At this time of year here in the Pacific Northwest, months of damp and dreary weather leave even the hardiest natives yearning for the brighter days of spring and summer. In February, Northwest gardeners can often be found digging, planting, composting, and weeding in the hope that this will somehow hasten the coming of more pleasant weather. Of course, spring cannot be rushed, but comes only in its own time. Yesterday, PacifiCorp and the California ISO ("CAISO") announced a Memorandum of Understanding ("MOU") committing the two entities to implementing a real-time Energy Imbalance Market ("EIM") by October of 2014. Like Northwest gardeners attempting to rush the spring, the MOU appears to be an attempt to jumpstart an EIM in the West. Because PacifiCorp and the CAISO are two of the largest transmission operators in the West, the effort must be taken seriously.
The EIM is one proposed solution to the problems of integrating increasing volumes of variable generation from renewable resources such as wind power. The core aim of EIM is to establish a market for regulating and balancing reserves that would allow system operators to draw on a wide range and diversity of resources to maintain electric system balance as renewable generation rises and falls, which theoretically will improve the efficiency of balancing operations. The EIM idea has been under consideration in the Northwest for the last couple of years, and has advanced to the point that detailed studies are being performed.
Although there is a certain logical appeal to the EIM as a concept, the idea has met with considerable skepticism, especially from public power. Public power entities are concerned that the costs of an EIM may outweigh its benefits. Likewise, public power entities are concerned that the EIM could create a slippery slope leading to creation of a west-wide Regional Transmission Organization ("RTO"), an idea that has been opposed by many public power entities in the past as unduly expensive and inappropriate for the Northwest. Disappointment with the results of RTOs in other parts of the country is not likely to ease these concerns.
Similarly, recent revelations of market manipulation in the CAISO markets has done little to increase enthusiasm for market-based solutions like EIM. Finally, public power fears that participation in the EIM could subject publicly-owned entities to FERC jurisdiction, a result fundamentally at odds with public power's governance model, which is centered on local control by locally-elected officials. Last year, FERC tried to address this concern by circulating a memorandum arguing that participation in the EIM would not lead to FERC asserting jurisdiction over otherwise exempt public power entities, but FERC's track record in this area largely overshadowed FERC's efforts at reassurance.
Yesterday's MOU could be interpreted as an attempt to bypass opposition to the EIM. Under the MOU, PacifiCorp and the CAISO commit to developing an EIM based on the CAISO's existing automated five-minute balancing market, by October 2014. But the market would not be limited to just PacifiCorp and the CAISO. The MOU anticipates that additional entities could participate in the EIM by the summer of 2015, with an "application window" opening as early as this summer.
If you have any questions about the EIM or other matters discussed in this post, please contact a member of GTH's Energy, Telecommunications, and Utilities practice group.