This past week, I got to spend quality time with western state regulators and industry folks at the CREPC-WIRAB meeting in Salt Lake City. Meetings of NARUC are good, but most state regulatory bodies have a variety of industries to regulate from natural gas and electricity to taxis and other things of public interest. Consequently, it was great to have folks from all over the West discuss how the grid is going to manage so many challenges; from carbon policies in the coastal areas of the West to the changes in the generation mix all over the interconnection. This focus is the real benefit of CREPC-WIRAB – plus visiting beautiful Salt Lake isn’t bad either.
Naturally, one of the main focal points of discussion was how to incrementally obtain the benefits of a regional market that will help the West do the best job possible of using the evolving generation fleet as efficiently as possible. The potential of a truly regional market that links the population centers of California, western Oregon and western Washington, with the renewable and thermal generation of the rest of the West, is tantalizing.
The challenge to this future is getting everyone to talk to each other while recognizing everyone’s varied perspectives and history. This point was made clear to me when Kenna Hagan of Black Hills Energy explained the varied business models that exist in the West to the WPTF DC Roundtable last year. This situation is different in numbers and needs than in the East. Investor-owned utilities, public utilities, federal power authorities, municipal utilities are almost equal parts of the Western fabric. Add in the evolving Community Choice Aggregation (CCA) of California and the existence of merchant ownership of generation of all kinds and the result is a “United Nations” of interests.
“We need to talk…”
I’ve been very aware of this diversity since I took over the day-to-day management of WPTF. In fact, WPTF has evolved into an organization that has all these organizations as members. It’s why I like to think of WPTF as an “information clearinghouse” on market related issues rather than a traditional trade group. So, it was a surprise to me when a friend pulled me aside and said; “we need to talk”. Whenever you hear this introduction, you know that you’ve done something that somebody doesn’t like.
This friend, and I do view this person as a friend, said I was getting a reputation for being “anti-IOU” (Investor-Owned Utility). I was taken aback. I admit that 20 years ago I had that bias, but the days of distinct IOU versus IPP (independent power producers) fights have long since passed. Indeed, ownership of non-rate base generation is often part of a “blended” utility. But the accusation bothered me. I pondered my public appearances, business conversations and even my blog to see where I had exhibited “anti-IOU” behavior. I didn’t think I had, but something I had been saying must have appeared to be annoying to this community. My intent is never to offend but engage. Where had I gone wrong?
Was it possible that my stated concerns about the “day-ahead” product as part of the EIM market development with CAISO was being viewed as “anti-IOU? The point I had made was that it would be hard for any day-ahead product which left transmission under the control of the utilities rather than the independent network administrator to be approved at FERC. This point seemed straight forward to me. FERC has more than 20 years of precedent in which it has noted the difficulties of having transmission controlled by incumbents who also own generation. This problematic situation is why the Commission has pushed the idea of independent grid operation, both to eliminate the incentives and the perception of possible discrimination.
Incrementalism: Time & Risk
The reason that I have focused on the difficulties of a “day-ahead” product where transmission is not controlled by the network administrator – CAISO, SPP or a similar body – is to avoid wasting time on something that is very likely to get shot down at FERC. Many EIM entities have noted the many “false starts” in getting a market going in the region. This point was made to me most eloquently by Sarah Edmonds of Portland General, someone I consider a thought leader in the region. As someone who has worked for over 20 years on market development around the country, I empathize with their situation. But I fear proposals that might result in more frustration.
It is understandable why the EIM entities don’t want to hand over control of their transmission to CAISO, given that the ISO Governing Board is comprised of appointees of the Governor of California. They would be ignoring their fiduciary obligations to shareholders and their own state regulators if they did that. But any “work around” to get the benefits of a day ahead market that doesn’t place transmission into the hands of an independent market administrator seems to invite more disappointment when such a possible construct is considered by FERC. I hope that pointing this out and advocating for other solutions is not viewed as “anti-IOU”.
Many (not all) of the EIM entities have emphasized the belief that an “incremental” approach is the best way to reach the goal of building a regional market. My response to that view is that the EIM entities and CAISO have already done splendid work in incrementally building consensus for a market. Proving the benefits of the EIM has been a great success as is evidenced by the interest of state regulators. If we did not have the rapid onset of renewable generation penetration, accompanied by increasing interest of state legislatures in pushing more renewables, along with the retirement of significant amounts of legacy thermal generation, we might have all the time we need to continue to move incrementally. But time is not on our side.
To my friends in the IOU community – and this includes many WPTF members – my concerns for market formation in the West are not rooted in a bias. I am biased only in the belief that transparent markets benefit all interests; reliability, environmental and economic. But having worked as regulatory staff and as a market participant for over 20 years suggests to me that some approaches to markets will work and find regulatory approval and others won’t. I know the EIM entities are trying hard. Perhaps, just perhaps, a solution to the dilemma before them is available. I have an idea, but I’ve stated it already. We can debate that later. For now, let’s all agree that “biases” are a waste of time. But so are market constructs that are problematic. Let’s not waste time.