Exploring Risk-Based Approaches for ISO/RTO Asset Managers

In competitive power markets, the independent system operator (ISO/RTO) manages assets and obligations on behalf of owners to meet ISO/RTO goals of reliability, equal access, and market efficiency. Merchant generators make unit commitment decisions, transmission operators receive a regulated payment for transmission assets operated by the ISO/RTO asset manager. Load is scheduled with the ISO/RTO as either price responsive or price taking. As asset managers, the ISO/RTO can benefit from a menu of approaches introduced to identify, measure and manage risks in power systems under uncertain economic conditions. Since competitive markets have introduced new roles for existing participants and new participants to the industry, appetite for these new tools has never been higher. However, applying these new tools has not been without difficulty. In this paper, the authors illustrate three issues facing the ISO/RTO asset manager: 1) planning for reserves in the face of uncertainty; 2) line maintenance which minimizes market disruption; and 3) measuring tradeoffs between investments in reliability and market efficiency. The authors use several approaches and highlight areas for new research using real options,portfolio optimization, and efficiency/reliability tradeoffs in the context of a simple two-bus example. Areas which require more work include the integration of nonpower risks to unit commitment models, applying real options to load variations, using options premiums to compensate out of merit units, using real options to measure transmission decisions, and performance metrics for monitoring dollars spent on reliability and efficiency tradeoffs.