Regionalization and Cringeworthy Political Rhetoric

Regionalization and Cringeworthy Political Rhetoric.     

We have been discussing “regionalization” of Western Power markets for so long (my experience goes back to the late 1990s) that frustration is a natural condition. We’ve made some recent strides; the Energy Imbalance Market (EIM), the creation and expansion of the Western Resource Adequacy Program (WRAP), and the general realization that scarce resources are best utilized over a broad regional area involving a network dispatch.

California, which often exhibits the same view of its state sovereignty as Virginia or South Carolina at the beginning of the Civil War, has experienced its dependence on the rest of the West to keep the lights on. The Heat Wave of last September would have been a disaster without imports from the Pacific Northwest, and the blackouts of August 2020 would have been far worse if power could not have been shared around the region.

So, it’s a relief that there appears interest in legislation to remove a major impediment to California allowing “its” ISO to form a regional market operating under the same rules that will benefit California and neighboring states’ customers with reliable power.

Good points & Cringe points

 AB 538 is the legislation that holds the promise of allowing for a more reliable and more affordable regional market based around the CAISO. The draft legislation – and it will be amended if it progresses – was heard in the Assembly Committee on Utilities & Energy last week. Assemblymember Holden – the author – along with other proponents made excellent points on the benefits of the bill which allows the CAISO to expand regionally.

I anxiously awaited the panel of opponents of AB 538, primarily composed of labor unions and “The Utility Reform Network” or TURN. I had hoped for some recognition of California’s need around regionalization. I was disappointed. Labor’s representative asserted that allowing the governance of CAISO to change would mean the loss of 1.1 million jobs! Matthew Freedman – TURN’s well-known lawyer – also made broad assertions of imminent disaster if AB 538 was approved. Mr. Freedman suggested that California would lose control of “its” ISO.

• The labor assertion about union job losses strains credulity. Surely this well-resourced organization is aware of CAISO’s transmission expansion plan that was worked out in conjunction with the California Public Utilities Commission and the California Energy Commission that will result in over $30 billion of new transmission. Who, besides California union Labor, is going to build that transmission? Those numbers make it hard to imagine that union jobs would be lost as, even under the most robust regional market scenario, California is going to need the transmission.
• The TURN assertion that California would lose control of “its” ISO can only rest on an assumption that state law is preemptive of federal law. The CAISO has always operated on a tariff approved by the Federal Energy Regulatory Commission (FERC). The market rules, while approved by the CAISO management and Board before being sent to FERC, are ultimately approved at the federal level. I know from my days on FERC staff the lengths that the commission goes to defer, whenever possible, to CAISO and the state. But FERC has the final say. Our national concept of “cooperative federalism” allows for significant state say in matters, but CAISO has a FERC tariff. A smart lawyer like Mr. Freedman knows this.

Time is not on California’s side…

When talking about regionalization, WPTF’s CAISO Committee Chair Carrie Bentley, would often say that it’s “CAISO’s to lose”. I always agreed with her, until now. If it were up to CAISO management, I’m sure they would work out a deal to alter the governance in a way that makes sense for California’s legitimate oversight concerns, while doing what was necessary to gain the confidence of Western utilities to join a regional market operated from Folsom. However, it’s not up to CAISO, its members, its management or even its Board. It’s up to the legislature and the Governor.

Make no mistake, however, there will be at least one regional electric market as the Southwest Power Pool (SPP) has been working to offer a competing regional market platform. I, along with WPTF consultants and members, have been attending these meetings. The SPP is a good, multi-state transmission and market administrator. It has independent governance that is not controlled by any state. However, it does have a strong process for state regulatory involvement. The momentum has been building in these meetings and SPP is now regarded as a viable alternative to CAISO as a regional market platform. For those in the wider West who are tired of California’s sense of importance, it’s likely seen as preferable.

If AB 538 passes this summer, SPP will still develop a competing regional platform. But if CAISO gains approval to alter its governance structure, it will be seen as the preferred landing spot for much of the region near California (for most of the West). This would mean that California can help shape its future. But if AB 538 fails or, just as bad, becomes a bill for “next year”, California will be on its own “confederate” island. Time is running away from California.

Needed: Good faith discussion, compromise

While I “cringe” at what I believe to be specious or bellicose arguments against AB 538, it must be recognized that while regionalization is a net good for California and its neighbors, there can be improvements to any legislation to address legitimate interests. What are these changes? Hard to say now, but whatever they are, as long as they don’t advantage California interests over others, then there might be a deal. If not, we might change the name of the CAISO “island in the sun.” Very frustrating.