by Jeff St. John
September 07, 2018

For the past two years, Gov. Jerry Brown, the state’s big utilities, and environmental and clean energy groups, have fought a legislative battle to expand state grid operator CAISO’s reach to include most of the Western United States. 

For the past two years, they’ve failed. 

AB 813, a bill that would have set the stage for grid expansion, has died in committee in the past two legislative sessions. Despite its heavyweight support, the bill hasn’t been able to overcome arguments from opponents who say it will destroy California’s ability to determine its own grid policies by shifting the center of power from the state to federal level — a claim given political heft by the Trump administration’s ongoing attempts to use federal energy policy to prop up coal power — and undermine, not support, its clean energy goals.

But AB 813 opponents like the Sierra Club, the Clean Coalition, and labor and utility ratepayer groups have insisted all along that they aren’t against the broader goals of the bill. They agree that a more integrated Western grid, as compared to the current balkanized system, should lead to more efficiency in how the region invests in transmission and generation, as well as a more geographically diverse set of resources to balance a wind- and solar-powered grid at the lowest possible cost. 

They just think there’s a better way to do it: expanding the Energy Imbalance Market

Since 2014, the EIM has allowed CAISO, and a growing list of utilities across the West, to trade energy in 5- and 15-minute increments to balance out the difference between their day-ahead purchases and current grid needs. It doesn’t force anyone to participate, doesn’t manage the day-ahead energy trading that accounts for most of the electricity transmitted on the grid, and doesn’t involve any coordinated planning on transmission and generation between its members, making it much more limited than a traditional independent system operator (ISO). 

But according to proponents, expanding EIM to include day-ahead energy markets could accomplish much of what an expanded ISO is expected to accomplish — and without the commensurate risks. 

In a June letter to legislators, AB 813 opponents cited CAISO studies that show EIM expansion could “improve market efficiency and more effectively integrate renewable generation while allowing each state to retain control over reliability responsibilities, integrated resource planning, resource adequacy and transmission planning and investment.” 

Specifically, the letter noted, CAISO’s analysis shows that day-ahead trading via EIM “could significantly reduce, or even eliminate, all expected curtailments of renewable resources within California” — one of the key problems that AB 813 backers say grid regionalization could solve. 

“The low-risk approach is EIM expansion,” Craig Lewis, executive director of the Clean Coalition and an AB 813 opponent, said. “Expanding the EIM is like entering into an international trade agreement,” that can be called off at any time. “Expanding the ISO is more like a merger of nations,” where “there’s not even a defined pathway for how they can achieve getting out of it.” 

The path toward EIM expansion to day-ahead markets

Of the 38 balancing authorities that now control transmission across the West, EIM now includes CAISO, Arizona Public Service, NV Energy, Puget Sound Energy, Portland General Electric, Idaho Power, and multi-state utility PacifiCorp. In April 2019, the Balancing Authority of Northern California/Sacramento Municipal Utility District (BANC/SMUD) plans to begin participating, and the Los Angeles Department of Water and Power, Arizona’s Salt River Project, and Seattle City Light will follow in April 2020.

As for the benefits of EIM participation, a July report pegged them at north of $400 million since its inception, with the second quarter’s $71.2 million marking its largest ever, by reducing the costs of finding alternative sources of last-minute grid-balancing energy. 

Lewis noted that, of the roughly 15 percent of California’s energy that is imported from outside the state, “a big chunk, about half of the imports, are coming in through the Energy Imbalance Market.” That sets it up as the natural mechanism to increase imports of clean energy from other states — or, for that matter, exporting California clean energy when it’s in surplus and might otherwise need to be curtailed. 

EIM is already discussing expanding “day-ahead market enhancements” to improve its performance. In a March presentation, EIM proposed creating a day-ahead imbalance reserve and combining its integrated forward market and Residual Unit Commitment, with a timeline that would see the changes implemented in mid-2019. 

