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Getting Organized...

One of the great things about work in the modern world is that one can do most things from almost anywhere. I mean, there are times for physically getting together and meeting face to face. As I write this, however, I’m in New York City because my nephew is singing at Carnegie Hall tonight. As I sit in the lobby of the Algonquin Hotel near Times Square, the ghosts of the old Algonquin “Roundtable” seem all around. I think I just caught a glimpse of Dorothy Parker in the corner talking to Harpo Marx.

But moving on to business, this blog is a bit “newsy” rather than sharing my thoughts on market subjects or developments. It’s probably a result of the long holiday season finally being over. Time to wake up and get organized! You know, like the rest of the West… sigh.

Modern RA: The WPTF Houston Roundtable

Speaking of getting together, you may have heard that WPTF is going to host a roundtable in Houston to discuss what a future resource adequacy (RA) product would look like. Current RA or “capacity” products are focused on accounting for megawatts. However, the future is likely to be dominated by energy produced by near-zero marginal cost units, which suggests the need for an RA product based on defined capabilities.

The need for such a product has been discussed for some time, but it really came home to me when I hosted a roundtable in Seattle in November. The West faces a three-headed monster which will require us to simultaneously tackle the needs for a regional RA product, effective regional transmission planning, and incremental regional market formation. While the need for the new product is most acute in the coastal West where state policies for renewable resources are being aggressively pursued, rethinking RA is likely to be needed in almost all regions of the US.

Houston has the reputation of being the “University of Energy” in the United States, so it occurred to me to engage the creative minds of WPTF members based in Houston and invite WPTF members from all over the West to discuss how to design a modern RA product. Since WPTF is all about promoting competition and economic efficiency, trying to make RA meet the reliability requirements while not interfering with market outcomes like demand response would be important.

I’m happy to say that WPTF member BP has agreed to host our roundtable on March 20. Invitations to register with an agenda will be forthcoming soon. But I’d like to solicit views from any members reading this blog to share your thoughts on what the basic elements of a “capabilities” based RA product in a future dominated by near-zero marginal cost units might entail. If you have thoughts, pleases share them with me at smiller@wptf.org.

You can’t ignore the California Commission

One of the things I’ve tried to make clear is that WPTF is about all potential power markets in the West, not just California. While California is by far the largest power market in the West, we aim to help promote markets throughout the interconnection. This is especially important since California is often so dependent on the “kindness of strangers…”, a.k.a., imports from neighboring states. But the extraordinary deference that FERC has paid California and the rest of the West means that the state Commission in the biggest state is a key policy maker. This is a bit of a challenge as the CPUC has often demonstrated an aversion toward market solutions and a proclivity toward command and control policy making.

In the past, WPTF has managed its activities at the CPUC utilizing the old law firm approach of funding members interested in discrete procedures (e.g., IRP, RA, RPS, etc.) as opposed to the “committee” approach that we utilize on matters like CAISO, Carbon & Clean Energy, the Wider West  and other areas. We’re moving to change how we handle CPUC matters toward a Committee structure that should encompass the most relevant procedures before the CPUC while providing the budgetary predictability of the other WPTF Committees.

The Committee concept builds on the experience of the RA Committee we established for members last year. We’ll discuss this to some extent at our Winter Meeting in February but will look to really kick it off with a meeting to be held in the East Bay area on the morning of Friday, March 27. The meeting is designed to afford members a chance to discuss the proposed approach in the hopes that we can have a large enough group to make the costs affordable while providing adequate coverage for the members. Look for details on the precise location of the meeting later in the Burrito and subsequent blogs of mine.

Meanwhile, speaking more regionally

I was intrigued to be on a call with a number of other folks from around the West to discuss a study funded by the US Department of Energy, on behalf of the states in the West, with the Energy Strategies group in Salt Lake City severing as the project’s technical consultant. The effort is a robust review of the various possible market structures in the West.

When I was at back at FERC on my first tour of duty, I oversaw a staff report on the cost and benefits of ISOs and RTOs. We worked with representatives from various states in every region of the country to come up with the basic assumptions to run a production-cost model to see how various states would fare under an ISO. However, compared to what is being attempted in this state-led market study being performed by Energy Strategies, the FERC task was relatively easy as we were studying one market structure.

The study underway seeks to provide states with the best information as to what structure offers the most benefits in the relatively short-run timeframe. It will consider the status quo (with the existing EIM), a single RTO, an EIM with a day-ahead product and will evaluate various footprints for these different market structures to include California on its own operating alongside a Western market and a combined CAISO with most of the EIM area operating with a separate market in the Rocky Mountain area. The assumptions discussed seem reasonable as does the group of state and industry officials who have participated thus far.

I can imagine what will likely result as the most efficient market structure and it would look something like an RTO over a broad regional area. I suspect that many of the state officials who will consume the study once it is finished will be of the view that the West would be better off with that kind of structure. But as opposed to most areas in the Eastern Interconnect, having the state regulators in agreement won’t be dispositive. The broad areas of public power – particularly of a Federal nature – make the political calculations more difficult. These entities don’t have a regulator to prod them or encourage them to join anything. The states can do little regarding entities like BPA or Salt River Power.

The results of the study be interesting to see when they are available sometime toward the end of 2020. Perhaps even more interesting will be the effect they have on the various regulators and market participants. Could it force a movement toward faster market integration than the current path suggests? We’ll see.

A thought before parting…

“The journey of a thousand miles begins with the first step” says the famous Chinese proverb. Well, if you’ve been involved in market formation for the last 20 years, you’ve got be believe that we must be near the journey’s end. Perhaps in terms of finally establishing a broad regional market in the West we are closer to the finish than we realize. Why?

Back in the early 2000s, the West was really split on whether a market was a good thing or not. These days, there are many more who believe that a regional market for power in the West is necessary than those who defend the status quo. That’s probably because there is a growing requirement for renewable energy, which is more manageable and economical when part of a large regional system.

But the politics remain a problem. If California had agreed to change its governance so that other states could feel safe to turn over the operations of their utility systems to CAISO, we might have the finish line in sight. But we don’t have that option available. Is there a way to finish the job faster than the 10-20 years that many in the EIM community say is necessary to complete the “incremental” approach toward a regional market? Maybe the industry having to concentrate on studies and how to integrate greater quantities of renewables will help us find a faster way forward. It’s the new year – time to get organized!