Regional energy market proposed
November 18, 2013
NV Energy's plans to enter a new market with other western electricity utilities could save ratepayers money and boost production of renewable energy in the state.
At least that's the expected result if Nevada's power company becomes a member of an Energy Imbalance Market being created by the California Independent System Operator and PacifiCorp., the Portland, Ore.-based utility that provides service to large swaths of the west.
But the outcome of implementing an Energy Imbalance Market is not entirely predictable. Advocates say it will cut costs by improving efficiency and reducing the reserves utilities now require. Critics, meanwhile, say the costs of getting it up and running may outweigh any benefits.
An EIM — that's the shorthand for "Energy Imbalance Market" — is a mechanism for energy suppliers to pool and exchange electricity generation in order to smooth out swings in supply and demand. The western region of the country, plus British Columbia and Alberta in Canada, consists of 38 so-called balancing authorities, entities that schedule and manage power loads for their area. In Nevada, the work is handled by Sierra Pacific Power and Nevada Power, NV Energy's utilities in the north and south.
Currently, the balancing authorities work together via long-term contracts and schedule service hourly. An EIM would create a five-minute market in which the balancing authorities could quickly order and dispatch electricity from another participating authority if, for example, the buying utility underestimated its needs or was relying on power generated by the wind when the wind stopped blowing or on solar power on an unexpectedly cloudy day.
Renewable portfolio standards and the integration of variable renewable energy sources such as wind and solar onto the grid are behind the need for EIMs or solutions like them. By law, a quarter of Nevada's power must come from renewable sources by 2025. California's target is 25 percent in 2016 and 33 percent by 2020.
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The CAISO last week released a detailed draft for the EIM which outlines the terms and conditions of the market, including fees. On Dec. 16 it is holding a meeting to take feedback from stakeholders. CAISO plans to submit a tariff to the Federal Energy Regulatory Commission, which must approve it, by the end of February 2014 and to launch the market in October 2014. Other balancing authorities will be able to apply to join starting in 2015.
In the meantime, NV Energy said it has determined through a joint study with CAISO that an EIM may benefit customers and plans to seek permission from the Public Utility Commission to join.
Like PacifiCorp., NV Energy soon will be owned by Warren Buffet's MidAmerican Energy Holdings Co.
NV Energy isn't releasing the details of the report, but CAISO and PacifiCorp. published their own study, conducted by Energy and Environmental Economics Inc. That report estimated the two participants would save anywhere from $21 million to $219 million through the EIM in 2017. Startup costs would range from $3 million to $6 million and annual operating costs would range from $2 million to $5 million. The report also says the bigger the EIM the better, so the addition of participants would boost savings.
EIMs have many advocates.
"It really benefits for the ratepayer," says Lydia Ball, executive director of Clean Energy Project Inc., a Las Vegas-based non-profit supporting renewable energy. "If we're taking extra energy from Arizona, we can avoid building another plant for $600 million," the cost of the recent expansion of Harry Allen Generating Station, a natural gas-fired plant in Clark County.
And Ball thinks an EIM would be a boon for renewable energy production since the market makes it easier to integrate renewables.
But critics say an EIM is overkill and more incremental, less cumbersome measures could achieve the same goals. One concern, often shot down by proponents, is an EIM is the first step to becoming a regional transmission organization, a bigger, more bureaucratic and costly entity.
"You can do dynamic system scheduling (every 15 minutes) without an EIM," says Elise Caplan, manager of the electric market reform initiative at American Public Power Association, a Washington, D.C. group representing 2,000 publicly-owned electric utilities. "Right there, that does a lot to integrating renewables."
And Caplan worries formation of a western regional transmission authority is inevitable if an EIM is established.
"There's a lot of pressure," she says. "FERC is very supportive of RTOs."
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