By Robert Mullin

Colorado-based environmental group Western Resource Advocates was an early proponent of CAISO’s Energy Imbalance Market and is actively supporting the ISO’s effort to transform itself into an RTO serving the broader West.

RTO Insider spoke with senior policy advisor Nancy Kelly and staff attorney Jennifer Gardner — both based in the organization’s Utah office — about California’s push for regionalization of the Western grid and its political challenges.

Kelly, an economist, previously worked for Utah’s Office of Consumer Services and followed the regional effort to form a transmission organization in the West prior to the Western Energy Crisis of 2000-2001. She also served on the board of the Western Electricity Coordinating Council from 2002 to 2014.

Gardner, who focuses primarily on clean energy issues, said she is trying to play an active role in the regionalization discussion “to make sure governance is structured fairly for all of the relevant parties that have been involved.”

[Speaking to Kelly] You were once with the Utah consumer advocate, and that agency is currently taking a skeptical view of PacifiCorp joining CAISO. Given your background, how do you weigh consumer issues in your perspective on regionalization?

Kelly: “I think a regional organization and a regional system operator is a necessary tool to reliably operate the resource mix that we’re going to be facing as we transition from our current resource base to a new resource base over the next five to 10 years.

“However, from a consumer perspective, I also believe it’s going to bring down costs, and I think we’re already seeing how it can bring down costs by reliably operating an increasing mix of renewables that have no fuel costs — free wind, free sun — so those resources can get bid in very cheaply.”

[Executive Director of the Utah Office of Consumer Services] Michele Beck has said that she wants PacifiCorp to perform a state-by-state consumer benefits study before it joins CAISO. Would you seek such a study before the utility advances with regionalization?

Kelly: “I think that everyone realizes that PacifiCorp has to be able to make the case [for consumer benefits] in front of each of its six [utility] commissions before it could join as a participating transmission owner. And, yes, I’d think that we’d want to see forecasts of those benefits.

“I think one of the concerns for some in the regulatory community is whether the benefits will grow in the future. They grow as the penetration of renewables grows and as coal plant retirements occur. Some in the regulatory community — and some consumer groups — are concerned that those future benefits may not be realized, and I just don’t think that will be the case. The very drivers that drive those benefits will be increasing in the future rather than going away.”

Given the relative simplicity of joining the EIM compared with creating an expanded RTO, would it make sense to step back from regionalization of the ISO and see what develops as more utilities join the EIM?

Kelly: “Having a regionwide EIM would be a great first step. The additional benefits in moving to an RTO would be further reductions of gas burns, because of the ability to share resources across time zones and across hours in ways that you can’t do with an energy imbalance market. Because [utilities] come into the Energy Imbalance Market with resources that match [their] load, [they’re] only balancing within the hour. By moving to day-ahead, you can reduce the number of resources that need to come into the day beyond the number of resources that come into the hour, so you get greater savings.

“I think the EIM can continue to grow separately from the speed of progress on the regional system operator. As utilities and customers in the West experience those benefits, I think they will become even more willing to do the hard work necessary to take the next step.”

How do you see the West working through the thicket of RTO governance issues, because there seem to be a lot of points of contention both inside and outside California?

Gardner: “We’re really working with a complicated situation. We’ve got six states within PacifiCorp’s footprint with very different politics and policies. I think the biggest issue that we’re finding is … if this seems like a California-driven effort, there’s going to be an expected amount of skepticism. I think that’s normal when you look at all of the policies and political implications at play.

“We’re finding that [California is] going to have to give a little to get something in return. One of the biggest issues that came up in the [governance] process was the issue of voting [in an RTO]. We could all agree that we wanted some kind of advisory body that would provide input to a future independent board, but we couldn’t agree what its voting rights would look like. For example, does California get more votes than Utah because it has a greater load profile?

“Those are the kinds of complicated issues that we’re working through. Ultimately, we want a fair and balanced governance model that recognizes the variety of interests involved in this complicated market structure and that’s ultimately fair to participants — whether it’s a state, a utility or [nongovernmental organization] like us.”

What next steps must be taken to work through the governance issue?

Gardner: “Right now, California needs to pass legislation by the end of 2017. That legislation needs to be clear that CAISO has the legal authority to actually transition to a regional system operator with a fully independent regional board that is advised by a Western states committee of state representatives — and that also has some type of formal stakeholder process. Once we have that legislation in place — then and only then — can we start a transition process that’s necessary to transform CAISO into a regional organization.”

Do you think there’s a willingness on the part of the California legislature to give up enough in the next year?

Gardner: “I can’t say for sure what the temperature of the California legislature is. I think some of the biggest concerns in California primarily focus on making sure that, under a regional expansion model, California isn’t losing clean energy jobs to other states in the West.

“Do I think that’s a fair characterization of what we’re trying to do? No. But when you look at where they’re coming from, this is a California entity, and for the life of that entity, it is charged with implementing — arguably — California policy. So what has to happen is a little bit of letting go and realizing that California can still have its policies and its individual state requirements — and so can Utah. But, ultimately, operation of that regional market must take place by an independent entity. Once we get over those concerns, I think we can make progress, but it’s going to be a heavy lift.”

Kelly: “Within California, there are certainly different interests. What seems to be clear is that CAISO understands that it needs the expansion in order to operate the level of renewables that are coming down the pike — effectively and at lower costs while maintaining reliability.

“I think that CAISO — maybe more than anyone else in the West — gets that. But I do hear in a lot of conversations skepticism about what’s really driving CAISO, and I do think sometimes they’re seen as expansionist and imperialist.”

What are your thoughts on the Mountain West Transmission Group proposal to create a competing RTO in the West? Does that seem like a serious effort — and one that would be competitive with the ISO?

Kelly: “I think it’s totally serious. Whether it’s competitive or not is unknown. They have put out a request for information to four different RTOs, including the CAISO, SPP, MISO and PJM. So they are looking to either form a single tariff group or [create an RTO] if the numbers come in right. I think they’ve been looking at the results of their benefits studies and they’re waiting for information on their requests for information. If they were to choose CAISO, it wouldn’t be competing at all. It would provide transmission access across the West, which I think would be an excellent thing for renewables and customers in the West.

“We’ll support any efforts to improve operation and reliability going forward. I think we would prefer to see one — as opposed to many — simply because that would create the best opportunities to share back and forth across the region.”

Is there any policy point that would cause your organization to withdraw its support from the regionalization effort?

Kelly: “I would say that we definitely support an independent board with an open stakeholder process. I think having the governance right is important for our organization. We would not support an organization run by a board appointed by the governor of California. We understand that would never go in the rest of the West.

“Our desire is to see the formation of an organization that can really meet the needs of the entire West and that’s where we’re focusing our work.”

Gardner: “It would be hard to convince Western Resource Advocates to not support this, but there are a few things that could cause us to step back and re-evaluate how we’re engaging in this effort.

“The first would be what happens in California during the 2017 legislative session. We want to make sure that any legislative package is narrowly focused on the issue at hand — which is to enable the California ISO to actually transition to a regional market — rather than [legislators] trying to slip in a lot of additional initiatives.

“We want to ensure that any governance model is fair to all stakeholders involved, and that states outside California are given an equitable say in governance and a seat at the table.

“So it’s really hard to say right now what will be a deal breaker for us. I would say that, depending on what happens with California legislation, we’ll know a lot more about where things stand and whether this process is going to turn out with an equitable governance structure in the long run. But, so far, we’ve been very encouraged and we’re certainly not stepping back anytime soon.”