Provision in Calif. bill a ‘big, big deal’ for Western power markets

Source: Debra Kahn, E&E reporter • Posted: Tuesday, September 22, 2015

S.B. 350, better known for raising the Golden State’s renewable portfolio standard to 50 percent by 2030 and a bruising battle by oil companies to prevent it from including a 50 percent reduction in petroleum use, also contains language that would broaden the authority of state electricity market regulators, a move aimed at encouraging electricity trading across the West.

Brown’s office inserted language just before the bill’s passage last week that would change the governance of the California Independent System Operator, the state-founded nonprofit that administers the electricity grid, and would allow other transmission-owning organizations to join it (ClimateWire, Sept. 11).

If the bill is signed by Brown, the move could usher in a West-wide electricity market, which hasn’t been entertained since California’s energy crisis of 2000-01. Most of the rest of the country is organized under regional transmission organizations, but not the West.

“In my mind, this was the impossible step — the one I never dreamt would happen, at least not in my professional life, and it happened like that,” said Gary Ackerman, executive director of the Western Power Trading Forum, which advocates for competitive electricity markets.

California’s pursuit of ever-increasing amounts of renewables has been the main motivation for the push toward liberalized interstate trading, Ackerman said. Being able to send excess renewable generation out of the state can help utilities avoid having to curtail generation in the middle of the day — or build storage systems to hold the power, he said. He said it also could reduce the use of coal-fired plants in the Rocky Mountain region, potentially helping other states comply with EPA’s Clean Power Plan rule for the electricity sector.

“They could have reached their 50 percent goal without this, but I think it would be an economic nightmare; this really eases the pain,” he said. “With a stroke of the pen, you’ve resolved a lot of the issues without having to spend a lot of money.”

A spokesman for California ISO also cited the Clean Power Plan as an incentive for Western states to participate in the market.

“They do have an interest in having a cleaner grid, and so yes, the collaboration is not simply just to cooperate but to increase their renewable resources, as well, and the use of them,” said Oscar Hidalgo.

The process of increasing ties between the Western states began last year with a seven-state energy imbalance market, which allows members to purchase electricity from each other in five-minute increments and is intended to allow electricity schedulers to better manage increasing amounts of intermittent renewable generation (EnergyWire, Sept. 30, 2014). Cross-border cooperation got another boost when PacifiCorp — the Berkshire Hathaway-owned utility with operations in six states — signed a memorandum of understanding in April with California ISO to explore joining it as a participating transmission owner (EnergyWire, April 15).

S.B. 350 would require California ISO to conduct studies of how a regional market would affect the state’s ratepayers, disadvantaged communities, renewables integration and greenhouse gas and other air pollutants, before changing its governance structure to allow in more members. It would also require the Legislature to pass another bill approving the governance changes by 2019.

“There’s lots of studies and experts who all agree that a regional market in the West is the right move,” Hidalgo said. “Now we’re going to take some next steps.”

Nervous neighbors

But California may find it difficult to attract participants to the new organization, particularly in the Northwest, where the energy crisis, precipitated by deregulation, created a wariness of California-centric policies that still persists today.

“Based on what happened to us in 2000, we are leery of a California-driven market that really drives prices in the West,” said George Caan, executive director of the Washington Public Utility Districts Association, which represents 24 community-owned electric utilities. “We do not want to be treated again to another failed California regulatory endeavor that during the energy crisis raised rates for our consumers. We have no way at this point to say it’s going to happen, but we are very carefully watching.”

Most of the Washington PUDs buy their power from the federal Bonneville Power Administration, which in turn generates about 85 percent of its power from hydroelectric dams. Caan said the local utilities need the hydropower to balance out their intermittent renewables, largely wind power.

“We are very parochial because of the hydro system,” he said. “We don’t want any market construct that would interfere with those contractual rights to BPA.”

As well, he said, the Northwestern utilities — including BPA — are working on their own, more modest plan to integrate renewables by automatically dispatching power according to where it’s most economic on a semi-hourly basis, an effort known as the Northwest PowerPool.

A BPA spokesman said they didn’t have a position on the legislative language. “We’re aware of S.B. 350 and have been monitoring its progress through the California Legislature,” said Kevin Wingert. “We continue to be engaged in regional discussions related to the interconnected Western electric grid. And as you may recall, we worked closely with PacifiCorp to enable their participation in the [California ISO] while maintaining the reliability of our transmission system.”

Hidalgo said any fears of energy crisis-style fluctuations should be tempered by the fact that this market is aimed at resolving issues caused by overgeneration, rather than undergeneration, as was the problem in the early 2000s.

“That’s a good problem to have, really,” he said. “This should signal a very healthy California ISO, a very healthy California energy grid and one that’s seeking to advance that health to other states.”