History of ISO/RTOs
The electricity industry includes traditional utilities, private power plant owners, and state and federal agencies, each playing a unique role. Traditional wholesale electricity markets exist primarily in the Southeast, Southwest and Northwest where utilities are responsible for system operations and management, and, typically, for providing power to retail consumers. Utilities in these markets are frequently vertically integrated – they own the generation, transmission and distribution systems used to serve electricity consumers. They may also include federal systems, such as the Bonneville Power Administration, the Tennessee Valley Authority and the Western Area Power Administration.
Wholesale physical power trade typically occurs through bilateral transactions, and while the industry had historically traded electricity through bilateral transactions and power pool agreements, upon implementing the 1992 passage of the Federal Energy Policy Act, federal policymakers recognized the need for an independent entity without a stake in the outcome to manage the power grid and make sure competitive generation flows to customers. The Federal Energy Regulatory Commission (FERC) released Order No. 888 in 1998 to further promote the concept of ISOs and Order No. 2000 in 1999 to encourage utilities to join regional transmission organizations (RTOs) which, like an ISO, would operate the transmission systems and develop innovative procedures to manage transmission equitably.
The role of an ISO/RTO
ISO and RTOs provides open and non-discriminatory access to the wholesale transmission grid, supported by a competitive energy market and comprehensive infrastructure planning efforts. Along with facilitating open-access to transmission, ISOs operate the transmission system independently of, and foster competition for electricity generation among, wholesale market participants. While utilities still own transmission assets, the ISO acts as a traffic controller by routing electrons, maximizing the use of the transmission system and generation resources, and supervising maintenance of the lines. All ISOs and RTOs have energy and ancillary services markets in which buyers and sellers could bid for or offer generation. The ISOs and RTOs use bid-based markets to determine economic dispatch. While major sections of the country operate under more traditional market structures, two-thirds of the nation’s electricity load is served in ISO/RTO regions.
Benefits of ISO/RTO Markets
- A full network model that analyzes generation and transmission schedules submitted a day in advance to better manage or avoid real-time bottlenecks.
- An integrated forward market that provides a one-stop shop for trading and analyzing the electricity bids, transmission capacity and reserves needed to keep the grid in balance.
- Locational marginal pricing that creates a highly transparent system that prices electricity based on the cost of generating and delivering it.
- Enhanced reliability because ISO span large geographic areas, regional markets optimize the power grid by promoting efficiency through resource sharing.
- Efficient grid dispatch through the use of advanced technologies and market-driven incentives, the performance of power plants within regional markets tends to be better than in areas under monopoly control.
Introduction to Energy Markets
A regional real-time energy market service, often referred to as an “Energy Imbalance Market” or EIM, optimizes management of a transmission system to balance supply and demand across a larger footprint, covering multiple balancing authority areas. This service can occur outside of an area covered by an ISO and participants do not need to be a full participant in the ISO to participate. Energy markets strengthen grid reliability by allowing participants to buy and sell power closer to when electricity is consumed and by allowing system operators real-time visibility across neighboring grids, which supports balancing supply and demand at less cost. This activity optimizes the interconnected high-voltage system as market systems automatically manage congestion on transmission lines which not only helps maintain reliability (system up time) but manage and mitigate the cost of congestion as well.
Western Energy Imbalance Market (EIM)
- The Western EIM was first launched in 2014 as an agreement between PacifiCorp and CAISO. Since 2014, nineteen other utilities with service territories in the western U.S. and British Columbia, Canada have joined. Idaho Power joined the Western EIM in April 2018, and Avista and the Bonneville Power Administration (BPA) joined in April 2022. The Western EIM has three additional confirmed pending participants that will enter before 2024.
