By Robert Mullin

CAISO last week stepped up efforts to convert skeptics of a Western RTO, convening a forum in Denver to discuss a proposed set of governing principles and dispel concerns that California interests would dominate a West-wide entity.

“What we’re doing actually matters, and it has enormous upsides,” CAISO board member Ashutosh Bhagwat said of the effort.

CAISO is leading the push for an RTO in the West, in part driven by a 2015 California law requiring the grid operator and state energy agencies to explore ISO expansion to improve the state’s ability to meet its 50% renewable energy mandate.

The ISO also seeks to accommodate the timelines of PacifiCorp, which hopes to join the ISO in 2019 but must gain regulatory approval from five Western states before doing so.

Bhagwat said the diversity of resources in an expanded ISO would improve renewable integration and reduce costs for customers in California and the broader region.

EIM Experience

“Experience with the [Energy Imbalance Market] has proven this,” Bhagwat said. “We’re doing this because there is a lot to be gained.”

Contending that the West is “behind the rest of the country” in creating an RTO, Bhagwat also acknowledged “legitimate concerns” among Western industry stakeholders about how the organization would be governed.

“We’ve tried to address them,” he told the forum, referring to the ISO’s proposed principles for governance, which would seek to preserve state regulatory authority, provide all participating states the means to influence RTO policy and reshape the ISO into an entity no longer overly subject to the prerogatives of California.

Still, RTO skeptics — and some supporters — contended that an expanded ISO would be overly subject to California’s influence even with the principles in place.

They cited one major sticking point: the transition to an independent and regionally representative board of directors.

CAISO’s proposal calls for the RTO’s initial board to include the five members of the ISO’s current board and four new members selected by other RTO states through a process approved by those states. Initial board members would have terms staggered in such a way that California-appointed members would always hold a majority through a transition period.

That transition would conclude with the initial board selecting a final, independent board through a nominating process developed by a transitional committee of stakeholders. The nominating process — along with other governance elements proposed by the committee — would be subject to approval by the initial board.

A second sticking point: The transitional committee itself would be appointed by the ISO’s current board.

‘The Mother of all California-Centric Concerns’

“The proposal for the initial board is the mother of all California-centric concerns,” said Bryce Freeman, administrator of the Wyoming Office of Consumer Advocate.

Freeman pointed out that the proposal did not provide an explicit deadline for the transition period, meaning the current ISO board would constitute a majority for an unspecified amount of time. Any policies “hammered out under that arrangement would be accountable to the California political process,” he said.

Freeman also noted that the five PacifiCorp states would be forced to jockey for just four seats on the initial board.

“Whose ox gets gored in that process?” he asked.

“When we get to the final stage of things, California still gets what I’ve been calling a veto over everything anyway,” added Abby Briggerman, an attorney representing inland industrial energy consumers in the West.

Continued reliance on the ISO’s current board is also the American Wind Energy Association’s biggest concern, said Caitlin Liotiris, a consultant representing the organization, which is a strong supporter of the expansion.

Montana Public Service Commissioner Travis Kavulla echoed Freeman’s concerns about the open-ended nature of the initial board. He said it would have more influence on governance than the final board, as governance design would actually be developed and approved during the transition period.

Market-Oriented Board

Kavulla instead suggested the establishment of a market-oriented board populated by members with expertise in electricity market operations, while the “big questions” regarding tariff design and governance would be left to another body.

“That leaves the more complex matters of market design to the people actually running the ISO,” said Kavulla, the current president of the National Association of Regulatory Utility Commissioners.

While Kavulla didn’t specify what body should have authority over the tariff and governance issues, CAISO’s proposal calls for the formation of a body of state regulators “to provide policy direction and input on matters of collective state interest.”

That body would be funded by the RTO but incorporated as a separate entity, with one regulator from each state serving as a voting member. Publicly owned utilities (POUs) within the RTO footprint would appoint one nonvoting representative to act in an advisory capacity.

CAISO intends for the body of state regulators to have “primary authority” over RTO initiatives related to matters like transmission cost allocation and “aspects” of resource adequacy — meaning the RTO would be required to seek the body’s approval for any Section 205 filing with FERC.

“It has been noted that this body has a lot of reserve authority and power,” Kavulla said, adding that it should be staffed with experts to advise its members and support that authority.

Public Power Role

Mark Gendron, Bonneville Power Administration (BPA) senior vice president of power services, suggested a full voting role for the public power representatives.

“That might be a good home for BPA as a [federal power marketing agency],” said Gendron, whose organization operates 78% of the transmission in the Northwest and markets the output from 31 hydroelectric projects.

Gendron’s suggestion received support from Marshall Empey, COO of Utah Associated Municipal Power Systems, which represents community-owned utilities throughout the West.

“The reason we want this as public power is that regulators don’t represent us,” Empey said.

Steve Beuning, director of market operations at Xcel Energy, voiced a different perspective.

“I’m concerned to think of any stakeholder that might have more of a stake than me — such as public power getting a defined role,” Beuning said.

Kavulla noted that the interests of POUs are represented on the state committees of other RTOs. None of those committees set aside a seat for POUs.

“That level of trust might not exist in the West,” he added, referring to the fact that the region’s public utility districts are not subject to state oversight and maintain an arms-length relationship with utility commissions.

Briggerman spotlighted what she considered to be yet another flaw in the design of the state body: a provision that policy changes would require not just a majority vote, but approval by members representing a majority of load in the RTO footprint. California would hold a clear majority in an RTO that includes just PacifiCorp.

“This just sort of echoes my general theme that California has too much authority in this proposal,” Briggerman said.

“At the end of the day, [a Western RTO] is going to take mutual trust between California and non-California,” Kavulla said.