I was having lunch with a former colleague at FERC and took a moment to appreciate the changes in the Commission’s Northeast DC neighborhood. I can recall working there in the early 2000s and it was quite sketchy just a block or two away from FERC. This sprint, walking to lunch in the crisp Atlantic air, I took in the sight of all the new apartments and other buildings. When I passed a Gelato place across the street from a Whole Foods, I figured it was safe to say that part of DC had changed.
Paul Bunyan Sized Changes
Speaking of changes, I was reading about an E3 study on how much the generation mix is going to change in the Pacific Northwest. In turn, these changes will alter many assumptions that folks throughout the West have about power, prices and what capacity can be relied upon. The implications are being considered in many venues. Attendees at the WPTF Winter Meeting last month in Del Mar may remember the “round robin” we had at the end of the program. Randy Hardy, former head of BPA, gave an impassioned overview of the likely changes in generation in the Pacific Northwest and indeed the rest of the West surrounding California. Given Randy’s experience, he is well qualified to comment, and his testimonial lends credence to the E3 study.
The gist of the E3 study is that, with several legacy coal plants in the region retiring and load growth increasing, the Pacific Northwest faces a possible 8-gigawatt (GW) deficit by 2030 unless new “dispatchable” capacity is constructed. Randy, along with former BPA executive Larry Kitchen, further note that this situation would be exacerbated by looming state policy goals. Specifically, the proposed Washington State legislation requiring 100% carbon-free electricity procurement, and a bourgeoning “no new gas” sentiment in the region are likely to make getting the needed flexible capacity challenging. Randy and Larry correctly observe that the logical outcome of these trends suggests massive amounts of batteries and possibly pumped storage as the only “dispatchable” capacity that reconciles these narratives.
Randy and Larry further point out the logical implications for California in its drive for 100% carbon-free electricity: there may not be as much export potential from the Pacific Northwest as California policy makers are planning on to meet the Golden State’s needs. This scenario was amply demonstrated around March 1 of this year. Cold temperatures combined with an unusual number of unit outages led to Mid-C prices at nearly $1,000/MWh and natural gas selling at over $150 MMBtu. This situation should give policy markers some pause as aspirations of carbon-free electricity production spread from California to Oregon and Washington State. Even states like Nevada and Arizona are moving toward greater requirements for renewable resource procurement and the phasing out of units like Navajo and others in the Desert Southwest.
So many changes with so many moving parts – as is the case in any regional electric system – calls for some contemplation. Who better to facilitate this contemplation than WPTF? Consequently, expect to hear about a roundtable on Pacific Northwest generation resource mix soon. Currently, the thought is to have it in Portland in early June. Panelists could be E3, environmental advocates, some regional utility folks, some regulators and interested WPTF members. Sounds like a party! Uh, I mean “thoughtful roundtable.” Stay tuned.
States & FERC: A time to work together?
Regulators throughout the Pacific Northwest – and California – need to consider how to manage the evolution of the generation mix considering their environmental goals while maintaining reliability. Naturally, state legislatures consider these matters for their own states. As part of an interconnected grid, however, state regulators would do well to inform development of goals and implementation strategies based on the situation of surrounding states. There may be an opportunity for FERC to facilitate a discussion even while allowing the states in the Pacific Northwest and California to take the lead. While respecting the prerogatives of the states, the reliability of a multi-state grid certainly seems an ideal place for a Federal role.
In any event, a real regional RTO is necessary
It is certainly right to contemplate the future regional generation resource mix and how it fits together. It is even more urgent, however, to get a regional market in place that will greatly assist in the efficient allocation of resources over a broad area. As I argued in my last blog post, the effort to grow something like an RTO from EIM with a day-ahead product from CAISO seems fraught with so many difficulties that the region and the EIM entities are better off considering alternatives.
Trying to make a silk purse of out of a sow’s ear seems an apt analogy to EIM trying a day-ahead market where the incumbent utilities still control the transmission. We know the EIM utilities will not – and should not – turn over their transmission to an entity whose governance is controlled by the Governor of California. It is hard to imagine a legitimate market growing out of a day-ahead appendage to CAISO in which the utilities control the transmission. Such a structure would be rife with problems for non-transmission owning utilities and generation.
The footprint of the EIM entities is already quite robust. It contains a great deal of transmission, generation resources and geographic scope that could allow for very efficient market allocation of resources and help focus transmission planning. It has a governance structure at a Board level. Certainly, it would need a stakeholder governance structure to inform the Board on its decisions. But in the meantime, why not issue an RFP for all market administrators – SPP, MISO, PJM, ERCOT, even CAISO – for bids on performing the role of administrator for an RTO with a real-time and day-ahead market and an allocation of transmission rights. It’s all there. It just needs an experienced market administrator. There are a few from which to choose.
E3, Randy Hardy and Larry Kitchen are doing a great service by pointing out the possible outcomes of various political and industry trends in the Pacific Northwest. As we discuss the changing resource mix, let’s also consider how to best use what we have. One thing is for sure, the way the system is currently dispatched needs to change.