These changes will have a number of benefits. “Day-ahead unit commitment and scheduling across a larger footprint improves market efficiency and more effectively integrates renewables,” the March presentation noted. 

Chad Singleton, senior manager at Wood Mackenzie Power & Renewables, noted that with AB 813’s defeat this year, “I think the debate is going down to...'regionalization-lite,' which is like the EIM.” This would likely be far less complicated than ISO expansion, he said — “all it’s saying is, let’s use our existing transmission lines, and let’s all coordinate with each other to make these cost savings.” 

Incorporating a day-ahead market into EIM could “make things more efficient and easier to run,” he added, largely by incorporating the sizable proportion of generation that operates on a day-ahead basis. For example, most of the Pacific Northwest hydro fleet only schedules on a day-ahead cadence, making them unavailable to the real-time market.

“There has been quite a lot of talk about expanding to day-ahead for EIM,” he added, including its mention as part of CAISO’s response to the Federal Energy Regulatory Commission’s demand for ISO reports on grid resiliency

The key differences between EIM and CAISO expansion  and a debate over transmission’s role

At the same time, “I think that CAISO has some strong points that if you made a Western regional transmission organization, you could make even more serious efficiency gains,” Singleton said. That’s primarily because EIM would remain a voluntary organization. Utilities and power plant owners could simply ignore it and continue to operate on a bilateral basis, unlike an ISO, which generally requires these entities to take active steps to opt out of the markets they create. “If you’re just EIM, you’ll never be as coordinated as you’d be if you went to a regional model.”  

EIM’s report highlighted some of the key differences between its day-ahead market plans and the broader functions of an ISO. Under its plan, each balancing authority would remain responsible for ensuring their own reliability needs, rather than be subjected to an ISO-wide set of requirements, for example. States will maintain control over integrated resource planning — a plus for proponents of retaining CAISO’s relative independence compared to other ISOs, but a minus for those seeking greater efficiencies in sharing these responsibilities across state lines. 

Perhaps most importantly, unlike an integrated ISO, under an expanded EIM, “transmission planning and investment decisions remain with each balancing authority and local regulatory authority,” the report notes. This is one of the key functions of an integrated ISO that AB 813 supporters may fear will fail to emerge from an EIM expansion.

Lewis noted that he’s asked AB 813 supporters to lay out just what grid expansion will provide that EIM market expansion won’t, and “the only answer I’ve ever gotten that was halfway sensible is...you don’t have the same depth of transmission planning.” 

But for Clean Coalition, which is campaigning to reduce the transmission access charges paid by California ratepayers and to invest in distributed energy resources instead of transmission to solving the state’s grid balancing problems, the absence of an integrated transmission planning function for EIM is a benefit, not a drawback, he said.   

“There’s nothing preventing that new transmission line getting built, beyond transparency of the cost allocation,” he said. Under today’s paradigm, a solar plant in Nevada that wanted to export to California would work with CAISO and Nevada’s balancing authority to share the costs of transmission to make that possible, he said. But under an integrated ISO, these transmission costs would be subsumed into a much broader regional process that could lead to California, which accounts for more than half of the load across the region, paying a disproportionate share of the costs. 

This is hardly a universal view, however. “If we decarbonize the grid, one of the biggest stumbling blocks to getting there is getting enough transmission built,” Singleton noted. An expanded EIM may well eventually face constraints in how much energy balancing it can enable, as it runs up against transmission lines that are at the limits of their capacity, or those with prior scheduling rights, he noted. 

EIM’s report on day-ahead market efforts noted that stakeholders still have a lot of issues to work out, including “aligning transmission access charge paradigms” and finding ways for participants to “recover transmission costs consistent with existing bilateral transmission framework[s]” between transmission-owning utilities. The report also noted that a “day-ahead resource sufficiency evaluation” will need to be undertaken, to “ensure balancing areas [are] not leaning on others for capacity, flexibility or transmission.”