Western state regulators see region ‘ripe’ for collaboration

Source: Debra Kahn, E&E reporter • Posted: Tuesday, October 27, 2015

SACRAMENTO, Calif. — Western states are poised to enter a new era of cross-border electricity market connections, state regulators said last week.

Western utility regulators are having something of a kumbaya moment with the convergence of several policy initiatives intended to liberalize the West’s relatively isolated power markets. Several states, including California and Nevada, are sending electricity cross-border in five-minute increments, and California has begun proceedings to form a full-fledged West-wide electricity market — an idea that hasn’t been entertained since the state’s energy crisis of 2000-01. Most of the rest of the country is organized under regional transmission organizations, but not the West.

“The landscape of the West has never been so ripe for opportunity,” said Rebecca Wagner, a former commissioner at the Nevada Public Utilities Commission who was instrumental in the development of the energy imbalance market (EIM), a year-old effort to trade electricity in five- and 15-minute increments in order to smooth out bumpy generation from renewables.

The main argument for both policy shifts is the potential to save money by being able to send electricity across a broader area. If utilities have access to a wider range of energy generation, they can buy the resource that best matches their need at the moment, and energy that might have gone unused or plants that may have had to ramp up or down can operate more efficiently.

The other, dovetailing impetus is to absorb increasing amounts of solar and wind power, which is already being curtailed at times in California due to overgeneration during the wrong times of day.

Wagner encouraged state regulators to cooperate. “The potential for change is amazing, to the benefit of each of our states,” Wagner said last week at a conference here put on by California’s nonprofit grid operator, the California Independent System Operator (CAISO). “What we need to get past is our preconceived notions.”

The EIM currently covers the service territories of CAISO, which includes about 80 percent of California and part of Nevada, and PacifiCorp, which has 1.8 million electricity customers in six states: California, Idaho, Oregon, Utah, Washington and Wyoming (EnergyWire, Sept. 30, 2014). Nevada utility NV Energy is expected to join Nov. 1, pending approval by the Federal Energy Regulatory Commission.

The EIM transitional committee, which Wagner chairs, is working on a long-term governance structure intended to incorporate regulators in states that may join the market. Both the Arizona Public Service Co. and Washington utility Puget Sound Energy have announced plans to join the EIM in October 2016.

Policymakers are moving fast and gathering heretofore strange bedfellows along the way. “A year ago at this time, I would not have been at this meeting, and there was really no indication Arizona was going to be a player in the EIM,” said Arizona Corporation Commissioner Susan Bitter Smith. “We are now.”

Calif. looks to link up

California has also been pushing a more recent initiative to link its entire transmission system to other states. Gov. Jerry Brown (D) signed a bill earlier this month, S.B. 350, that directs CAISO to study how a regional transmission market would affect the state and then potentially change its governance structure by 2019 to allow in more members with legislative approval. It also raises the state’s renewables portfolio standard to 50 percent by 2030, up from 33 percent by 2020 (EnergyWire, Sept. 21).

CAISO and PacifiCorp released a study earlier this month that found the two regions could save $3.4 billion to $9.1 billion through 2039 by integrating their transmission grids. It says that linking the grids would boost renewables and reduce the use of coal-fired power by making California’s carbon price more apparent in cross-border trades.

California regulators are selling both proposals aggressively. “We’re looking at an opportunity here to provide enormous economic benefits across the West,” said Bob Weisenmiller, chairman of the California Energy Commission. “The EIM’s giving people an offer that’s hard to refuse, unless you’re California-phobic or you’re FERC-phobic.”

He said the EIM, with its short-term markets, has the potential to save money by reducing the increments of reserve power that utilities have to buy to supplement choppy wind and solar power. CAISO’s most recent analysis found the EIM saved its members $10.2 million in April, May and June, with PacifiCorp receiving about 75 percent of the benefits. Another analysis due out this week is expected to find benefits of $30 million in the first year of operations. PacifiCorp paid a “start-up fee” of $2.1 million to get the market underway.

“We can back down our fossil fuels, avoid spending money on fuel and not incur the emissions, and California finds a home for that power,” said Stefan Bird, president and CEO of Pacific Power, PacifiCorp’s California, Washington and Oregon arm. “It’s a win-win for both sides.”

Skeptics fear heavy hand from Calif.

Some potential members have reservations about increased regional ties. They cite the 2000-01 energy crisis that leaked from California into the Pacific Northwest and also, relatedly, the gravitational field that California exerts by virtue of its size. They worry California will exert too much control over the eventual governance structure to the detriment of their ratepayers.

“There is not a big political push by Arizona ratepayers to do anything that would tie them to California,” said Bitter Smith, who is one of five state utility commissioners who are elected, rather than appointed. “That’s not a good campaign speech for me.”

Another wary state is Washington, which has a large number of public utility districts that buy their power from the federal Bonneville Power Administration and don’t want anything to disturb that arrangement.

“We have a tradition in the Northwest of working things out regionally,” said Washington Utilities and Transportation Commissioner Phil Jones.

There are skeptics on the California side, as well.

“Whatever it is you want, this will accomplish that goal,” said Matt Freedman, a senior attorney with the Utility Reform Network, which advocates at the California Public Utilities Commission on behalf of ratepayer interests. “That’s kind of the pitch. If it sounds too good to be true, it just may be.”

Freedman is concerned that California customers might have to shoulder the cost of transmission upgrades in PacifiCorp’s territory. He also worries about the potential for federal or regional pre-emption of state policies if CAISO becomes a regional transmission organization.

“We’re concerned in the event there’s a capacity market that conflicts with California’s resource planning objectives, California would be left in the position of having to litigate in federal court or FERC about the legitimacy of its own policies,” Freedman said. The Supreme Court last week agreed to hear arguments in a similar situation, a set of cases where power generators in the PJM Interconnection are attempting to block Maryland’s attempts to incentivize more local generation (Greenwire, Oct. 19).

He also questions the assumption that a full-fledged regional transmission operator will enable significantly more efficient trades than smaller-scale changes like individual balancing authorities improving their coordination. Big changes, as well, like U.S. EPA’s Clean Power Plan, will also nudge states away from coal-fired power on their own, he said.

“We’re likely to see a bunch of coal plant retirements if the Clean Power Plan goes forward,” he said. “We’ll see that either way. What does the regional operator bring … that changes the calculus? The question hasn’t been answered.”

Wagner said hesitance would cost ratepayers money. “Are you going to stand back and be skeptical and let the wave ride by, or are you going to stand up and do what’s best for your consumers, whatever climate change goals you have or don’t have?” Wagner asked. “We are here now on the cusp of something.”

Western policymakers will again discuss the benefits of regional cooperation this week. The Western InterState Energy Board and other regional electricity organizations will hold a conference in San Diego on the EIM, the regional ISO and the Clean Power Plan from Wednesday through Friday.