Grid talks expose mistrust between coal and solar states

Source: Benjamin Storrow and Debra Kahn, E&E News reporters • Posted: Tuesday, September 19, 2017

California greens and Rocky Mountain coal interests don’t share much in common, except this: Both are wary of efforts to form an electric grid encompassing much of the western United States.

A bill that would have kick-started the expansion of California’s grid operator to cover some six Western states faltered last week, but those who support the idea of empowering an entity to oversee the West’s sprawling transmission aren’t giving up hope. They face opposition from within and out of the Golden State.

California environmentalists, who are forging ahead with plans to boost renewable generation and slash emissions in defiance of President Trump, gag at the thought of Wyoming coal plants powering their grid. The skepticism is mutual in Utah and Wyoming, where state leaders seize at the prospect of being burdened by California’s environmental mandates.

Few are keen to relinquish power over their respective electricity sectors.

And yet Western states continue to ponder just that. California is in need of out-of-state renewable generation, particularly wind, to meet its ambitious renewable targets, grid experts say. And leaders in the Rockies are increasingly apt to cast a longing eye toward California’s massive market, dreaming of the jobs and tax revenues it could create in their states.

Regionalization talk is being driven by the massive amounts of California solar generation, which floods the markets with cheap midday power, and the initial success of a regional trading market. That “energy imbalance market” allows trades in the five-minute market and has already saved participants — including PacifiCorp, Arizona Public Service Co., NV Energy and Puget Sound Energy — more than $200 million since trading began in late 2014, according to California Independent System Operator (CAISO).

State officials in Utah, Wyoming and Washington are signaling openness to linking with California, saying increased coordination could reduce costs to ratepayers. In evergreen-shaded Washington, regulators are especially excited about a regional grid’s prospects for slashing carbon emissions. Renewable energy companies are also pushing hard for regionalization.

“If we want to decarbonize the grid and take on all the additional load that’s going to come from transportation … if you want to do this in the most cost-effective manner for consumers, you’re going to have to have a very modern, very fast grid,” said Don Furman, executive director of Fix the Grid, an advocacy group consisting of renewable energy and demand response companies like EnerNOC, SunPower Corp. and Vestas Wind Systems A/S, and environmental groups like the Union of Concerned Scientists and the Environmental Defense Fund.

All parties agree that California, as the largest player, needs to take the first step. After two years of analysis at the CAISO, Gov. Jerry Brown (D) took the plunge earlier this month with A.B. 726, which would have authorized CAISO to pivot to an independent board made up of representatives from across the West, after conferring with a board made up of gubernatorial and legislative appointees.

Ratepayer advocacy groups, as well as some environmentalists wary of PacifiCorp’s sizable coal fleet, had argued that a regional grid could water down the effectiveness of California’s renewable energy policies by sucking green power into California and allowing fossil fuels to increase in other states.

“We could end up being put into a situation where California has virtually no control, is aligning itself with states that have no interest in reducing their dependence on coal, and getting us into a position where we’re going to have more resource shuffling, more greenhouse gases in the interior West, and more localized air pollution around power plants in California and elsewhere,” said Kathryn Phillips, director of Sierra Club California, which opposed the bill. It was not taken up for a vote and will be considered again when the Legislature reconvenes in January.

Enthusiasm continues in neighboring states, but the dithering in California may have set Western cooperation back relative to regionalization talks in other bordering states. Meanwhile, questions about how to integrate increasing concentrations of renewables will continue simmering, regardless of the presence of a regional grid.

“It’s not as if those supply-and-demand problems vanish because there’s no regional ISO,” said Montana Public Service Commissioner Travis Kavulla, who has been observing the talks for several years. “I think you’re in a situation where eventually FERC [the Federal Energy Regulatory Commission] may have to answer those questions one way or another. Wouldn’t it be better to try to regionalize organically through the consensus of states?”

Ceding authority to a coal state?

Regionalization is a bit of a misnomer. The Western states are already connected through the Western Interconnection, and they already coordinate power flows through the Energy Imbalance Market (EIM), where electricity is traded in five-minute intervals.

But where the Western Interconnection now has 37 balancing authorities, much of the region would be encompassed under the umbrella of a single regional transmission organization (RTO).

How that RTO would be set up remains unclear and is a matter of considerable speculation. But it is significantly more involved than the existing EIM and would require utilities to cede control of their transmission and generation in order to participate in transactions in the day-ahead and real-time markets.

