Scott Miller is executive director of the Western Power Trading Forum.
The recent opinion piece in Utility Dive, suggesting the “sick or dying” regional transmission organizations, transported me back to 1998 when vertically integrated monopoly utilities routinely suggested that a regional grid operated in a bid-based dispatch was going to undermine the reliability of the grid. However, when I read the opinion more closely, I found that the authors not necessarily calling for a return to the “simple, white picket fence days of an imagined better past” (queue the soft music) where your local utility was the only way to deliver electricity.
Rather, Mr. Gifford and Mr. Larson seem to be arguing more narrowly about some aspects of some RTOs, but not the core function of an organized market: Unfettered access to the grid. Congestion costs allocation and network dispatch allow for greater throughput of power than traditional Open Access tariffs’ artificial “contract paths” allocation that restricts access below the true capacity of the grid. To argue that some RTOs have imperfections is somewhat akin to saying, “nobody is perfect.”
But the criticism of some RTOs is not limited to utility lawyers in areas considering market integration. Even some advocates for companies enjoying the benefits of efficient, non-discriminatory transmission dispatch are sometimes critical of RTOs for reasons that often relate to capacity markets. I remind my colleagues in the Eastern interconnection that most of us in the balkanized Western interconnection would dearly love to have a broad, regional network dispatch that would require only the payment of transmission congestion costs as the ticket for entry.
The criticism of RTOs would appear to be mostly related to pricing “capacity” or the resources available when needed beyond normal days in the energy market. As someone who was employed at an RTO which embraced a centralized capacity market (PJM Interconnection) over a multi-state area, I increasingly became concerned that this noble effort to try and “price” capacity was running into differing views of need while distracting regulators and market participants from the true mission and great benefit of an RTO: efficient and transparent dispatch to maximize the capabilities of the grid and generation.
Why a “market”?
When I was a young advocate for market development in the late 1990s, I recall sitting with some utility engineers after a meeting in Indianapolis that was attempting to get the Midcontinent Independent System Operator started. MISO was a tough gestation and birth because it was the first multi-state ISO/RTO that did not originate out of a tight power pool. During the conversation with these very smart people, I spoke about the raging debate of the day between allocating congestion costs on nodal basis or on the broader area of “zones.”
When I mentioned the resulting bids that might be incented to meet the needs of the grid in a more granular “nodal” basis, my utility friends said that MISO was not going to have a “market.” Puzzled, I asked how they were going to deal with congestion on the grid? “We’ll just redispatch the system!” Well, “yes”, I said “but on the basis of what?” Then we had a detailed discussion of the reason for bids. It wasn’t to create a market for market’s sake, but to efficiently, fairly and reliably operate the grid to the maximum use of the transmission system. That is the core function of an RTO and if you’ve experienced that function, you would never want to go back to the balkanized system of limited transfer capability.
The “other stuff”
There are other things that RTOs do as an ancillary benefit of operating and maximizing big regional grids, such as transmission planning. The grid that is dispatched as a network based on a Security Constrained Economic Dispatch (SCED) is very different from a grid based on the limitations of the contract path, necessitated by an individual utility’s open access transmission tariffs. Thus, the RTO dispatch reveals transmission upgrades based on a fully utilized grid revealing areas of congestion on a larger view. Most observers of the planning process in the Eastern RTOs aren’t really arguing over the planning, they are arguing over either the cost allocation (a truly thorny issue) of the plan or the interconnection process.
As is being discussed in the West, it is not necessary for the RTO to be the one-stop shop for transmission planning. A group of utilities in the region are attempting to do this outside of any of the contemplated RTO-like structures in the West. We’ll see if they are successful, but if they are, they would do well to work with any RTO to see the needs based on the transparent congestion to base their planning. Certainly, they can be the convening authority to work out cost allocation of transmission that crosses more than one state or utility area — but good luck to them on that.
Then there is the “capacity” mission or, what we in the West call “resource adequacy.” Currently, in the West, it’s based on a bilateral market by which RA is traded without a centralized market inside an ISO or RTO. Certainly, some regional agreement and rules for inadequate contracting and performance are necessary. That is what is being done in the West under the Western Power Pool. Given the Western mix of authorities; state commissions, customer-based systems like municipal utilities, and federal administrators, I’m quite happy for this arrangement that avoids the machinations of how to price capacity in centralized procurement. This centralism in the East was difficult enough with the varied opinions and policies of states on traditional resource procurement. It is all the more difficult given the differing policy objectives concerning the energy transition to lower carbon resources.
The real message
I respect the notion that any RTO development or improvement does not have to look like long-established Eastern RTOs. Ideally, I would like any RTO development in the West to incorporate transmission planning or, at least have a linkage to any entity that is responsible for this increasingly important function. Assuming we get to one or more RTOs in the West, I would hope the Western Power Pool would be highly coordinated with the regional grid operators, whose SCED dispatch will reveal a goldmine of information that will enhance the mission of reliable RA procurement.
The magic of the network dispatch is that it maximizes the feasibility of the full transmission system and is the central mission of RTOs — that should not be overlooked. It will benefit reliability by making more resources available to meet needs that are currently out of reach of the “old system,” which some seem to romanticize.
We need that central mission to be met in the West by taking the steps necessary to get to one or more RTOs in our region. It doesn’t have to mirror its legacy organizations in the East to meet the central mission.