California could make — or break — the Western grid

Source: By Jason Plautz, E&E News • Posted: Sunday, February 11, 2024

An automobile drives down a road near electrical lines in the North Hollywood section of Los Angeles.

A car passes by electrical lines in the North Hollywood section of Los Angeles. Richard Vogel/AP

A long-simmering plan to unite the Western electricity grid under one operator is getting hotter, and key decisions by utilities this year are set to either accelerate or derail that effort.

The X factor: California.

Observers largely agree that an organized electricity market would smooth the flow of renewables, bolster reliability and lower costs across the region. But power providers and some state officials fear a loss of sovereignty over their piece of the grid — especially if the market is run by the Golden State.

Those questions aren’t new. But now federal regulators have approved a market plan from California, while a competing proposal from an Arkansas-based grid operator is moving toward federal review. That means that governance concerns have gone from theoretical to imminent as utilities decide which market they will join.

Today, the California Independent System Operator manages the power grid for most of the state and parts of Nevada. Its board consists of five members who are picked by California’s governor and confirmed by the state Senate.

“What we hear is that the continued connection from California and the potential for a California board appointed by the governor to have veto power isn’t good enough,” said Pam Sporborg, director of the transmission and market services department at Portland General Electric in Oregon. “A lot of entities are trying to think about the long-term destination and have visibility for how the market will evolve to meet the needs of the West.”

Sporborg is the co-chair of a group designed to offer that new vision.

The West-Wide Governance Pathways Initiative was formed out of two other regional groups as an opportunity to think from the ground up about how a Western electricity market could be organized and overseen to meet the political and economic goals of various states.

Currently, electricity distribution in the West is not organized under a single market like a regional transmission organization (RTO) or independent system operator (ISO) that could oversee the sharing of generation, shifts in demand and transmission construction. Advocates have said the stresses of extreme weather and the growing rush of intermittent renewable resources make such coordination more necessary.

The Pathways Initiative, which has support from several major Western utilities, was created out of a request from energy officials in five states, including California. The group itself won’t lead an eventual market, and it functions more as a constitutional convention.

Ideally, said co-Chair Kathleen Staks, the group will be able to draft a framework for an “independent entity that could provide a full suite of market services to the West.”

Such a framework hasn’t come together despite decades of on-and-off discussions across the West. But Staks said this time could be different, especially given the natural pressure that a deadline for decisions offers. Two states, Nevada and Colorado, have laws requiring utilities to join markets by 2030. The Bonneville Power Administration, the largest electricity supplier in the Pacific Northwest, has said it will issue a staff recommendation on a market decision in April.

The Pathways Initiative is pushing ahead with that in mind.

“As quickly as we’re moving now, the West has been moving very incrementally,” said Staks, who also leads Western Freedom, a coalition advocating for a regional grid. “These are incredibly complicated decisions and there are a lot of stakeholders, so it’s going to take some time. But what I can say is this diverse set of stakeholders are committed to doing it right.”

Dueling options

The Federal Energy Regulatory Commission in December approved the California ISO’s extended day-ahead market plan, also known as EDAM. The proposal would expand an existing real-time energy market — which encompasses 22 participants across parts of 11 states — and allow members to buy and sell power a day ahead of time.

The California grid operator has estimated that the West could save $543 million a year through EDAM because participants could purchase excess power from neighbors rather than letting it go to waste. The state also estimates that better distribution of renewable energy — like using California’s vast solar reserves to power inland states as the sun starts going down — could cut 3 million metric tons of carbon dioxide emissions a year.

The California ISO says it wants to start bringing on participants in 2026, which means the countdown is on for utilities to commit.

However, there is also a competing proposal from the Southwest Power Pool, a regional transmission organization based in Little Rock, Arkansas. The grid operator — which has members across 14 states — launched a real-time market known as the Western Energy Imbalance Service market in 2021. It now has 10 participants, and SPP is looking to expand it to a day-ahead market called Markets+.

SPP will file its tariff proposal with FERC in the first quarter this year, the operator told E&E News, with plans to launch the market in the fourth quarter of 2025. Expanding across the West would give SPP a massive footprint but could also require significant transmission buildout.

SPP spokesperson Meghan Sever said in an email that while SPP has not been involved in the Pathways Initiative discussions, “we believe there is room for all voices in Markets+, as demonstrated by the robust participation and engagement to date.” The Markets+ governance structure, Sever added, has been informed by Western stakeholders and state officials to be “fully inclusive and independent.”

