Regionalization Roundup

It has been a truly exciting year for major developments in the Western electricity market.  Numerous independent initiatives have combined to make this one of the most active years in recent memory.  Gridworks has been actively supporting many of these initiatives.

For your convenience, we have organized the highlights, along with some context to help with orientation. We hope you find this Regionalization Roundup useful.

1)  Regional Transmission Organization (RTO) Development

California Independent Sytem Operator (CAISO)— Governance reform legislation is pending before the CA legislature.  AB 813 (Holden) sets conditions for expansion of CAISO to become a regional grid operator.  Gridworks Senior Fellow Mike Florio has been advising committee staff on efforts to find a successful compromise with interested parties.

Mountain West Transmission Group (MWTG) and Southwest Power Pool (SPP)—Several years ago a group of Colorado and eastern Wyoming utilities, led by Xcel utility unit Public Service Colorado (PSCo), began to consider potential RTO membership.  In 2017 the group decided to explore joining the SPP, which serves the Plains states that are part of the Eastern Interconnection. This effort appeared to have significant momentum until April 20, 2018, when PSCo announced that it was withdrawing from the effort.  It is unclear what the remaining MWTG members will do, since PSCo was the largest participant.  PSCo is effectively blocked from joining the CAISO Energy Imbalance Market (EIM) because facilities owned by the Western Area Power Administration (WAPA) stand between PSCo and the rest of the West.  WAPA’s plans at this point are unknown.  Public Service New Mexico (PNM), the largest utility in that state, was asked by its Public Regulation Commission to consider SPP membership.  On March 29 of this year PNM filed a status report in Case No. 17-00261-UT, indicating that SPP membership would not be beneficial to its customers.  PNM stated that it sees greater value in joining the EIM and will continue to explore joining that market, with a target decision date in summer 2018.

Peak Reliability/PJM Connect—Peak Reliability (Peak) has been the sole provider of Reliability Coordinator services in most of the Western Interconnection since 2014, when it was split off from the Western Electricity Coordinating Council (WECC).  In December of 2017, Peak joined with PJM Connect, an affiliate of a large eastern RTO– the PJM Interconnection– to propose an independent RTO and market operator for the West.  Peak/PJM has been soliciting membership for several months but no formal agreements have been announced.

Status—With the apparent collapse of the MWTG-SPP arrangement and the lack of traction thus far for Peak/PJM, the CAISO is currently well positioned to expand in the West if the governance issues that are the subject of AB 813 can be resolved.

2)  Energy Imbalance Market (EIM) Expansion

While progress toward a West-wide RTO appears to be stalled for the time being, the CAISO EIM, which is limited to optimizing dispatch of power plants in real-time, has continued to expand.  With the addition in April 2018 of Idaho Power and Powerex, the U.S. marketing arm of British Columbia Hydro, the EIM has grown to eight active members and services roughly half of the load in the Western Interconnection.  The Balancing Authority of Northern California/SMUD is scheduled to join in April 2019 and in April 2020 Seattle City Light, the Los Angeles Department of Water and Power, and the Salt River Project are scheduled to join.  Both Public Service New Mexico and the Bonneville Power Administration are actively considering membership.  The EIM is governed by a separate independent board that has received delegated authority from the CAISO board for decisions impacting the EIM and its members.  While far more limited than a full RTO, the EIM has been deemed successful by most observers and has regularly reported significant monetary savings for its participants in regular quarterly reports.

The CAISO has also announced a new initiative to expand the EIM via the inclusion of a Day-Ahead (DA) wholesale energy market.  While still falling well short of a full RTO, a DA market would generate additional savings by allowing the CAISO to commit or de-commit resources (start or shut down) in the DA time frame.  A stakeholder process to explore this concept is just getting underway.  One of the more challenging issues will be deciding how to price transmission in such a market—currently the EIM uses “left over” transmission that is not scheduled in the DA or that is set aside specifically for EIM transfers, with no additional transmission charges assessed on members using the service.  If expanded to the DA, a method of compensating for the use of transmission will likely need to be developed.  Florio is actively monitoring these activities and will engage when and where needed.

Neither the EIM nor an expanded DA EIM employs a forward Resource Adequacy framework.  Rather, participants must come to the market “resource sufficient”, that is, with sufficient energy to serve their load and potential ramping needs.  The market then optimizes deployment of the offered resources to achieve a least-cost dispatch.

3)  Reliability Coordination (RC) Services

Every Balancing Authority (BA) and transmission owner (TO) or operator (TOP) in the U.S. is required to obtain RC services.  The RC maintains hardware and software systems to obtain a wide-area view of the operations of the transmission network and detect potential reliability problems, which typically cut across the systems of more than one TO.  RCs monitor System Operating Limits, coordinate outages of generation and transmission assets, coordinate the operation of Remedial Actions Schemes, and study many technical aspects of the interconnected transmission grid.

Since 2014 Peak Reliability has served as the RC for the entire Western Interconnection, with the exception of the relatively isolated Canadian province of Alberta, which provides such services independently.  Peak has developed sophisticated tools to monitor and analyze the entire interconnection.  As a single purpose entity, however, Peak’s costs for providing these services, which are paid by the member TOs, have been relatively high.  When the MWTG proposed joining SPP and taking its RC services from that entity, significant concern arose that the loss of participating load would increase Peak’s rates, since the costs of its operations are largely fixed.  As a result, CAISO announced in January 2018 that it would begin providing its own RC services in 18 months and offer those services to others in the West who might want to purchase them at lower cost (CAISO had functioned as an RC at an earlier time in its history, before Peak took over this function).  Several other BAs, including Bonneville, have expressed interest in this offering.  Since CAISO would be providing both market operations and RC services together, it would benefit from significant economies of scale.  Peak responded by proposing to offer scaled down RC services at a lower price.

