California promises imbalance market improvement

OREANDA-NEWS. March 20, 2015. The California Independent System Operator (ISO) is pledging to improve the performance of the energy imbalance market and to work with market participants to analyze flaws in the structure within a forum ordered by federal energy regulators.

The Federal Energy Regulatory Commission (FERC) on 16 March scolded the California grid operator for misjudging the severity of the underlying causes of price volatility that plagued the imbalance market since its launch in November 2014. California's primary grid operator operates the market, which extends to PacifiCorp balancing areas in five western states.

FERC launched an investigation of the market problems, with potential for refunds, and decided to hold a technical conference to find if there are fundamental problems with the market.

"We are going to have a technical conference and work out the issues together... We will continue to report performance to FERC," ISO market validation manager Guillermo Bautista said yesterday at the grid operator's market performance and planning forum in Folsom, California.

The ISO believes that price volatility stems from the stiff learning curve imbalance market entities face as they trade their ability to adjust generation up or down over five-minute or 15-minute intervals to balance load changes.

But power traders and utilities in the west complained that price spikes reflect a lack of sufficient resources participating in imbalance trading. They rejected the ISO's proposed solution, which involves waiving scarcity pricing rules that set the market clearance price at \\$1,000/MWh when transmission constraints or insufficient supply prevent dispatch of least-cost generation resources.

FERC granted such waivers from mid-November to mid-March, and this week extended it through 15 June.

But federal regulators said they were not convinced that the waiver, which allows ISO dispatchers to manually set imbalance clearance prices at the level of the marginal economic bid, is a proper solution. "We are concerned that [the ISO's] proposed tariff revisions do not include long term measures to ensure robust participation and economically driven price signals" in the imbalance market, FERC said.

California already is making efforts to improve imbalance market performance, Bautista said at the ISO forum. Dispatchers now have a better awareness of load forecast deviations, resource conditions are better visible and the pool of participating resources has increased.

The ISO's ability to identify and fix all problems with imbalance market will be crucial for expanding the structure. FERC ordered the ISO and future participants to give assurances that all operational issues are resolved before imbalance market can expand beyond its current borders.

California elected officials and regulators have encouraged formation of the imbalance market, seeing it as an outlet for the state's growing portfolio of intermittent solar and wind resources. Many market participants also saw the structure as a precursor to a wider, more centralized wholesale market that eventually could supplant the balkanized western US that has almost 40 balancing authorities.

Nevada utility NV Energy is scheduled to join on 1 October. Washington state-based utility Puget Sound Energy wants to join next year.