By Hudson Sangree
SACRAMENTO, Calif. — The largest utility bankruptcy in U.S. history looks likely to continue through at least the first half of 2020, while CAISO seeks to expand its Energy Imbalance Market and meet reliability requirements as a capacity shortfall looms.
Pacific Gas and Electric must exit its Chapter 11 reorganization by the end of June to take advantage of a $21 billion wildfire recovery fund established under Assembly Bill 1054, signed into law in July 2019.
That gives PG&E six months to fend off a competing reorganization plan by bondholders, who are trying to take over the company, and get its own plan confirmed by the U.S. Bankruptcy Court in San Francisco and the California Public Utilities Commission.
It’s a tight schedule, given how slowly legal and regulatory processes can move, but PG&E says it’s on track to reach its goal. The utility is also promising to change the behavior that led to a series of disasters involving its gas and electrical equipment, including the Camp Fire in November 2018, the deadliest wildfire in state history.
“We are focused on emerging from Chapter 11 as the utility of the future that our customers and communities expect and deserve,” PG&E CEO Bill Johnson said in a statement announcing a $13.5 billion settlement with fire victims in early December. (See Judge OKs Deals with Fire Victims, Insurers.)
Calls for a public takeover of PG&E have been increasing, however, following complaints over a series of public safety power shutoffs meant to prevent further fires and suspicion that PG&E’s equipment may have started the Kincade Fire, which ravaged Sonoma County in October.
California Gov. Gavin Newsom recently insisted that PG&E include a provision in its reorganization plan that could speed a takeover by the state, if needed.
PG&E’s bankruptcy “puncutate[s] more than two decades of mismanagement, misconduct and failed efforts to improve its safety culture,” Newsom wrote to Johnson in a Dec. 13 letter regarding the utility’s latest update to its reorganization plan. (See PG&E Chapter 11 Plan Won’t Do, Governor Tells Judge.)
The company may need to update its reorganization plan quickly if it hopes to win the governor’s unofficial support and the necessary support of the gubernatorial appointees on the CPUC.
A trial to determine the utility’s liability in the Tubbs Fire, which burned down more than 1,500 homes in and around Santa Rosa, killing 22 residents, is slated to start in January, though it may be put on hold because of the proposed settlement with fire victims.
CAISO Concerned About Reliability
While PG&E struggles to secure its future, CAISO is trying to head off a capacity shortfall expected to start this summer and increase significantly by summer 2021. (See CAISO, CPUC Warn of ‘Reliability Emergency’.)
The state’s policy goals of increasing reliance on renewable energy resources while phasing out natural gas plants is behind the potential problem, CAISO and CPUC officials say. The planned closure in 2024 and 2025 of California’s last nuclear generating station, PG&E’s Diablo Canyon Power Plant, could worsen the situation.
CAISO Vice President Mark Rothleder told the CAISO Board of Governors in fall that the ISO could face a 2,300-MW shortfall during peak demand time this summer. That shortage could increase to 4,400 MW in 2021 and 4,700 MW in 2022, he said.
Summer peak load is shifting to later in the day as the sun sets and solar power goes offline, exacerbating the situation, Rothleder said.
In response to those concerns, the CPUC ordered that all load-serving entities under its oversight collectively procure 3,300 MW of capacity, on a basis proportional to projected load, by August 2023.
Additionally, the CPUC voted in November to recommend that the State Water Resources Control Board allow four once-through-cooling gas plants built in the 1950s and 1960s to remain online even though they are the last of their kind and are slated to retire by the end of the year. (See California PUC Votes to Keep Old Gas Plants Operating.)
“These requests are to ensure electric system reliability with the expectation that these OTC units will have low capacity factors, and therefore low emissions and low use of seawater for cooling,” the CPUC said. “The commission remains committed to OTC compliance, for which California has made substantial progress in the last decade, and requests this schedule adjustment purely to ensure electric system reliability.”
The OTC plants along the Southern California coast are notorious for killing marine organisms and sullying some of the state’s most popular beaches, making the decision extremely unpopular with residents and local elected officials. Even the commissioners said they wished they hadn’t had to let the plants continue operating.
The Water Resources Control Board, which must vote to keep the OTC plants open, has a workshop on the issues scheduled for March 8.
EIM Keeps Expanding
CAISO’s Western Energy Imbalance Market had a banner year in 2019, with new entities indicating their intent to join the interstate trading platform. The EIM estimates that entities have saved more than $801 million since the market began more than five years ago.
