The role of an Independent System Operator (ISO)
The electricity industry includes traditional utilities, private power plant owners, and state and federal agencies, each playing a unique role. In areas that have an ISO, it provides open and non-discriminatory access to the wholesale transmission grid, supported by a competitive energy market and comprehensive infrastructure planning efforts. An ISO has no financial interest in any market segment and makes sure diverse resources have equal access to the transmission network and markets used to fine tune the flow of electricity.
History of ISO
Independent system operators and regional transmission organizations (RTOs), virtually unknown to most, were created following the 1992 passage of the Federal Energy Policy Act, which introduced competition to the wholesale side of the electricity business. Upon implementing the 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. 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. Two-thirds of the United States is served by these independent grid operators. In the West, an ISO exists within the state of California and is known as “CAISO”.
Benefits of ISO Market
- 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.
The regional real-time market service, referred to as an “Energy Imbalance Market” or EIM, optimizes management of the 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 join and EIM. The EIM manages transmission congestion and optimizes procurement of imbalance energy (positive or negative) to balance supply and demand deviations for the EIM Area through economic bids submitted by EIM Participating Resource Scheduling Coordinators in the fifteen-minute and five-minute markets. All resources in the EIM footprint are visible, even if not available for EIM dispatch. Real-time EIM optimization will efficiently dispatch participating resources to maintain balance.
EIM strengthens 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. The ISO market systems identify fluctuations in supply and demand and then automatically find the best resource from across a larger region to meet immediate power needs (demand). 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.
The Western EIM was first launched in 2014 as an agreement between PacifiCorp and CAISO. Since 2014, nine 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 has signed an agreement to begin participating in April 2022. The Western EIM has five additional confirmed pending participants that will enter before 2021.
Benefits of participating in the EIM
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 the EIM
- Training personnel on the new paradigm of the EIM using the ISO’s automated real-time market is essential, as is ensuring the proper configuration of data and communications systems and interfaces. Participation in the EIM is voluntary and entities may exit the EIM with no exit fees.
Green tariffs in the EIM
- Integrating renewable energy into existing electric grids is difficult for many electricity markets. EIMs with green tariffs have been developed to mitigate the gaps between production and demand. Utility green tariffs are optional programs in regulated electricity markets offered by utilities and approved by state public utility commissions that allow larger commercial and industrial customers to buy bundled renewable electricity from a specific project through a special utility tariff rate.