Is that a Paper Moon?


In this scene from the movie “Paper Moon”, money changing occurs so rapidly that the cashier finds herself unsure what has transpired. The same can happen with transmission in the fast-moving energy market if you’re not careful. WPTF’s excellent chair of our WECC Committee – Caitlin Liotiris addressed a meeting of participants in the Energy Imbalance Market (EIM) about transmission availability in the EIM market. The points she made with regard to the current EIM here (EIM TX) may be even more of an issue as we approach the possibility of a “day ahead” product associated with the EIM.

The effort to come up with a “day-ahead” product in a platform that is predicated on real-time Imbalance Energy has been seized upon as a way to move forward in expanding the market around California. Because the California legislature won’t solve the obviously problematic governance arrangement that keeps utilities outside California from joining CAISO, a creative solution to resurrect regionalization seemed necessary.

While I appreciate the need to be creative and applaud these utilities and CAISO for trying a work-around, what was discussed as a possible outcome sounded a bit troubling to me.

The attempt to have a “day-ahead” market or product without the additional transmission owners actually joining the CAISO has always felt problematic. In fact, judging from what FERC did when Mid-America tried to do something similar in MISO back in 2008, it could be a “no-go”, though I have been assured that somehow the circumstances were different here. FERC, I was told, will see that this was the only way to expand the CAISO market and to find a competitive outlet for the broader regional mix of resources (read renewables).

However, even if there is something to the assurances I’ve received about shifting attitudes at FERC, there is a fundamental and potentially troubling issue with establishing a day-ahead product without stable transmission capacity available to the market. The proposal of the EIM transmission owners suggested the possibility that EIM entities might elect to not make transmission available all the time and to vary the amount when they do make it available. So, there seems a possible outcome in which the transmission may or may not be there for the day-ahead product, and when capacity is available it can be in widely varying amounts. Does such a possibility square with non-discriminatory open-access?

Obviously, this is not the “regionalization” the CAISO was hoping for and is a long way from having a transmission system become part of a broader network and an optimized dispatch. I was around in 2004 when PJM integrated AEP and everyone was surprised to see how much more efficient the AEP transmission system became and how much more capacity it could handle once it was integrated into PJM’s big network. The notional transmission discussed in the context of a “day-ahead” EIM product could disadvantage other users of the system who will never know if the transmission will be available. Indeed, the proposal of this kind opens up a host of market power concerns in addition to logistical issues. Not only would we not get the wonderful outcome that occurs in regional markets of an efficiently dispatched network, the proposed work-around could make matters more opaque.

It is understandable that EIM utilities don’t want to join CAISO as long as the Governor of California controls the Board appointments. But how would FERC view the potential for discrimination that the “now you see it, now you don’t” availability of EIM transmission might incent? I’m not suggesting that the EIM transmission owners are intentionally planning on discriminating, but the structural incentive would seem to be there.

So what’s a transmission system to do?

With all the time invested by utilities, particularly those in the Pacific Northwest, trying to create the efficiencies of a big, regional transmission network, one can understand the reluctance to abandon EIM. Who can forget the efforts to establish a regional market with “Indigo” or “RTO West” and not share the frustration of the utilities in the region and the management of CAISO which has done so much to try to make a regional transmission system? But at some point you may just have to try something different – especially since there are options. Why not look at hooking onto the SPP platform in Mountain West if you can get enough members to make the transmission work in the middle? Why not look at the PEAK-PJM platform that is just now coming to some level of specificity with a business plan that utilities can study?

What’s different now is that there are real options out there, with real experience and proven platforms vying to serve the market needs of the Western utilities. While it seems clear that the utilities in the areas around California want to have access to that huge Golden State market and the resources in it, one can easily imagine a market platform adjacent to CAISO that transacts across the boundary in a manner similar to how PJM, MISO, SPP, and NYISO relate to each other in the East. The FERC required these adjoining markets to have “Joint Operating Agreements” (JOA) that allow for inter-regional transactions. One could imagine the same thing with two or three regional grids in the West knit together with JOAs.

Such a scenario seems plausible and with fewer questions than trying to fit a patched together “day-ahead” square peg into the existing Energy Imbalance round hole. I know the good people at CAISO management and the EIM Board truly believe they can make it work and that they will be able to protect the EIM parties from the vagaries of California politics, but I have never been able to understand what happens if there is a disagreement between the CAISO Board and the EIM Board? Jump ball at FERC? Or, is the product that comes out the stakeholder process in California so influenced by the CAISO Board that the EIM governance doesn’t get to exercise any influence in the formative stages of market rule development. At the end of the day, one might ask if it is possible to wring all the unique politics of California out of the CAISO given California’s policy goals favoring renewable and other “preferred” resources? I wonder.

Meanwhile, back in the “old country…”

So, did anyone see the letter First Energy (FE) sent the Secretary of Energy this past week? Having failed once to get emergency relief for its coal-fired power plants, FE got DoE to require FERC to consider a Notice of Proposed Rulemaking (NOPR) to change the way resources with “on site fuel” (read Coal) would be compensated. The request was based on a claim that these plants were retiring prematurely and may be needed for a term called “resiliency”. This term, which is not yet defined, is a new justification for allowing coal plants to get additional compensation – beyond the capacity, energy or ancillary services markets.

FERC, as we know, built a record in the NOPR and found – to almost everyone’s relief – that there was no impending crisis. Nonetheless, the Commission threw DoE, FE and Murray Coal a bone by essentially saying it would “look into it” and asked for the comments of the industry including the ISOs and RTOs. Not having been satisfied with that, FE has now asked the Secretary of Energy to invoke emergency powers under Section 202 (c) of the Federal Power Act to save their coal plants – in the name of “resiliency”.

The last time I can recall that being used was in 2005 when a major transmission outage in the Washington, DC area threatened local reliability and PJM asked DoE to invoke 202 (c) to keep open a near by coal plant that the state of Virginia was attempting to close until a new transmission project could be completed. That was a “rifle shot” use of the emergency power. What FE seems to want would be a major cannon-sized use of this extraordinary section of federal power. PJM responded by saying it found there was no emergency. Stay tuned. Things are getting weird and this will be something to watch.

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