Headlong or plodding, Western market is moving forward

Source: Debra Kahn, E&E reporter • Posted: Thursday, July 28, 2016

SACRAMENTO, Calif. — California and its neighbors are in the throes of birthing a new electricity market, with features just beginning to emerge.

The Golden State is spearheading proceedings to form a full-fledged Western electricity market — an idea that hasn’t been entertained since the energy crisis of 2000-01. Several states, including California and Nevada, are already sending electricity cross-border in five-minute increments, but now California is exploring forming a regional transmission organization with the five other states that share utility PacifiCorp’s territory — Idaho, Oregon, Utah, Washington and Wyoming.

The process was jump-started last year by a California law, S.B. 350, which reserved a key role for the Legislature in signing off on the new organization. It included a caveat: “The transformation should only occur where it is in the best interests of California and its ratepayers.”

After exhaustive analysis, it appears to be. A nearly 700-page study issued earlier this month by four separate consulting firms finds modest gains in household income and emissions cuts through 2030, although greenhouse gases may increase in the short term by allowing wider use of coal-fired power (ClimateWire, July 13).

Gov. Jerry Brown’s (D) appointees at the California Independent System Operator now must balance the interests of state agencies and California lawmakers, while engaging the other Western states, some of which are wary of anything to do with California and still lack studies of their own on whether the market would be in their best interests.

The public-interest division of Utah’s utility regulator filed comments this month that found a proposed governance structure to be “filled with recitations of platitudes and scant details” while at the same time substantive enough to be deemed “not in the public interest for Utah’s public utility customers and others.”

Supporters, which include Washington and Oregon, point to cost and emissions savings that have accrued in other regional transmission organizations. But the Western grid differs from others in key ways, one of which is policymakers’ varying willingness to draw on its diversity of energy resources.

A prominent example of the tension between states is CAISO’s choice to get rid of a provision in the most recent version of the governing document, released July 12, that would have required them to agree to implement an accounting system for the greenhouse gases associated with electricity transactions. Wyoming’s Office of Consumer Advocate had said the provision “would essentially amount to imposing California policy” on the other states that are currently considering joining the market.

The California Air Resources Board, which sets and enforces greenhouse gas targets statewide, is now worried that those selling electricity into California might not account for their greenhouse gases.

“While we all want to join hands and jump into the pool here, we also need to make sure that we’ve anticipated all the sharks that may be there,” agency Chairwoman Mary Nichols said at a Sacramento workshop yesterday. “If there’s any suggestion that we’re keeping a double set of books or that we don’t understand where the emissions are actually going, that is a problem for our program.”

Other areas of disagreement include how many representatives each state should have on the governing board and whether they should be accountable to their respective governors.

Observers say Brown’s office is preparing to introduce legislation next month to move the proceedings along. Comments on the study are due Aug. 2; the legislative session ends Aug. 31.

“Whether the Legislature will be willing to act by the end of August is an open question,” said California Public Utilities Commissioner Mike Florio.

Hurry up, or wait?

Participants in yesterday’s workshop were split on how fast California should proceed. The study is not due to the Legislature until the end of 2017, and lawmakers do not have to act until 2019.

“Take the time that’s allowed under S.B. 350 and not hurry it up simply because PacifiCorp is demanding that you do,” said Kevin Kelley, general manager of the Imperial Irrigation District, a public utility in Southern California that is skeptical of the market’s predicted benefits. “California leads. It doesn’t follow these other states that need constant reassurance they’re not going to be led around by the nose by California’s aggressive climate and energy goals.”

A former PacifiCorp executive who now heads an advocacy group promoting the regional transmission organization called on policymakers’ moral compasses.

“We think this is the single most important thing you can do to promote decarbonization of the grid,” said Don Furman, manager of Fix the Grid West, which is made up primarily of environmental groups and energy companies like SunPower Corp., Vestas Wind Systems A/S and General Electric Co. “This is a moral issue.”

Washington Gov. Jay Inslee (D) is also among those urging haste. “I know there are voices asking you to proceed slowly with this effort,” he wrote to Brown on July 7. “However, I believe the best approach is to secure the necessary authorizations now, while remaining open to refining the design of the [regional system operator] as we move forward.”

One of the most vocal critics has been the Utility Reform Network (TURN), a California ratepayer advocacy group. It argues that the consultants have shaped the analyses to produce a positive outcome, notably by including an extra 5,000 megawatts of wind power coming from Wyoming and New Mexico, in addition to the renewables expected to result from California’s 50 percent renewable portfolio standard.

“That 5,000 MW is why they make any claims at all about greenhouse gases,” said TURN attorney Matt Freedman. “Only by doing that did they end up producing environmental benefits that they can brag about.” The benefits are illusory, he said, because coal will still be the lowest-cost resource in practice, edging out excess wind.

Johannes Pfeifenberger, an economist with the Brattle Group who analyzed the potential economic effects of the market, said he included the wind-power assumption partly because other regions of the country have been adding renewables above and beyond state requirements, and partly because private companies are committing to buy renewables, as in the case of 60 businesses’ pledge in May to buy 60 gigawatts of renewables by 2025 (EnergyWire, May 23).

“A lot of that will happen in the West,” he said.

This story also appears in EnergyWire.