By Robert Mullin

CAISO has released a revised set of principles for governing a Western RTO in a bid to convince skeptics that an expanded ISO will be amenable to the entire region. The new document won initial praise, although doubts remain.

The ISO’s governance changes seek to address the concerns of industry participants in the broader West who contend that the original proposal favored California interests and didn’t sufficiently protect individual states’ authority over electricity-related matters. (See CAISO Governance Plan Fails to Dispel Western Concerns.)

“I will say that the revised proposal appears to be a step towards us rather than a step away,” said Bryce Freeman, administrator of the Wyoming Office of Consumer Advocate, noting that he hadn’t yet studied the proposal in depth.

“The question is, is it enough to keep the [PacifiCorp] states engaged?” said Freeman, who criticized the original proposal as being “California-centric.”

State Approvals Needed

That engagement will be essential for CAISO’s expansion into areas of the West now served by PacifiCorp. A widely accepted governance structure is key to the Portland-based utility gaining regulators’ approval to join the ISO in 2019. Regulators from five states outside California — Idaho, Oregon, Utah, Washington and Wyoming — must sign off on membership.

“We think the revised proposal marks a positive step in the right direction and that the changes appropriately reflect input from stakeholders, including on the key issue of striking the right balance between the existing authority of the ISO’s board and California and the other affected states,” PacifiCorp spokesman Bob Gravely said.

The updated proposal attempts to strike that balance in part by scrapping a controversial plan to appoint an “initial” RTO board of governors on which California-appointed members would have held a 5-4 majority. That board was slated to remain throughout a transition period and would have selected the “final” board based on a process developed by a transitional committee. Freeman previously referred to the initial board as the “mother of all California-centric concerns.”

Transitional Committee

CAISO is now proposing that the transitional committee develop a nominating and approval process to select a new nine-member board. The new board would be selected within 18 months of the effective date for the governance plan, which the transitional committee would develop and submit to the current board for approval.

New board members would fill seats created under the governance plan, as well as the open seats of sitting board members as their terms expire. Transitional committee members could extend the terms of sitting board members after determining that doing so would be beneficial to the new board based on “expertise and institutional knowledge.”

The revised proposal also fleshes out the composition of the transitional committee.

“The details are drawn from the Energy Imbalance Market transitional committee, which was successful in developing a governance structure that gave the entire region a voice in the market rules for the EIM,” CAISO said.

Each state in the expanded RTO footprint would be entitled to appoint a committee representative through its own process. In addition, stakeholders throughout the region would select representatives to the committee from nine sectors: investor-owned utilities; publicly owned utilities; independent power producers; large-scale renewable energy providers; distributed energy resource providers; generators and marketers; federal power marketing administrations (PMAs); public interest groups; and state-sanctioned ratepayer advocates.

In addition to developing the governance plan, the transitional committee would be responsible for dealing with other issues, such as whether to create a funding mechanism to facilitate participation in the RTO by consumer advocates.

CAISO’s modified proposal clarifies the role and powers of the Western States Committee (WSC), previously referred to as the body of state regulators. A representative from each RTO state would be appointed to the WSC, which also reserves one non-voting slot each for PMAs and publicly owned utilities. State committee members are not required to be regulators.

The WSC would “provide input on matters of collective state interest” and hold “primary authority” over certain RTO policy initiatives related to transmission cost allocation and resource adequacy.

“Primary authority means the committee will play the lead role for its defined areas of authority, and policy approval by the committee would be a prerequisite to any Section 205 filing with FERC in those areas,” CAISO said.

Still, the ISO would reserve the right to file with FERC without WSC approval “when reliability is imminently threatened.”

‘Genuine’ Effort

The proposed principles make an explicit concession to state sovereignty, promising that governing documents would include “binding provisions” to “protect and preserve state authority over matters regulated by the states themselves,” including procurement, resource planning, retail rates, and resource and transmission siting.

“The proposal appears to genuinely making an effort to preserve state sovereignty,” said Michele Beck, director of the Utah Office of Consumer Services. “But there’s a limit to what you can do in any proposal.”

Beck cited the U.S. Supreme Court’s April decision in Hughes v. Talen Energy — which struck down a Maryland program to incentivize in-state generation — as an example of how participation in an RTO can compromise a state’s authority. (See Supreme Court Rejects MD Subsidy for CPV Plant.)

“Ultimately, policymakers will have to weigh whether a certain amount of loss of sovereignty is worth the benefit,” Beck said.

While Beck was encouraged that CAISO set aside a position for consumer advocates on the transitional committee, she was also wary of a process modeled on the EIM, which she said left out the perspective of consumer groups.

Show Me the Benefits

She also thinks Western industry participants need to be looking beyond the governance issue.

“I want to remind people that governance is a big concern, but we still have to see benefits,” Beck said, pointing out that no studies have been performed to assess how consumers in individual states will be affected by PacifiCorp joining an RTO.

The utility says such a study is in the works.

“Having a final governance structure approved by the legislature that can be supported by other states, as well as completing a full cost analysis to determine net customer benefits, remain the two most important steps that will determine if we continue to move forward,” said PacifiCorp’s Gravely.

CAISO will take up discussion of the revised proposal during a public forum held in Sacramento on July 26. After taking a last round of comments, the ISO plans to send a final governance proposal to Gov. Jerry Brown, who is expected to present the plan to the state legislature in August. Lawmakers must approve any changes to the ISO’s governance structure.