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The PEAK Announcement

“We Shall Fight Them on the Beaches…”AloneThe picture above appeared in the British press the day after France surrendered to Germany in June 1940. I’ll get back to the reason for this reference in a minute. But first, something more topical.

The west-wide reliability coordinator, PEAK, announced that it would begin the process of winding down its business in view of demands from some of its key members. Why, some have asked, has this come about? In some ways, it is hard to grasp as PEAK represented the first time the West had had an independent reliability coordinator with tools that gave it unparalleled visibility into the entire regional grid.

Many of us in the West have heard rumors, but few know the real story. Perhaps PEAK management made mistakes as it sought to blaze a path as an independent reliability coordinator. Perhaps PEAK was not sufficiently responsive to member requests for budget moderation. Most of us will never know and we are left to ponder the future of the West in terms of reliability as well as the potential for a regional market.

The “reliability coordinators” (RC) situation will have to sort itself out. It may or may not be as comprehensive as PEAK with its west-wide model — but there will be one or more RCs in the West post-2019. The real question is “wither the markets?” This might seem to put CAISO in the catbird seat for developing a market beyond California. The EIM has offered significant benefits, and many companies are signing on for this “market tease.” Many in the West were hoping the CAISO might grow into the regional market platform – if it could ever get its governance organized – so that utilities outside of California could feel comfortable joining. It is quite logical, however, that if CAISO is governed by appointees from the governor of California that a utility in Oregon, Nevada, Arizona or elsewhere would not be willing to turn over control of its transmission to Sacramento.

CAISO management is certainly aware that California politics likely preclude out-of-state utilities from joining the CAISO in any real sense. Given this reality, it makes sense that they would try to make CAISO/EIM similar to an RTO without the transmission. This is the rationale for the day-ahead product which is touted as giving utilities outside of CAISO access to the market without ceding transmission control. But here, the details matter.

If the transmission is not under the control of the CAISO, the transmission capacity available to the day-ahead market could expand and contract daily based upon decisions of outside utilities. How does this serve transparency or market predictability? Indeed, this could be less transparent and less efficient that an old OASIS system (Open Access Same Time Information System) mandated in FERC Order 889. If this were what came out of a CAISO/EIM hybrid market, I have difficulty seeing FERC approving such a tariff.

So, while I wish the CAISO management well in its efforts to build a regional market, I am glad that PJM announced it was still in the game to offer a market platform – even without PEAK. Hence my posting the picture at the beginning of this blog. PJM is in the region talking to us about its market platform offering. They’re alone. The “Tommy on the beach” in an exaggerated metaphor.

No, I’m not saying that there are any Nazis or bad guys to be fought in the West. But there is a fundamental benefit of fighting to provide choice. Competition makes everything better.  Carefully looking at the PJM Business Plan and engaging PJM is only smart. Perhaps the California legislature will surprise me and grant CAISO an independent governance structure. Even so, having another market platform to compare provides benefits that could make CAISO better.  The CAISO’s market structure is very different from what PJM is reportedly offering.

The anticipated PJM proposal is not the legacy market platform of PJM but fairly stripped-down real-time and day-ahead markets with allocated transmission rights and a governance that would be shaped by the participants. By contrast, the CAISO market rules are in place and will be hard to change as a result. Surely CAISO carries with it certain baggage that derives from a political environment that is, to put it kindly, “unique.” Competition between the two could result in a market platform that draws out the best elements of each of the two.

I’m told by many in the region that they are interested in the PJM proposal but don’t want to be the first to commit to being interested. Well, having the benefit of competition means that you may have to listen to the sales person. You might just get a deal. The resulting market structure – however it turns out – should be all the better for it.

