APS eyes benefit of California's imbalance market

OREANDA-NEWS. April 29, 2015. Arizona Public Service (APS), the state's largest utility, plans to discuss benefits of joining California's western energy imbalance market with state regulators.

The imbalance market, launched in November 2014 by the California Independent System Operator (ISO), allows for the dispatch of energy across six western states to cover imbalance needs — real-time deviations in demand and generation from anticipated levels. The imbalance market area includes the ISO and the PacifiCorp balancing areas in the Pacific northwest and the Rockies.

APS, which serves 1.2mn customers, this month submitted a study of benefits to members of the Arizona Corporation Commission. The study showed potential savings of \\$7mn-\\$18mn/yr from intra-hour dispatch and the ability to carry less reserves by participating in the ISO's energy imbalance market.

The results of the study "indicate that there are substantial benefits for our customers that can be realized through participation in this market," APS said. "Therefore, the company believes that it is in the best interests of customers to participate" in the imbalance market.

APS participation in the imbalance market would save existing members \\$2.2mn-\\$8mn/yr, according to the study performed by consulting firm Energy and Environmental Economics.

The company, also known as E3, provided similar studies for the ISO, PacifiCorp, NV Energy and Washington-based Puget Sound Energy.

Nevada utility NV Energy will join the imbalance market on 1 October, expanding the market's reach to seven states.

The APS base case study assumed that the ISO, PacifiCorp and NV Energy were current imbalance market members. It was prepared before Puget Sound disclosed its intention to join the market next year.

PacifiCorp cited nearly \\$6mn in gross benefits in the first two months of imbalance market operation despite significant, unforeseen volatility in prices initially. The ISO has promised to upgrade its dispatch model within four months to address the price volatility.

Puget Sound's economic analysis projected annual benefits of \\$18mn to \\$30mn.

E3 said the increased efficiency of 15- and five-minute dispatch across an eight-state imbalance market footprint could save APS about \\$5.9mn/yr in a low-cost natural gas price environment. A scenario involving high gas prices and a 40pc renewable resource mandate in California would yield \\$15mn/yr in savings.

In its primary scenario, APS dispatch savings were \\$8.9mn/yr.

California is weighing a move to a 50pc renewable standard.

E3 said its various scenarios indicate that a higher California renewable mandate and higher gas prices tend to increase benefits of the imbalance market. Conversely, lower gas price assumptions reduce benefits to APS because they lower savings from improved gas-plant dispatch.

One-time costs for APS to implement the market were estimated at \\$13mn to \\$19mn for metering at generating plants and interties, software upgrades and other changes. Ongoing costs could be \\$4mn/yr.