The 20-year struggle to create a cohesive western power grid has entered a new phase, with a strong push by the California Independent System Operator to expand membership to other utilities in the West.
CAISO brought together over 800 stakeholders from across the region in Sacramento last week to talk about regionalization. While speakers agreed that the engineering rationale and cost benefits are clear, the political process creates a formidable obstacle to achieving the dream.
“The topography of the western grid follows the power flows, but the politics follows all kinds of weird things,” lamented Michael Picker, chair of the California Public Utilities Commission.
Advocates of grid expansion are inspired by the success of the energy imbalance market (EIM), which has saved $88 million since it began in 2014. The EIM allows member utilities -- currently the three California IOUs plus PacifiCorp and NV Energy -- to share resources to balance the grid. More utilities are scheduled to join over coming years, including Idaho Power and Arizona Public Service.
But spurred by legislation (SB 350), CAISO is pushing for a more comprehensive regional partnership, extending the market to cover day-ahead bids. This regional system operator (RSO) would facilitate wholesale competition across the region, similar to regional markets in the eastern U.S.
A big driver for the RSO is the growth of wind and solar across the region. Wind and solar made up 14.2 percent percent of California’s supply last year, and are among the least costly sources of new generation. All states except Wyoming and Idaho have renewable energy goals, with both California and Oregon expanding their own targets to 50 percent.
A bigger grid would be a low-cost way to integrate renewables by spreading out the variability and tapping the best resources, as well as a way to capture operating efficiencies in general.
But the technical benefits of a regional grid will have to overcome the political barriers.
Governor Jerry Brown was a surprise guest at the symposium, telling the crowd that California is committed to climate action, but acknowledging the difficulties of regional action.
“We will continue innovating in this state,” he told the crowd. “We think we’ll get to 50 percent renewables sooner than 2030. To make it work, we need a grid that is highly sophisticated.”
“It’s true that different states have different needs and perspectives, but the efficiency of a wider grid is unmistakable,” he said. “I hope you can work all that out."
The issue is that the CAISO board is appointed by Governor Brown with the advice and consent of the state senate. An expanded regional system operator would include utilities from across the region, and their state regulators will expect to have a say in management.
The idea reveals the anxieties of stakeholders both in California and in other states.
Mark Schiavoni, with Arizona Public Service, pointed to the lingering effects of the 2000-2001 power crisis. “Regulators and politicians fear that California will control my state, and we won’t allow that to happen,” he said. “There are a lot of people with long memories.”
Other market models also inspire trepidation. PJM officials have been making presentations in the region to educate people about the market -- to mixed reactions, apparently.
“In my neck of the woods, PJM is the antichrist,” said Doug Hunter with Utah Associated Municipal Power Systems.
This prompted another panelist to ask, “If PJM is the antichrist, what is California?” Hunter replied, “It’s potentially the Good Witch of the West.”
A fear from Californians is that an RSO would provide new markets for existing coal plants, undermining California’s climate goals. Travis Ritchie of the Sierra Club said a regional market will make low cost the dominant goal, rather than carbon reductions.
“I don’t think that’s what California wants,” he said. “I don’t think California will be comfortable putting at risk all the things we’ve done. We’ve [implemented] policies that have taken a lot of money and sweat and tears to get right.”
But Carl Zichella of Natural Resources Defense Council disagreed. “These markets really put the squeeze on legacy plants,” he argued. “The only thing keeping these coal plants alive is a bilateral contract.”
Being exposed to competition from lower-cost wind and solar would hasten [coal plants'] demise, said Zichella.
Steven Greenlee, a spokesperson for CAISO, pointed out two additional issues that have to be addressed. First, how will new RSO members pay for the grid? Transmission access charges are paid by generators to use the grid and pay off past investments.
Hunter from Utah reiterated this concern. “Our biggest concern is paying for overheads and costs,” he told the audience. “It could quadruple the transmission access charge in Utah.”
Resource adequacy is a second concern. California doesn’t have a capacity market to guide future-year investments, like PJM and New England have. Instead, it requires regulated utilities to procure 100 percent of load, plus a 15 percent reserve margin. There is no mechanism in CAISO for acquiring future capacity, and therefore no mechanism for the RSO.
CAISO now has open dockets pertaining to both of these issues. The governance issue raised enough concern in the legislature that Gov. Brown announced in August he would move more slowly, with a possible vote in January.
The regional grid concept is hardly new. It began with INDEGO -- an independent grid operator -- which was discussed by 21 western entities more than 20 years ago. “Implementation problems and tariff design disputes led to the official demise of the plan,” according to a 1998 study.
Next came RTO West in the late 1990s, just in time for the great western power crisis in 2000. As prices exploded due to market manipulation by Enron and others, anything related to California and competition became toxic.
The idea was revived in 2003 as Grid West, in response to a strong push from FERC for standard market design, championed by then-chair Pat Wood. But the scars from the crisis were too fresh, and a push from the feds was seen as a top-down power grab, and the idea ultimately fared poorly in the independent-minded West.
There are some major differences this time, according to Doug Larson, former executive director of the Western Interstate Energy Board. Previous attempts started from scratch, and would have cost hundreds of millions of dollars for software and systems.
“This time, CAISO has already developed everything,” said Larson. “That’s why the EIM was successful -- it was plug-and-play for new participants.”
A second major difference is the maturity of wind and solar power. “They have changed the realities, and more is coming,” he said. “There are real operational reasons to join now, not just a theoretical benefit.”
The RSO is not the only option on the table. Seven utilities -- including Xcel, Western Area Power Administration and Basin Electric -- are discussing terms for a Mountain West Transmission Group, a regional entity that would create uniform transmission tariffs in Colorado, Wyoming and neighboring states.
And parties in the Pacific Northwest have been talking about a pooled operation since 2012, through the Northwest Power Pool’s Market Assessment and Coordination Committee. Their footprint includes 14 of the 38 balancing authorities in the Western Interconnect territory.