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A Regulatory Preference for Centralized Planning

I spent some of the Memorial Day weekend doing yard work and planting the tomato garden. After such exertions, I rewarded myself with the relaxation of “channel surfing” and came across a favorite; “Monty Python and the Holy Grail”. Many of the scenes are, in my opinion, comedic classics – recognizing that tastes in such matters are personal. But I was struck by the “French taunting” scene that is partially shown in the above video.

Go away…

Beyond the absurd humor, it seemed a good metaphor for the dismissive tone of the CPUC’s recent Proposed Decision on the re-opening of Direct Access (DA). The PD was a response to the California legislature’s request for a study of how to open Direct Access for retail customers to competition. The PD basically told the legislature to forget about DA for a variety of specious and unsubstantiated reasons. The tone of the PD was so dismissive that one could easily use the “taunting” of the French knight in the Python scene as representative of its regulatory dismissiveness to the legislature.

The assertions made in the PD ranged from “now is not the time” to a bizarre linkage of the Texas power crisis to retail access. “Now is not the time” is a peculiar argument for several reasons. Not least among these is that one driver for expanding DA in California now is to enable large customers who want to contract for renewable and storage resources at a more aggressive pace than other customers. Linkage of retail access to the crisis that befell Texas this winter is similarly strange. One of the retail providers that fared the worst was the Brazos Electric Cooperative – not a competitive retail provider – which had to file bankruptcy because of power prices that were driven by shortages of fuel to run power plants.  

The CPUC staff are smart enough to know their rationale in dismissing the desires of the legislature is unsubstantiated, so why the baseless assertions? I mean, it’s reminiscent of the baseless assertions made by some Texas politicians that the problems in Texas this winter were caused by the performance of renewables. In other words, was the CPUC staff indulging in a red herring to serve its preferred political narrative? What narrative you might ask? Well, possibly the preference for centralized planning with the CPUC firmly in control, rather than competition and customer choice. One must certainly hope the actual Commissioners will look more closely at the legislative intent and the lack of facts in the PD.

“Hope” as a strategy…

I recently took advantage of the increasing ability to see people – actual, not virtual – to visit with some members in the Pacific Northwest. Visiting Seattle and Portland was certainly gratifying and revealed viewpoints on the Western power markets that are starkly different from, say, California’s. As has been widely discussed, the days of flush capacity availability are gone. Not only is this because of an unusually dry winter in the Columbia basin but because of the retirement of so much legacy generation in the region. But this relatively new era of “tight supply” in the PacNW has revealed problems associated with transmission allocation in the region.

The issue is the allocation of transmission between the old, contract path area of the West surrounding California and the optimized network dispatch of the CAISO. Current CAISO tariff rules allow power to “wheel” from the PacNW “through” CAISO and back out to the Desert Southwest. The result is transmission not being available to deliver power from California generation to California customers. Consequently, CAISO proposed changes to its tariff in a filing at FERC that would limit some of these “wheel throughs” for the next twelve months. These changes, understandably, were greeted in Seattle, Portland and other parts of the West as the CAISO turning away from assisting regional market integration toward a “California-centric” operation.

It is increasingly evident among our reginal power market colleagues in the West that if the areas around California were part of an optimized network dispatch – either on its own or as part of CAISO – power could flow all around the region without such impediments. The only difference in power prices would be the cost of congestion. It is a concept that could be implemented relatively quickly and is the only real solution to the transmission allocation problem in which the CAISO and the surrounding West find themselves. Scarce resources would flow more easily.

However, California governance is deterring the rest of the West from joining California, and a lack of regional leadership is keeping the surrounding West from forming its own network market to work in coordination with CAISO. Meantime, reliability – the key to integrating renewables across the region and doing so in an economically efficient manner – is in danger. Let us hope this summer is not as hot as last summer. Let us hope that the West does not have excessive generation outages. Hope appears to be the West’s strategy for making it through. Perhaps regional integration can be given a chance soon.

Three choices?

If we assume that the status quo of a network dispatch island of CAISO, existing surrounded by a contract dispatch sea is not a viable solution, what options exist? My own answer has been with one of two choices; 1) California politicians finally alter the governance of CAISO to allow surrounding utilities to join, or 2) the transmission owners around California could form their own network (RTO) to coordinate a regional network dispatch with California. The latter option seems to have SPP as a champion while it organizes the Mountain West.

But my recent visit to a WPTF member who has been prominent in the Western regional integration saga suggested a tantalizing third alternative: the platform of the Northwest Power Pool (NWPP) which is building a regional Resource Adequacy (RA) organization as a basis for a future RTO. This member emphasized that clearing the path for transmission owners around California to join CAISO is the preferred option. However, the cooperative and organic nature of the NWPP efforts on a regional RA platform may form the basis – finally – for a big regional network market.

Possibly this sort of regional competition might be the cure for the chauvinism of California policy makers towards their Western neighbors. I think most of us would take any of these three outcomes over the status quo. Wouldn’t you?