Out West student blog

WWED: What Would the Economist Do?

CAISO Interns 2018. Carlos Ciudad-Real is in the front row, fifth from the left.
By Carlos Ciudad-Real
Environmental Systems Engineering '20
Market Policy Intern,
California Independent System Operator (CAISO)

My first week at the California Independent System Operator (CAISO) was bookended by an important milestone for the Market Design Policy group. Just an hour before everyone would leave for the weekend, we were notified that our policy initiative had been approved by the Federal Energy Regulatory Commission (FERC). I heard a sudden rush of joy and cheering around me as the news came in. Although I hadn’t been there for very long, I was invited to celebrate the fact that six months of hard work had finally been brought to fruition. Everyone left the office that day feeling reaffirmed and ready to move on to the challenges that awaited us when we came back.

But what exactly is CAISO and what do they do? CAISO is a non-profit organziation that exists to find the least cost solution to balance the supply and demand of energy. CAISO solves this problem to ensure that the demand is met with sufficient supply for every 5 minute interval of the day. An Econ 101 student would say that the job is done once you’ve done that. However, managing California’s energy markets is more difficult than it might seem. Not only does CAISO have to take into account the physical limitations of the grid and its generators, it also has to navigate federal and state regulations that can be both dynamic and challenging. My research topic for the summer, operating reserves, is a good example of how these constraints come together.

I will be going through the datasets that CAISO’s markets produce in order to discover the reliability issues with CAISO’s reserves. No one is really sure of the scope of these issues, but that is what I will be investigating for CAISO’s policymakers.

Operating reserves are potential energy that must be purchased through CAISO’s energy markets to ensure that there is enough energy to meet demand in case a generator goes offline or t By having these reserves, CAISO can ensure that its customer’s lights stay on without them realizing that something went wrong. There are physical constraints that dictate where these reserves should be purchased, but there are also regulatory standards for how much should be purchased that are enforced by the Western Electricity Coordinating Council (WECC) and North American Electric Reliability Corporation (NERC).

Recently, the Market and Infrastructure Policy group has been reevaluting aspects of its reserve markets. To aid them in this inititative, I am focusing my summer project on understanding how CAISO purchases its operating reserves and how reliable they are in practice. This project has forced me to become comfortable with economic concepts that I had previously only understood at a cursory level. By far, the part of my job that I am most excited about is the data analysis portion. I will be going through the datasets that CAISO’s markets produce in order to discover the reliability issues with CAISO’s reserves. No one is really sure of the scope of these issues, but that is what I will be investigating for CAISO’s policymakers. I have never done any formal data analysis before, so I will be picking up some very useful skills along the way. So far, my internship is shaping out to be a challenging but rewarding learning experience.

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