Status—Prior to the collapse of the MWTG/SPP initiative, it appeared that the West was destined to operate with multiple RCs in the future, which caused some concern about potential “seams” issues and other coordination problems.  It is unclear how this situation will unfold in the wake of PSCo’s decision to pull out of the MWTG.  Florio is continuing to monitor this situation and will engage as needed.

4)  Resource Adequacy (RA)

Most utilities and their regulators have established RA standards that determine how much generating capacity must be obtained to ensure resource sufficiency and reliable operation of the grid over a multi-year period.  These standards are currently determined on a utility-by-utility or sub-regional basis (see Florio, “Sharing Power Among the Pacific States”, Gridworks, 2018)  In California, the CPUC and CAISO have jointly developed an RA framework that applies to all Load Serving Entities (LSEs) within the CAISO footprint.

In a relatively recent addition to the traditional focus of RA policy on the “Planning Reserve Margin” above anticipated peak demand, CA has developed a “Flexible RA” requirement to ensure sufficient ramping capacity is available to balance the system in the face of the rapid increase in variable energy resources such as wind and solar.  Currently the CA Flex RA program requires that qualifying resources be available for dispatch by the CAISO on a five-minute basis, which is an impossible standard for most out-of-state resources to meet, given that most transmission is scheduled on an hour-ahead or at best 15-minute basis.  For several years, CAISO has been pursuing a stakeholder process to consider modifications to the Flex RA program.

With input from entities in the Pacific Northwest (PNW) and with support from Florio, the CAISO has proposed to modify the Flex RA program to make it easier for PNW hydro resources to provide flexible capacity to the CA system.  In a separate initiative, CAISO has also proposed to modify its DA market to schedule resources on a 15-minute rather than hourly basis and offer a new “balancing reserve” product that would be compensated in the DA market for remaining available to provide energy in real-time if needed.  In combination, these initiatives would allow PNW hydro resources to be scheduled in 15-minute increments to help meet ramps that are predictable in the DA.  Likewise, PNW hydro dispatch could be adjusted in 15-minute increments to help meet changes in forecasted load and renewable output between the DA and 15-minute timeframes.  Only the final five-minute dispatch adjustments would be limited to in-state resources and imports that can be dynamically scheduled in real time.

Status— These CAISO proposals are nearing finalization in the CAISO stakeholder process and will be submitted to the Governing Board for approval soon.  The proposals will then be filed in the CPUC’s RA proceeding for Commission consideration.  If approved, they could take effect for RA procurements conducted in the summer and fall of 2019 for the 2020 RA compliance year.  Florio has been following these initiatives closely and consulting with the CAISO sponsors and other stakeholders to secure these valuable changes to the Flex RA program.

Building on their paper from February, Sharing Power Among the Pacific States, Gridworks has continued to explore the potential for a more uniform RA framework for utilities in the Pacific Coast states and potentially the broader West as well.  Given all of the other activity discussed above, these efforts have been pushed to the back-burner to some degree until the larger market structure issues are resolved.  But as large coal plants across the West continue to announce retirement schedules and low-cost renewable resources are procured to replace them, the need for a more uniform RA framework for the West will only grow.  The Western Interstate Energy Board has secured graduate student interns from Stanford University for this summer to work on a more uniform Western RA framework.  Florio and representatives from the E3 consulting firm will work with these students to help develop a proposal to stimulate further discussion.

5)  Study of the Potential for Increased Transmission Capability for Transfers of Low Carbon Electricity between the Pacific Northwest and California.

On February 15, 2018, CPUC President Michael Picker and California Energy Commission Chair Robert Weisenmiller sent a letter to CAISO CEO Steve Berberich, asking the CAISO to conduct an informational study of the potential for increased PNW-CA transfers of carbon-free electricity as part of its 2018-19 Transmission Planning Process.  The primary elements of the request study consisted of the following:

• Increasing the current dynamic transfer capacity limits from 400 MW to some substantially higher credible level supported by engineering analyses;
• Automating of manual controls for essential Bonneville Power Administration (BPA) facilities, primarily in support of sub-hourly scheduling of the Pacific DC Intertie;
• Potentially increasing the capacity rating of the Pacific AC and DC Interties, as well as consideration of intra-California paths that could otherwise be limiting;
• Assigning some resource adequacy (RA) value to hydro generation imports that could be shaped through unused storage capacity potentially available in the Northwest.

On April 12, 2018, the CAISO published a draft study plan for undertaking the work requested.   The draft contemplates a number of technical transmission studies, as well as a detailed assessment of hydro resource availability in the PNW system under different scenarios to ensure that any increased transfer capacity could be effectively utilized.  CAISO proposes to analyze the availability of hydro resources in the PNW to provide energy or resource shaping through production simulation studies.  Under the resource shaping scenario excess solar generation would flow from CA to the PNW during the day and hydro power would flow to CA for the evening ramp.

These production simulation studies will require close coordination among multiple entities in the PNW and CA who have access to best data and modeling capabilities.  Florio and Gridworks will work with our contacts in both regions to help assure that this coordination takes place in an efficient manner.  The Northwest Power and Conservation Council has the best modeling capability for analysis of the NW hydro system, which considers all generation in the PNW, not just that controlled by Bonneville.  Gridworks will facilitate stakeholder engagement as necessary to ensure that the CAISO has access to the very best data and models for conducting this critical analysis.  These analyses should also take into account work already being performed in the PNW to consider the potential for re-purposing transmission capacity now dedicated to delivering coal power from the Colstrip plant in Montana to PNW load centers.  As various units at Colstrip begin to retire, there is significant potential for the development of Montana wind power that could make use of the freed-up transmission capability.  That work needs to be coordinated with any study of future resource availability in the PNW.