California ISO details energy imbalance market fix

The operator of California's primary power grid is promising to fix recurring price volatility in the western US energy imbalance market by upgrading its dispatch model software to reflect all available capacity.

The proposal, detailed in a filing with the Federal Energy Regulatory Commission (FERC) on 24 April, reflects the California Independent System Operator's (ISO) view that the price volatility does not reflect fundamental market problems and can be solved with more time and operational experience.

The energy imbalance market launched financially binding operations on 1 November 2014. The ISO operates the structure, which together with PacifiCorp covers six western states. Participating entities trade their ability to adjust generation up or down over five-minute or 15-minute intervals to balance load changes.

The ISO is the market operator but PacifiCorp retains reliability functions over its two separate balancing areas covering the Pacific northwest and Rocky mountains. As a result, the energy imbalance market dispatch model does not recognize PacifiCorp units that are held back for regulatory and contingency reserves, which the ISO says creates "false scarcity in the market clearing process."

The market systems observed an insufficient amount of effective economic bids to clear the 15- and five-minute markets, resulting in application of a rule that sets the market clearance price at $1,000/MWh when market is unbalanced.

The rule is applied rarely in the primary ISO market, and such occurrences indicate that transmission constraints or insufficient supply prevent dispatch of least-cost generation resources. But the ISO dispatch model has yielded power imbalance signals with an unusually high frequency.

California's approach to the problem has been to waive the $1,000/MWh price and manually set imbalance clearance prices at the level of the marginal economic bid.

The ISO proposes to adopt an automated feature to ensure that its energy imbalance dispatch model reflects available capacity and operator actions in the regulation and reserves market.

FERC will have to weigh the request against PacifiCorp's balancing area authority, which requires constant application of regulation resources — units used to balance the grid instantaneously by adjusting generation up or down within seconds of receiving dispatch commands.

The ISO assures that its proposed solution will not affect PacifiCorp's responsibilities under electric grid reliability standards. Upgrades to the software and training should be completed by 24 August.

The ISO is asking federal energy regulators to extend the waiver of the $1,000/MWh scarcity pricing rule until 24 August.

The market operator has to convince the federal agency that there are indeed no fundamental problems that result in the imbalance market price volatility. The question is relevant because federal energy regulators have ordered the ISO and future participants to give assurances that all operational issues are resolved before the imbalance market can expand.

Adding NV Energy, expected in October, will significantly increase transfer capacity between the disjointed areas that make up the energy imbalance market.

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