Both options would offer the kind of wider geographic area that utilities say would help them improve reliability without building costly new generation. But many environmentalists and clean energy advocates say the option must include California, the nation’s second-largest producer of renewable energy and second-largest electricity consumer, after Texas.

A report released last year by the California ISO found that a day-ahead market including California could create more than $800 million in combined annual cost savings to participants. That’s in part because California could share its robust solar energy that is currently curtailed when there is not enough in-state demand, according to the consulting firm Brattle Group, which wrote the report.

Kelsie Gomanie, an advocate for the Natural Resources Defense Council’s Sustainable FERC Project, said that with the preference to develop a market including California, the state’s advancing proposal would seem the best bet — if other big questions can be answered.

“We want a solution that works for the Western states outside of California, that works for California and that works for all the other stakeholders who might be involved,” Gomanie said. “We want to get as close as we can to a West-wide RTO.”

Thorny questions

California’s existing regional real-time energy market, the Western Energy Imbalance Market, has reported significant benefits since launching in 2014. As of the end of 2023, the California ISO said the market had saved a total of $5 billion, including nearly $400 million in savings in the fourth quarter of 2023, by reducing waste and sharing the lowest-cost sources.

But that market has limited functions, unlike a full day-ahead market or RTO. Putting the California ISO in charge would give the left-leaning state — which has a goal to achieve net-zero emissions in 2045 — veto power over many energy decisions for the West.

A California state bill that would have set the stage to enable California to participate in an RTO and transition the California ISO into a regional organization was pulled by its sponsor last year before a vote.

That, however, opened the door for the Pathways Initiative to take a fresh look — one that could come from the ground up rather than simply adopting guidance from an existing organization.

“It’s given us a chance to treat it like a blue sky exercise and not have a position from an RTO come in the door,” said Spencer Gray, a Pathways Initiative launch committee member and executive director of the Northwest & Intermountain Power Producers Coalition.

California ISO spokesperson Anne Gonzales said in an email that the organization has its own governance review committee with stakeholders from across the region and has also been supportive of the Pathways Initiative.

“We remain encouraged by the significant interest of Western stakeholder in the continued evolution of Western energy markets and focused on operating the western regional markets in a manner that maximizes the reliability and economic benefits for consumers in the West,” said Gonzales. “We look forward to continuing to work collaboratively with stakeholders inside and outside of California to build a unified western energy market.”

A steering committee of the Pathways Initiative released a set of options in December to gather input on options for organizational structures. The committee will continue to collect feedback and meet with stakeholders, with an eye on having a concrete proposal by this summer.

Finding that structure will require a delicate balance that ensures equitable representation for participants, flexibility to accommodate changes to the grid and preservation of existing balancing authority policies, according to market watchers. Another wrinkle is the climate commitments a number of states have made to slash carbon dioxide emissions or hit clean energy targets.

“State policy is really diverse, and each state has the interests of their public,” said Sporborg, the Pathways Initiative co-chair. “How we recognize those policies in a market structure is an interesting process. We have an opportunity to put those goals at the center of our work and reflect on the structures that can enable us to execute those goals.”

Another key question revolves around how a governance structure is adopted — and whether it will require additional action from California policymakers or legislators.

Those lingering questions prompted some states to balk at the governance debate. In comments filed with the Pathways Initiative, utility regulators from Wyoming, Utah and Idaho said they declined to participate, in part because of the potential that any changes to benefit those states would have to go through the California Legislature.

“We have long recognized that the [California ISO] remains subject to control by California’s legislative and executive branches, precluding establishment of a truly independent governance structure,” said the three members of the Wyoming Public Service Commission in a September 2023 letter. “It appears to us that absent changes to California statutes, this obstacle cannot be overcome.”

But Pathways members say they’re confident they can break through the structural questions that have hovered over the idea of a united Western market for decades. Whether they do may determine what utilities join California or SPP — or whether the West remains fractured at a pivotal time.

“We know the West-wide market is going to provide so many potential benefits. But with so much transmission and construction and planning necessary, it’s all going to take time,” said NRDC’s Gomanie. “The faster we can get a framework, the faster we can make progress toward our decarbonization goals.”