The Real Balkanization of the Power Grid

A few months ago, The New York Times ran a prominent article that focused on a familiar stalking horse for U.S. energy policy analysts: the difficulties building new transmission.  The gist of the story is that we have a system with so many quasi-independent jurisdictions and fiefdoms that building transmission to connect them becomes hopelessly embroiled in turf-wars and rent-seeking.  Now, I’m not disagreeing with this narrative.  Heck, I’ve served on “blue-ribbon” panels lamenting these problems and even participated in a national transmission grid study.

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Map of the Western Grid

However, this is not the first time this narrative has surfaced, and it is frustrating to me that the focus is always so squarely aimed at the construction of new transmission lines when so much of the country has a real problem with utilizing the lines that are already there.  This is the real balkanization of the transmission grid.

With the development of Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), the U.S. has made tremendous strides in developing a system in which a wide variety of firms can gain access, on essentially equal footing, to the transmission assets overseen by RTOs.  Despite a general perception that you can never build transmission lines in the U.S., the RTO framework has actually done a pretty good job building lines also, at least within RTOs.

But this is the state of affairs in only about half the country. There are still large swaths of the U.S. that still access transmission lines (or not) using a hopelessly byzantine (old-school Balkans) system of transmission property rights that rarely reflect the actual reality of a network’s capacity.  One result is a bunch of “squatting” on transmission capacity through advanced reservations that are often not utilized. Serious conflicts of interests within vertically integrated utilities and simply a lack of much incentive to change amongst instinctively conservative regulated and government-owned utilities compound the problem.

The real magnitude of this problem was exposed quite elegantly in Erin Mansur and Matt White’s paper, Market Organization and Efficiency in Electricity Markets.  They studied a moment when a balkanized Ohio merged with the largest of the ISOs, the PJM interconnection.  Does that make PJM the Yugoslavia of ISO’s? (hopefully with a different fate).  Mansur and White show that the utilization of the interfaces connecting roughly western Ohio and eastern Pennsylvania doubled virtually overnight.  It’s important to absorb this fact.  There were no new lines built, no big deregulation pushes, but rather a yielding of operational oversight from a disjointed system of control areas to one larger operator, and it was like transmission capacity doubled.

I suspect that similar, if not larger, potential exists today in the western U.S., which, along with the southeast, is the last stronghold of the balkanized utility operating regimes.  It’s rarely mentioned in the press, but one barrier to achieving the Dept. of Energy’s dreams of an end to balkanization is, well, the Dept. of Energy – in the form of the Federal Marketing Authorities such as Bonneville Power Administration (BPA).  Ten years ago, while one arm of DOE, the Federal Energy Regulatory Commission, was doing all it could to push a “standardized market design” that would help consolidate regional transmission operations, another arm of the DOE, Western Area Power Administration (WAPA) was building new transmission in part so it could declare its independence from the California ISO.

After decades of forlorn hope for the west, however, there are some really encouraging signs of progress.  While a top-down implementation of a western balancing market sputtered out, a bottom-up approach emerged.  A joint initiative between PacifcCorp and the California ISO have produced the first real prospect of a multi-state coordinated real-time “balancing market” for power.  For the first time, generators in Oregon and beyond would be able to provide real-time support for fluctuating supplies from renewables in California. (Full Disclosure: I am on the Market Surveillance Committee of the CAISO and have supported this initiative.)

I don’t expect that the west will see the kind of dramatic overnight boost that Mansur and White document in PJM.  While the machinery for coordination is slowly being put in place, there are still many legacy practices and rights that need to be accommodated and the geographic scope of the balancing market is still modest.  There is also pushback. While the participation, or at least cooperation, of the Federal Marketing Agencies would be a significant boost, northwestern members of congress are urging the DOE not to “push” BPA and WAPA into participating in the Energy Imbalance Market.

Still one can hope that this is the first step toward a wider expansion, and that we can finally fully utilize the transmission that we’ve paid for.

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4 Responses to The Real Balkanization of the Power Grid

  1. James:

    We certainly are living in alternate realities. The move of ATSI to PJM has spawned a series of bizarre adjustments as ATSI has attempted to capture rents through the establishment of a constrained LPA. Among the strangest was the market result that gave the highest capacity prices in history to an area that no one had ever thought was constrained before. And, yes, you also forgot to mention the ongoing war as PJM has attempted to block less costly energy and capacity from entering PJM from the west.

    The reality the rest of us inhabit is a bit simpler. Restrictions on information at Cal ISO have proved ruinously expensive over the years, facilitating manipulation and bad public policy. And the California ISO is vastly more transparent that PJM where data and decisions are difficult to access at the best of times and simply absent at the worst of times.

    Simply put, transparent open outcry markets are more efficient than administered pricing schemes — no matter how altruistic their designers might be. This is one reason why prices continue to diverge in the Pacific Northwest’s markets compared to California.

    Robert

    P.S. I was amused that my email would never be made public — very ISOlike. My email is thoroughly public, of course, robert@mresearch.com.

  2. Mark Lively says:

    Perhaps there would be less problems building transmission lines between the organized markets (including unaffiliated utilities such as TVA and the Southern Company in the East) if there were organized ways to pay for the use of these transmission lines, especially for the unscheduled use of these transmission lines.

    That was my thesis twenty-five years ago for “Tie Riding Freeloaders–The True Impediment to Transmission Access,” Public Utilities Fortnightly, 1989 December 21. Some of that “tie riding freeloading” is associated with using the neighbor’s transmission lines. Some of the “tie riding freeloading” involves inadvertent interchange, the use of the neighbor’s generation plants. These unscheduled uses of neighbor’s equipment should face a cash payment, a cash payment that could support the transmission lines built between the organized markets.

    In the past twenty-five years, the organized markets have talked about addressing the seam management issues, which are much greater than just building new transmission lines between the organized markets. The discussions continue with little resolution.

    NERC/NAESB organized working groups to address the payback of inadvertent interchange, but couldn’t come to a solution, partly because I insisted that one couldn’t adequately address inadvertent interchange without addressing loop flow, the unscheduled use of transmission lines.

    Though building transmission lines is a long term project, I feel that the concept will be facilitated by extremely short term pricing of unscheduled flows of electricity. Knowing that one’s transmission line will receive fair revenue for its use, including unscheduled use, will go a long way in providing the incentives for unaffiliated third parties to build the lines that make sense.

    Other articles supporting this concept are on my web site at http://www.LivelyUtility.com.

  3. Stephen Beuning says:

    This is a good writeup, and matches my personal experiences with the startup of the (now) MidContinent Independent System Operator. In addition to the grid access benefits mentioned, I believe that broader regional dispatch creates benefits by netting supply diversity from renewables, resulting in more efficient integration of wind/solar resources.

  4. Bill Henry says:

    Thanks, Jim. Timely post about western power markets. As you know, the CAISO board of governors meets this week with the EIM on their agenda. Among other things, they will consider an interim transition committee intended to create an EIM governance structure separate from the CA governor appointed board. If that works as planned, do you care to speculate about where the market expansion initiative goes from there? Is it too early start talking about how it’s going to work when a utility decides there’s advantages to becoming a full participant in all the CAISO markets, day ahead, real time, CRR, and maybe even someday reliability services auction.?

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