- The Western EIM is a voluntary 15-minute and 5-minute real-time energy market operated by the CAISO. The EIM utilizes transmission capacity made available to the EIM and security-constrained economic dispatch (SCED) to optimize real-time energy dispatch and resolve energy and load imbalances across the footprint. The Western EIM has surpassed $2 billion in gross benefits since its launch in 2014. By 2023, the Western EIM will serve 79% of the Western Electricity Coordinating Council’s (WECC) total load. A map of current and future EIM participants can be found on the Western EIM website.
Joint Dispatch Agreements (JDA)
- One JDA is operated by Public Service Company of Colorado (PSCo) for several entities in the state of Colorado. This market service operates similar to an EIM, but only for certain generation within the PSCo Balancing Authority Area. JDA participants include: PSCo, Black Hill CO Electric, Platte River Power Authority, and (soon) Colorado Springs Utilities. Other agreements similar to the Colorado JDA also exist in the West, including between NV Energy’s operating companies.
Western Energy Imbalance Service
- The Southwest Power Pool (SPP) began administering the Western Energy Imbalance Service (WEIS) market on a contract basis in February 2021. Similar to the Western EIM, the WEIS market utilizes SCED to optimize real-time energy dispatch and resolve imbalances. The WEIS Market has 7 current participants with an additional three confirmed pending participants that will enter before 2024.
Extended Day-Ahead Market (EDAM)
- EDAM is an initiative conceptualized by the CAISO and EIM Entities to extend the benefits of a day-ahead market to the EIM footprint. EDAM would enable day-ahead unit commitment and dispatch across the participating footprint, but would not encompass transfer of operational control or any planning (e.g., transmission planning) responsibilities to the CAISO. A Feasibility Assessment is being conducted by EIM Entities and, if successful, a CAISO stakeholder initiative will begin to design the details of this new market. EDAM would likely be a voluntary additional market option for any entities participating in the EIM. EDAM design is expected to be finalized by the end of 2022, with the goal of launching the new EDAM product by 2024.
Western Resource Adequacy Program
- The Western Resource Adequacy Program (WRAP) started at the request of many in the industry who were concerned about the issue of resource adequacy in the West. Numerous studies have shown resource adequacy is an urgent and immediate challenge. If not addressed, there is a real risk of not always being able to provide power to customers. Customers are using more energy, yet power plants – especially coal – are closing. They are often replaced by variable energy resources like renewables. The question is whether there will always be enough capacity to meet customer demand.
- The WRAP will be administered by the Western Power Pool (WPP) and is the first regional reliability planning and compliance program in the history of the West. It will deliver a region-wide approach for assessing and addressing resource adequacy and provide an important step forward for reliability in the region.
- The tariff that implements the WRAP was filed with the Federal Energy Regulatory Commission (FERC) on August 31, 2022. When approved by FERC, the tariff will enable WRAP to set terms and conditions for participation and allow for governance changes to be made.
- WPP expects a final order from FERC giving approval by the end of 2022. The WRAP team also intends to confirm commitments from potential participants for the next phase of their participation by mid-December 2022. Participants can choose the season they wish to start the binding program, as early as Summer 2025 and going through Summer 2028. They can participate in all preceding seasons as non-binding.
Benefits of participating in an Energy Market
The EIM dispatches resources across balancing areas to balance energy increasing regional coordination from energy generation and delivery in four main areas:
- Automation Reduces costs for utility customers, an automated 5 minute dispatch to balance load and generation across multiple balancing area authorities is more efficient than manual dispatch.
- Real-time view of transmission constraints, and dispatch of least cost generation resources to reduce and avoid congestion issues.
- Enhanced reliability through broader visibility across grids and better planning and management of congestion across more of the region’s high-voltage transmission system.
- Geographical diversity of loads and resources potentially reduces the quantity of reserves that are needed and provides the ability to dispatch the least cost available resources under control.
Challenges/Associated risks of participating in energy markets
- Training personnel on the new paradigm of the EIM, EDAM and other energy markets using the ISO/RTO’s automated real-time market is essential, as is ensuring the proper configuration of data and communications systems and interfaces. Participation in energy markets is voluntary and entities may exit with no exit fees.