Have No Fear
This past Tuesday was Primary Elections Day in my state. The headlining race was for governor, but since my party’s nominee was running unopposed – and I like him very much – the incentives for showing up for one to vote were “just because…” Just because one is a good citizen and cares about the process. I have a son who is 18 and about to go to college. We passed the polling place and I told him I had to go home, shower, put on better clothes, and go vote.
Road Trips, Chased by the Feds & Blog Reactions
I’m sitting in the United Club at LAX, waiting for my Red-eye flight back to Baltimore. My son’s high school graduation is tomorrow. It’s only Wednesday evening but it feels like a full week already. Gary Ackerman and I went on a Road Trip of epic proportions on which we met six members in one day in the LA area. Next day, three members in Orange County and San Diego, and on the next two members in the San Diego area before I dropped Gary at the Cross Border Express Airport on the border with Mexico. I then drove back to LA and am writing this blog while listening to the toddler next to me report on the comings and goings of the planes out the window.
The Attraction – and Danger – of Market Intervention
This is my second effort to write a blog on this particularly sticky subject… the very real problems when policy makers intervene in markets. The reasons such a discussion is difficult in the context of the California electricity markets are emotional. First is the continuing psychic damage that was done in 2000-01. The second is that we want to electricity to be competitive but there is something about it that makes us want to “fix” it all the time. But the most damaging of all is a popular narrative that firmly states that the 2000-01 crisis was all about manipulation. That narrative is damaging because it leads to the entrenched belief that regulatory intervention is necessary to protect from the manipulation, and by extension a painful crisis, from happening again.
Charlie Brown or Henry V? Market Development in the West
Before I start in on the latest frustration along the path to market formation in the wider West, let me pause and explain recent developments to my friends in the Western Interconnection. Most of the trade press and the attention of FERC and the rest of Washington barely noticed the surprise of Xcel’s pulling out of Mountain West. Rather, the folks in the East are consumed by the cries of anguish emanating out of First Energy, Murray Coal and whether the DoE and DoD might invoke a Cold War legal mechanism to save coal and nuclear units in the East. This is the regulatory version of “East Coast bias” that many Pac-12 fans have asserted ESPN and other sports outlets have for things that don’t happen in a convenient time zone.
The Line Between State & Federal Authority: Electricity
Our nation has struggled to define the proper boundary between state authority and that of the federal government since the first vote on independence. In this video, you can see the debate in the first Presidential Cabinet between Thomas Jefferson and Alexander Hamilton — two talented Founding Fathers — having completely different views. It’s been a struggle ever since, encompassing a Civil War, several Constitutional stand-offs, and indeed it has been the backdrop of almost every US Presidential election.
Is that a Paper Moon?
In this scene from the movie “Paper Moon”, money changing occurs so rapidly that the cashier finds herself unsure what has transpired. The same can happen with transmission in the fast-moving energy market if you’re not careful. WPTF’s excellent chair of our WECC Committee – Caitlin Liotiris addressed a meeting of participants in the Energy Imbalance Market (EIM) about transmission availability in the EIM market. The points she made with regard to the current EIM here (EIM TX) may be even more of an issue as we approach the possibility of a “day ahead” product associated with the EIM.
Do the Right Thing
I haven’t written for a couple of weeks. Gary has been on a hot streak with the Burrito and there has been a great deal for the “incoming” Executive Director to process. But most of all, I’ve been watching what is happening in California, at FERC and the chess match for market development in the West between CAISO, the Mountain West and PEAK/PJM . Dang, this is happening faster than delivering pizza on a Friday night in Brooklyn.
“Wax on, wax off”
Learning how to run WPTF in anticipation of Gary Ackerman’s departure on June 30 has been challenging. First, directing a trade association is a unique skill set. Even if you’ve been a member of one, there are few jobs that prepare you for it. It’s rather a combination of cruise director, mixed with college administrator with treasury responsibilities. WPTF, to its credit, is even more unique with perhaps the broadest-based membership in our industry and robust committee structure. Hence it is no wonder that I sometimes joke that Gary is Mr. Miyagi – though he has yet to ask me to “paint the fence”…
Hi! I’m the Rush Chairman. Damn glad to meet ya.
Three nights and two days inside hotel meeting spaces… that is the Winter NARUC meeting in DC. A gauntlet to be sure but there is no single event of which I know that brings together so many from industry and regulation in the energy space. It was also kind of my “coming out” party as “incoming” Executive Director of WPTF. For most of the time in the halls and receptions, I was tied to the hip with Gary Ackerman as we sought to speak with as many Western regulators and other folks of significance in our space.