Changes Coming in the West!
By Alan Bull, General Manager, Compliance Services
With the California Independent System Operator’s (CAISO) announcement on January 2, 2018 that it plans to withdraw from Peak Reliability (Peak), effective September 2019, in order to become its own Reliability Coordinator (RC), changes are coming throughout the Western Interconnection. In addition to the CAISO’s announcement, Peak and PJM Connext have unveiled new details about their plan to create a new market in the West and are imploring potential customers to give them more time to flesh out their proposal before withdrawing from Peak in order to seek RC services elsewhere.
“We know there is a lot of fear, uncertainty, and doubt out there in that people believe that they have to make a decision in the next few weeks about our RC services,” Pete Hoelscher, Peak’s chief strategy officer, said on a conference call on February 6, 2018. “Our point of view is clearly that is not the case.” So far, the Peak-PJM Connext plan is already winning some praise, both because of the sponsors’ experience with providing reliability and market services and because of the current hurdles to expanding the CAISO as a RC. “What PEAK and PJM have proposed is very appealing.” Scott Miller, the incoming executive director of the Western Power Trading Forum, said Wednesday. “Peak certainly has the reliability function down pat, as well as experience modeling the entire Western Interconnect,” he said, adding, “PJM probably has the most experience in running a large locationally-based market and a centralized dispatch.”
CAISO has stated that it can offer the RC services at a 50-75% discount compared to Peak, and it is urging balancing authorities to sign letters of intent by March 1, 2018 if they are interested in using CAISO’s services. Observers say that CAISO’s January 2 RC announcement set in motion a ticking clock for entities to make a significant decision without complete information – whether to align with markets run by existing grid operators in the Western region, including CAISO, or hold out for a potential new market design floated last year by Peak and PJM Connext. Since January, Peak and PJM Connext have revealed new details about their proposed market, as well as an ambitious timeline to get portions of the market up and running by 2020. PJM Connext is a wholly owned, non-regulated subsidiary of PJM Interconnection. The initial market offering would include: nodal, locational marginal pricing-based market; real-time and day-ahead energy markets; financial transmission rights; and consolidated credit and market settlement, according to the February 6 call. Additional services, based on stakeholder interest, could include: ancillary services such as regulation and reserves; a demand response construct; and a capacity construct and market. Entities would be able to choose from a menu of services, including Peak’s existing RC services, balancing authority services and market services, Todd Bessemer, PJM managing director for strategic development, added on that February 6 call to interested stakeholders.
“We realize that not everyone is going to be ready for markets at the same time, so our offering is not exclusive,” Bessemer said. “For those who wish to remain in other arrangements such as CAISO’s [Energy Imbalance Market], Peak will continue to provide reliability coordinator services for those who wish to use them,” he said. Also, rumors persist that both the Mountain West Transmission Group (a collaboration of electricity service providers in that region) and BC Hydro will leave Peak in order to obtain RC services elsewhere.
As demonstrated by the success and failure of other prior Western regional energy initiatives, the path forward for these competing RC and market initiatives may take some significant twists and turns before a clear outcome(s) emerges. Nonetheless, while these moves may have no immediate impact on generation facilities, if a PJM-style market becomes active in the West, the way in which generation units are dispatched may change substantially. In addition, the RC entity that generation facilities in the West may need to interact with for compliance purposes and to support reliable operations may change. Western organizations are encouraged to continue to follow and monitor these potentially significant developments as they continue to evolve.