“That’s a fairly large leap from what’s in the EIM market right now,” Furman said. “It involves taking on more costs for the utilities and also involves a sense of how big the benefit is going to be to their revenue requirement.”

If California moved toward regionalization, utilities and regulatory agencies in the other states would begin studying the issue in earnest. A.B. 726 would have set up a process to remove the state Legislature from the governing process, much like RTOs operating in other sections of the country. RTOs are commonly independent entities separate from state government, their boards of directors overseen by power sector representatives. CAISO’s board of governors is currently appointed by the governor and confirmed by the Legislature.

The bill would have set up a commission on regional grid transformation, made up of state appointees, to certify by the end of 2018 that a new, independent ISO governing board would preserve state authority to control its own resource procurement policy, resource adequacy and other issues, including the tracking of greenhouse gas emissions and conventional air pollutants from electricity. But that wasn’t enough for some observers.

“The first step for us is we needed for the California Legislature to allow the ISO to truly be independent,” said Laura Nelson, energy adviser to Utah Gov. Gary Herbert (R). “They really need the license to engage in that business opportunity. I don’t think based on what happened in the Legislature that was provided to them.”

Utah would also like to see further studies showing that the benefits of a RTO outweigh the costs, she said. Maintaining the ability to set its own energy policy would also remain crucial, she said.

Perhaps no state is more wary of a potential merger than Wyoming, the country’s top coal mining state and home to four PacifiCorp coal plants.

Cale Case, a Republican state senator who heads the legislative committee overseeing the power sector, described his view as “suspicious, but trying to be open minded.”

Wyoming coal could benefit in the intermediate future from regionalization, he said, as older coal plants in other parts of the West retire, prompting Wyoming’s relatively newer facilities to run at higher capacity rates.

Wyoming nevertheless needs to be planning for the future, he said, noting that the Cowboy State boasts the largest wind resource in the region.

“California is a huge potential customer. We don’t want to be too ‘anti.’ We need to hear it out. But any state wouldn’t want to be under another state,” he said. “The coal assets that need particular solutions for regional haze, under the current regulatory framework, there isn’t much room for coal in a 30-year horizon. In the big picture, we’ve got some time to get over this.”

Worries about Calif. politics in Wyo.

In the absence of action from California, analysis in the other states is expected to remain in a holding pattern for now. Opinion is split on whether California lawmakers’ decision to wait until next year to restart the discussion will delay the proceedings by too much.

“We’ve only got really two weeks of serious conversations where the Legislature’s been engaged,” Furman said. “It’s early days.”

The Southwest Power Pool, which runs the grid of 14 states, has been making overtures to the Mountain West Transmission Group, a subset of Western electricity service providers centered in Colorado and Wyoming, and could make an announcement related to cooperation as soon as next month, according to one source. Losing potential members could reduce the efficiencies of an eventual Western RTO.

“I worry SPP will see this and say, ‘Governance is dead and we’re the only option,'” said one longtime participant in the discussions. “They’re already making a move and saying, ‘California can’t get its governance figured out, so we’re the only option.”

Others aren’t as concerned.

“We’re not dismayed by the delay down there this year by any means,” said Cameron Yourkowski, senior policy manager for the Oregon- and Washington-focused advocacy group Renewable Northwest. “Southwest Power Pool is a great organization and healthy competition on the east side of the WECC [Western Electricity Coordinating Council] for sure, but the CAISO and the West Coast and other bordering states have got a lot going for them that’s compelling for their economic coordination, as well.”

Furman’s group has also been exploring the idea of starting grid expansion with a smaller, more ideologically aligned group consisting of just Nevada, Oregon, Washington and California.

“It’s going to be easier politically to start with states that are more aligned with California’s environmental sensibilities,” he said. “That’s what we have been arguing for.”

But even those potential partners are reticent about relinquishing too much control to California.

“We don’t think it would be appropriate for the California Legislature to set energy policy for all the Western states,” said Brad Cebulko, a policy adviser at the Washington Utilities and Transportation Commission. “We would expect our state sovereignty would be respected.” In particular, Washington would be opposed to any restriction on exports of Evergreen State power to the Golden State, he said.

Those reservations, as well as those held by the Bonneville Power Administration and Northwest municipal utilities dating back to the 2000-01 energy crisis, could throw another wrench into the talks.

“I don’t think it’s any more likely than a broader one,” Kavulla said of a smaller-footprint RTO. “The public power entities of Washington are probably even more hostile to CAISO than coal states.”