A meeting of CAISO’s Greenhouse Gas Coordination Working Group on Oct. 19 illustrated the complexity Western stakeholders confront in addressing emissions in the region’s expanding electricity markets — including the challenge of agreeing on basic definitions.

The meeting was the third for the group, a forum for stakeholders to discuss how the cost of GHGs should be accounted for in CAISO’s Extended Day-Ahead Market (EDAM) and Western Energy Imbalance Market (WEIM). In both markets, the ISO must find ways to strike a balance between the needs of states that price carbon emissions in their economies and those that don’t.

The working group was established to evolve GHG accounting design as a whole, with the goal of WEIM participants developing an accurate system to attribute generator emissions to load across state lines. Stakeholders have identified many uncertainties and are still in the beginning stages of defining current and potential problems that could occur after implementation of the EDAM, which will carry over the WEIM’s current GHG accounting practices until needed changes are identified.

Of the 10 states participating in the WEIM, only two — California and Washington — price carbon through a cap-and-trade system, complicating the pricing of energy into and out of those “GHG zones.”

Further complicating matters is that California and Washington operate separate cap-and-trade programs, increasing the potential for the over- or undercounting of GHGs when accounting for power transfers between the two states. Washington officials expect to decide soon whether to seek to join the joint California-Quebec carbon market, but any such linkage would occur in 2025 at the earliest. (See Analysis Favors Wash. Linkage with Calif. Cap-and-trade Program.)

The working group will also consider how CAISO’s markets in the future might reflect obligations associated with “non-price” GHG policies, such as renewable portfolio standards, clean energy standards and renewable energy certificates.

Clarity on Definitions

Last week’s meeting was devoted to discussing problem statements that were submitted by stakeholders that outline current or foreseeable issues regarding emissions attributions. Participants discussed how best to phrase and think about the problem statements and then identified action items to address them. The goal of a problem statement is to determine the root cause of an issue and come up with a solution.

Problems identified included how to account for and control emissions “leakage”; the potential double-counting of emissions between Washington and California; and determining if the current system’s price formation accurately identifies total marginal GHG costs.

Much of the discussion dealt with the wording of the problem statements themselves, rather than trying to solve them. In Problem Statement 1, which describes the uncertainty around whether CAISO’s market correctly identifies the “available surplus” of resources that may be attributed to a GHG zone, the definition of “surplus” was questioned.

“Buried in here is an assumption that there’s an agreed definition of ‘surplus,’” said Clare Breidenich, a consultant speaking for the Western Power Trading Forum. “We do not have that clarity from the California Air Resources Board.”

The assumption is that “surplus” is generation in excess of the load for the market footprint outside of California, Breidenich added, and that it shouldn’t necessarily be the same for all resource types, considering that entities operate differently in the market.

Jessica Zahnow of Puget Sound Energy suggested that looking at historical dispatches and attributions and running counterfactuals (the resource sufficiency evaluation in the WEIM) could help determine surplus and help stakeholders begin to understand if CAISO’s market correctly identifies it.

The discussion about Problem Statement 2 prompted questions about use of the term “secondary dispatch,” which has generally referred to the practice of a power producer directing output from a lower-emitting resource to a market that prices GHGs — such as California — while secondarily firing up an emitting resource to backfill load that would have otherwise been served by the cleaner resource. For states attempting to track and price carbon, the process results in the “leakage” of emissions in accounting for the true source of GHGs.

Problem Statement 2 states that the current attribution process still results in secondary dispatch and that the market lacks sufficient transparency into how often it is occurring. The discussion centered around identifying correct wording in order to best evaluate the issue. Stakeholders raised the concern that the statement assumes “secondary dispatch” and “leakage” are synonymous, when a producer may have to perform secondary dispatch for reasons not related to emissions.

Anja Gilbert, a lead policy developer at CAISO, suggested the two be differentiated and the problem be looked at in terms of leakage rather than secondary dispatch. Todd Ryan, principal market design analyst with Pacific Gas and Electric, echoed the concern.

“To my understanding, secondary dispatch can occur for a host of reasons, including economic displacement, which is the purpose of the Extended Day-Ahead Market and markets in general,” Ryan said. “Leakage is a specific type of secondary dispatch that occurs when resources are inappropriately shuffled in terms of carbon intensity. [The terms] are often used synonymously, but I believe that is incorrect.”

Kallie Wells, senior consultant with Gridwell Consulting, pointed out that the context of the conversation surrounding GHGs indicates that stakeholders are referring to leakage, not secondary dispatch, and that the differentiation should be made.

Gilbert added that a system of monitoring should be put in place to identify leakage when the EDAM goes live, given that CAISO and its stakeholders won’t be able to assess its degree until after implementation.

At the suggestion of CAISO Market Engineering Specialist Kevin Head, the group clarified the problem statement to reflect secondary dispatch “that is not occurring as a result of economic displacement,” but rather because of resource shuffling that leads to the inappropriate sale of non-renewable resources.

Further discussion indicated the need for an agreed-upon definition of leakage in the context of the statement and highlighted uncertainties about what type of leakage the problem statement refers to.

“What exactly are we talking about when we say leakage?” Wells said. “There’s so much gray area, and I think until we are very clear about that, we’re going to keep dancing around the same issue.”

Premature Discussion?

Wells’ comment was representative of a larger theme in the meeting: the need for more precision and a better understanding of how CAISO and its stakeholders should approach potential GHG-related problems in the absence of a way to test them.

Bonnie Blair, an attorney who represents the publicly owned utilities of the “Six Cities” in Southern California, echoed this concern.

“It’s not clear to me, with respect to either of these problem statements, what market we’re talking about” because the EDAM has yet to go live, Blair said. “We have the existing imbalance energy market, which does have a broad footprint and involves attribution of GHGs across [balancing authority areas]. We have the current day-ahead market, which is limited to the CAISO area and, I think, does not involve attribution of GHG impacts; and then we have the EDAM market design, which hasn’t yet been implemented and is not going to be implemented for, I think, two and a half years.”

Gilbert echoed the concern. “I think a complicating factor has been that we only have a live EIM market, and so without a live EDAM market, some of the proposed enhancements for EDAM that are looking to fix some of the issues with the WEIM enhancement can’t be tested until they go live,” she said.

An efficient way to view the problem statements, according to Gilbert, would be thinking about statements that could address potential enhancements that will need to be made in a future policy design phase.

Blair agreed, but she again emphasized the challenge of imagining problems in a system that does not yet exist.

“It provokes me to raise the question about whether it makes sense to try to focus now on fixing a problem that may or may not exist after the enhancements to the GHG process that are built into the EDAM design go into place,” Blair said. “I question whether that may be premature.”

The working group’s next meeting is tentatively scheduled for Oct. 30, when it will continue to address the list of problem statements submitted by stakeholders.

Robert Mullin contributed to this article.