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​Western watches markets

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by Randy Wilkerson

The restructuring of the electric industry, beginning in the 1990s, encouraged the development of regional transmission organizations and independent system operators in various parts of the country. The goal of these organizations was to take advantage of load, resource and geographic diversity by combining resources and centralizing operations for the members’ benefit.

For a number of reasons, the critical mass necessary to develop RTOs and ISOs did not materialize for most of the western U.S., unlike in the Eastern Interconnection, California and Texas. However, with policy makers increasingly focused on developing and integrating variable resources (e.g., wind, solar, geothermal) into the western grid, balancing authorities are having a more difficult time balancing the mismatches between projected load and projected supply.

Many policy makers, especially in the Western Interconnection, where RTOs and ISOs are not yet common, have focused their attention on the development of energy imbalance markets instead of RTOs. Normally an RTO or ISO would provide energy imbalance market services to its members. However, with no organized central market, various existing RTOs and ISOs have expressed an interest in providing separate EIM services to nonmembers in the hope of attracting business from entities that are not interested in becoming members but still want to take advantage of a centralized market to purchase and sell energy and transmission-related products and services on real-time basis. At this time, Western is not a member of any existing ISO or RTO, and it does not participate actively in an EIM, but a number of these entities are our neighbors and business partners.

What are RTOs, ISOs?  

Ten RTOs operate much of the bulk electrical system across North America. The terms RTO and ISO are roughly synonymous and are frequently used interchangeably. They are independent, membership-based, nonprofit organizations designed to ensure reliability of the system. They also intend to optimize electric power supply and demand by operating markets for energy and ancillary

RTOs first came on the scene in the 1990s as a way of dealing with Federal Energy Regulatory Commission Orders 888 and 889. These orders encourage competitive generation by requiring open access to transmission. In the Northeast, RTOs evolved from existing power pools that were already coordinating utility operations.

RTOs coordinate generation and transmission across large geographic areas, matching generation to load. They dispatch power by accepting bids from both generators and load-serving entities on a day-ahead basis and in real time. These bids are analyzed by complex software, and the price of electricity is set at least every hour, but as frequently as five minutes, based on bids that sellers submit. Bids are accepted, beginning with the lowest-priced bid up to the last bid needed to supply the power required for that time period. All sellers then receive the price of that final bid, known as the clearing price.

Most RTOs manage congestion on the transmission system through a congestioncharge, or locational marginal pricing. An RTO is divided into many zones based on geography. If transmission congestion prevents the cheapest generation from being delivered to a particular zone, more expensive generation is dispatched, and the customer is charged the higher price. The price difference between the more expensive generation and the lowest price in the RTO is the congestion charge.

How EIM differs

EIMs lack the full features of an RTO, such as planning and day-ahead markets as well as the requirement to commit all generation, and do not replace the current contractual arrangements prevalent throughout the West. EIMs are a market tool to balance supply and demand in five-minute increments typically across a larger geographic footprint.

Anticipated supply and demand rarely match real-time situations exactly, and predicting real-time needs and resources is being further complicated with the addition of more and more variable generation resources, such as wind and solar, which are difficult to predict and change rapidly. This often creates an imbalance between the electricity available and what is needed. The imbalance must be corrected, and traditional balancing authorities do this through manual dispatch of additional power reserves. EIMs accomplish the task through automated software every five minutes.

The large geographic area covered by an EIM allows a larger and more diverse pool of generation resources to draw upon to correct the imbalances. In theory, an EIM will optimize the use of available generation and reduce the quantity of reserves required to balance supply and demand.

As the industry and markets continue to evolve, Western is participating directly or monitoring the efforts of a number of regional and sub-regional efforts. Recently the California Independent System Operator and PacifiCorp agreed to develop an EIM that would encompass a large area of the West; and Upper Great Plains is considering whether or not to join the Midcontinent Independent System Operator or the Southwest Power Pool, both RTOs.

Any decision to participate in an EIM or RTO will be based on sound business principles, uniqueness of our legislated power projects and consistent with Western’s statutory requirements, including Western’s mission to provide cost-based hydropower to preference customers.


This map outlines the operating  regions of the 10 independent system operators and regional transmission organizations in the United States. Areas shown in green, which include most of Western’s territory, do not belong to an ISO or RTO. (Image  adapted from the ISO/RTO Council)

Page Last Updated: 7/17/2015 8:54 AM