History of ISO
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 Independent System Operator (ISO)
An ISO 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. 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 RTO regions.
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.
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, 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 eight additional confirmed pending participants that will enter before 2022.
- The Western EIM is a voluntary 15-minute and 5-minute real-time energy market operated by the California Independent System Operator (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. Current and future EIM Entities cover about 70% of load in the Western Interconnection. A map of current and future EIM participants can be found here.
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) is currently working with interested parties to develop a Western Energy Imbalance Service (WEIS) market. This market’s construct is still being developed but would likely be very similar to the Western EIM and would utilize SCED to optimize real-time energy dispatch and resolve imbalances. Potentially interested participants appear to be in Colorado, and parts of Wyoming, New Mexico and Arizona (and are mostly comprised of former participants in the Mountain West Transmission Group effort).
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.
Northwest Regional Capacity Adequacy
- In 2019, the Northwest Power Pool (NWPP) began assessing resource capacity adequacy in the Northwest. The NWPP is now is the early stages of evaluating approaches that may enable better trading of capacity resources in the Northwest, including ensuring that the same capacity is not being relied on by more than one entity.
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 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.