In December, four Colorado utilities — Xcel Energy Colorado, Black Hills Colorado Electric, Colorado Springs Utilities and Platte River Power Authority — announced they will join the EIM as soon as 2021. The four utilities serve almost 2 million customers and reported $3.7 billion in sales in 2018. (See EIM Lands Xcel, 3 Other Colo. Utilities.)
Before the announcement, Colorado was the only state in the Western Interconnection without an entity belonging to the EIM or planning to join. The news was a blow to SPP’s nascent Western Energy Imbalance Service, which started far behind the EIM but hopes to compete with it.
The Bonneville Power Administration signed an implementation agreement with the EIM in September, positioning a vast region of the Pacific Northwest, with its powerful hydroelectric dams and thousands of miles of transmission lines, to begin participating in the ISO’s real-time market in 2022. (See Bonneville Power Signs Agreement with CAISO EIM.)
The Western Area Power Authority’s Sierra Nevada Region and members of the Balancing Area of Northern California also announced their intent to join. (See EIM Attracts More BANC Members, WAPA Region.)
It’s not just the EIM’s membership that’s expanding. In October, CAISO launched a stakeholder process for the EIM’s extended day-ahead market (EDAM), which will allow day-ahead unit commitments across the Western states. The EIM is currently a five-minute real-time market.
But the EDAM plan isn’t guaranteed, and uneasiness about it lingers among those entities that worry it could compromise the EIM’s current system of wholly voluntary participation and diverse governance.
An eight-month feasibility study of the EDAM, conducted by CAISO and 14 current and future EIM entities, was presented to the EIM Governing Body in September. At the time, EIM entities that aren’t members of CAISO wrote a joint letter to ISO and EIM leaders emphasizing that they have not committed to the EDAM and want to make sure it addresses a number of concerns, including the continued independence of the Governing Body and the representation of a range of interests across the West.
A continuing worry among EIM participants is that CAISO or California politicians might try to dominate the regional market. CAISO’s bid to form a Western RTO stalled in part because its board is appointed by the state governor and approved by the State Senate. (See CAISO Takes Step Toward EIM Day-ahead Market.)
“The issues to be resolved to make EDAM a reality should not be underestimated,” the entities wrote. Those that signed the letter included Arizona Public Service, Idaho Power and PacifiCorp.
“Governance structures must be considered that reflect the new market design and the legitimate interests that all within the broader market footprint will have in the operation and rules of the day-ahead market,” it said. “In addition, it is likely EDAM will need to include a test to ensure that all participating balancing authorities are not leaning on neighbors to meet their continued reliability obligations.”
The proposed expansion is probably the biggest initiative on CAISO’s plate in 2020, and the stakeholder process is expected to continue through the year. A technical workshop on the EDAM initiative is scheduled for Feb. 12.
Western RC Transition
Among the biggest events in the Western Interconnection in 2019 was the handover of reliability coordinator services from Peak Reliability to CAISO, SPP and BC Hydro.
Peak announced in July 2018 that it would shut its doors by the end of 2019 as more of its customers signaled their intentions to defect to CAISO’s lower-cost service, now called RC West. CAISO and SPP competed for Peak’s remaining customers, with CAISO snagging the majority. BC Hydro assumed the RC role in its service territory, which encompasses most of British Columbia.
Despite trepidation that things could go wrong with multiple handovers on multiple dates, the transition appeared to go smoothly and ended whe”Going into this, there was a lot of concern and a lot of angst as to how this would all turn out, but once again the industry has come together and proven what we can do,” Melanie Frye, CEO of the Western Electricity Coordinating Council, said during the regional entity’s Board of Directors meeting Dec. 4.
WECC Member Advisory Committee member Fred Heutte, of the Northwest Energy Coalition, expressed reservations about having multiple RCs in the West, which traditionally has had only one.
“As I’ve said before, in the future, we may want to reconsider having multiple RCs in the West. There are some distinctive differences in topology here that make the situation more … fragile, perhaps, than [in] the East, but I know that we’ll pursue this current arrangement as best we can.”
Branden Sudduth, WECC vice president of reliability planning and performance analysis, said that “between the utilities, the RC transition coordination group, WECC, NERC and other entities — the new RCs [and] Peak — it really was a herculean effort that they were able to accomplish this this year.”
“They did run into several bumps along the way, but the industry really kind of [grabbed] the bull by the horns and they overcame,” he said.
Sudduth cautioned that WECC’s work with the RCs wasn’t done but was entering a new phase.
“This isn’t it. We can’t just say, ‘Alright, perfect, we’re done. The transition’s complete,’” he said. “We need to make sure that these RCs are performing effectively.”