincial Steering Committee John Savage (OR) and Commissioners with the PUC EIM Group like past and current chairs Rebecca Wagner (NV) and Travis Kavulla (MT). In addition, leaders from sponsoring system operators at the CAISO and PacifiCorp and from the community of consumer and environmental advocates were important (Visit the PUC EIM webpage for the lead commissioners from each state PUC and the CAISO for a full list of stakeholders participating in the EIM process).
Winning approval for an EIM required a number of steps:
- Credible evidence that an EIM would not harm reliability and would produce net economic benefits;
- Advocacy within each organization to gain permission from internal constituencies; and
- Approval from the affected regulatory jurisdictions.
The effectiveness will be proven over time as the CAISO documents the benefits as they accrue and modifies procedures to work out any kinks that occur. But, November 2014 is a good time to pause and thank the leaders for stepping out to make this happen, and to call for continued leadership in implementing additional mutually beneficial cost saving reforms in the West.