Reducing the price of electricity has a cost, often expressed in the form of lower revenues for power plant operators—after they have invested in upgraded connections to the system operator linking them to power purchasers.
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That’s what is happening now across the 15 Midwestern states and one Canadian province where the power transmission system is operated by the Midwest Independent Transmission System Operator, commonly called the Midwest ISO.
Lower power plant revenues are one result of the ancillary services markets (ASM) the ISO has developed over the last three years to meet federal regulatory concerns about the system’s short-term reliability and the ability of the ISO to retain independent control of the transmission system. Specifically, the Federal Energy Regulatory Commission said it was concerned about the ability of the 24 balancing authorities within the Midwest ISO to re-dispatch power plant operation.
Midwest ISO ASM initiative
In 2004, the commission told the ISO to replace its system of 24 local managers and eventually consolidate their functions into the ISO’s operations. In March 2005, the Midwest ISO members—including utility-owned and independent power plants, transmission owners, power marketers and brokers, power buyers such as utilities and co-ops, and state regulators—met to discuss ways to meet FERC’s requirements.
Their initial effort was rejected without prejudice by FERC, which accepted a revision in February 2008, stating that the proposal “incorporates, and in some cases improves upon, ASM design features that have worked successfully in other ” ISOs, including the PJM Interconnection (which serves 13 mid-Atlantic states), the New York ISO, ISO New England and the Electric Reliability Council of Texas.”
“This is a significant step to improve power markets in the Midwest,” FERC Chairman Joseph Kelliher said at the time.
“FERC recently proposed changes to strengthen competition in organized electric markets, including improvements in demand response,” said Kelliher. “The ancillary services market provides a greater opportunity for price competition from demand response and will improve efficiency and reliability in this broad region,” which extends from Pittsburgh, Pa., to eastern Montana and up into Manitoba.
FERC noted in its statement that its order moves the region “from cost-based rates to market-based rates.”
Roy Jones, the ISO’s executive director of the ASM Initiative, explained that the approved ASM design creates a market in the marginal resources that determine the reliability of the electricity flow carried over the region’s transmission lines. This makes it possible for the Midwest ISO to carry out its FERC-mandated take-over of the balancing authorities’ responsibilities while increasing the efficiency of the ISO’s existing day-ahead and real-time energy markets, Jones said in an interview.
The increased efficiency, in turn, is expected to minimize costs and provide “net annual benefits of between $115 and $205 million,” the ISO said in a March news release, which also announced that the effort’s launch had been delayed to Sept. 9 from the June 1 start-up expected in FERC’s late February approval order.
“While we were hoping to meet the target launch date of June 1, there were a number of factors that we took into consideration when establishing the new target launch date,” T. Graham Edwards, chief executive of the ISO, explained in the statement.
“As I have said many times, we would not launch until all of the key parties are ready.”
In the statement, Jones expressed pleasure “with the level of accomplishments that have been completed by the Midwest ISO stakeholders and staff to date ” I am confident that the stakeholders and staff will continue to work together to achieve the new target launch date.”
According to the statement, the ISO is currently determining the estimated costs to complete the project and the analysis will include finalizing testing schedules and adding further parallel operations tests and system operations tests to ensure readiness and full tariff compliance. Its ASM “will integrate the buying and selling of regulation and contingency reserves with the existing markets” for electricity within the ISO.
The ISO explained that “Regulation” refers to the moment-to-moment changes in generation that are necessary to meet changes in electrical demand. “Contingency Reserves” refer to additional generating capacity of a generator, which is either on-line or can be brought on-line within 10 minutes to offset the impact of major events such as the loss of a large generating unit or transmission line.
New software: FERC-mandated ICCP
Elaborating on the ISO’s statement, Jones said there are actually two types of contingency reserves: spinning—a generator already in motion that can actually have electricity flowing through the grid within 10 minutes, and supplemental—a quick-start power plant that can be started up and brought on line almost as quickly. He said the ability of plant operators to offer these services and actual power delivery in five-minute segments is one of the efficiencies built into the Midwest ISO ASM.
For the market, this efficiency means reduced revenues for the plants offering the services, which now will market—and be paid for—these reliability services when actually needed instead of the longer standby periods necessary when the services had to be provided for each of the 24 regions represented by the old balancing authorities. To participate in the reduced revenue flow, each of the plants needs new computer software to link with what FERC spokesperson Barbara Connors described as the new software developed by the Midwest ISO to simultaneously co-optimize energy and reserve markets.
To bridge the gap between the existing control software that operates each power plant and the software developed by each ISO to control its ASM, FERC has mandated the use of ICCP, “inter-control center communications protocol,” a standardized communications technology providing data exchange between utility control centers, power pools, ISOs and power plants.
Two power plants operating in the Midwest ISO, Kinder Morgan in Jackson, Mich., and the Fox Energy Center in Kaukauna, Wis., are using the LiveData RTI Server (for real-time integration) from LiveData Inc. as their ICCP communications technology, according to LiveData Chief Executive Officer Jeff Robbins.
The Fox Energy Center, built by Calpine Corp. in 2004 and 2005 at a cost of $430 million, is a 560 MW, natural gas-fired combined-cycle facility that supplies electricity to Wisconsin Public Service Corp., a subsidiary of Integrys Energy. Built with financing from GE Commercial Finance Energy Services, the Fox Energy Center was sold to GE Energy Financial Services in October 2006 and is operated by another business unit of GE, GE Energy. Besides providing the information needed for the Midwest ISO’s ASM, the LiveData RTI Server also enables users to send meter data and receive dispatch and AGC (Automatic Generation Control) signals as the market requires.
The software is also marketed by Invensys, Telvent, Emerson and other leading vendors of power plant control software. The LiveData server acts as a front end gateway to the reseller’s control software.
California and SPP next
Ronald Lambert, LiveData’s senior software engineer, said the company will focus next on power plants affected by the California ISO’s modernization project. California ISO spokesman Gregg Fishman said this effort will help reduce congestion by breaking the three zones now used into several thousand nodes.
California ISO currently has limited ability to deal with transmission congestion within the zones because it can only recognize congestion that limits transmission between the three zones, Fishman noted, adding that the nodal approach of the modernization project will provide a full network model allowing the system operators to “see all the intra-zonal congestion that we now cannot see.”
Another market for ICCP software will be the Southwest Power Pool, according to the Midwest ISO’s Jones, who explained that the SPP is developing an ASM. The SPP controls power transmission in Kansas and Oklahoma, along with parts of New Mexico, Texas, Louisiana, Arkansas and Missouri. Its website also notes one member in Mississippi.
Jim Brumm’s journalism carrier began when he left the Navy in 1960. He started covering energy at The Oil Daily in the spring of 1973, six months before the price shock known as Arab I. While there, Jim covered FERC’s first step toward deregulation before returning to Reuters’ New York financial desk, where he focused on energy equities until the end of 2001.
[Editor’s note: The author worked with LiveData on this article.]