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The Blame Game & Solutions

My stomach turned… I was on vacation after dropping our daughter off at a new college when I got a text about the impending rolling blackouts in California on August 14. I knew the weather was hotter than Hades and there were fewer resources around than in previous years due to retirements. But rolling blackouts? That took us all back to the summer of 2000 and the blame game that followed…

While this situation is clearly different, the voices from lazy media reporting turned to predictable pundits like a former Chair of the California Public Utilities Commission (CPUC). The former Chair, who shall remain unnamed, seized the opportunity to assert that financial traders had something to do with the blackouts. That assertion is spuriously based on the fact that rolling blackouts occurred even though the peak load on August 14 was around 46,000 MWs and the all-time peak was over 51,000 MW in 2006 without a blackout. This prejudiced pundit was purposefully ignoring the fact that a great deal of generation – including the San Onofre Nuclear Generation Station (SONGS) and several natural-gas fired units – has since retired. The simple fact is that the Golden State has far fewer dispatchable resources. Nonetheless, the hunt for villains was a preferred narrative for some.

Digging Deeper

Given the political and media tendency to search for an easy villain, what could any reasonable market participant do? Look at the data for oneself, of course. Carrie Bentley and her partner Kallie Wells, who comprise Gridwell consultancy and the WPTF CAISO Committee dug-in and came away with interesting data, which can be found here. The picture that emerges is one of poor planning, driven by optimistic assumptions, and discord among the authorities on Resource Adequacy (RA). We are left with an unclear picture of who was to blame for a resource mix that could not handle a persistent West-wide heat wave.

Several WPTF members took the opportunity to examine how the various CAISO markets behaved during the worst hours of August 14-17. Several things jump out: first, the fact that solar coming off the system as the sun goes down necessitates an increase flow of thermal generation. This flow did happen and was followed by an increase in imports into California which allowed critical evening thermal capacity to come offline as the system returned to balance.

The fact that thermal supply came on as the solar supply ebbed is evidenced in the admittedly busy chart below, produced by a WPTF member and based on publicly available data. Here, the red line represents the thermal capacity and the blue line depicts the imports. The “net demand” (load net of intermittent supply) captures the system demand minus the solar power produced during sun lit hours. Consequently, net demand begins to converge with total system demand as the sun goes down. But even in the hours when the sun is going down, it can be quite hot, requiring energy for air conditioning demand.

Take a look at the depiction of supply in the following chart.  Over 25,000 MWs of thermal capacity was being delivered while solar dropped off the grid. In the current California resource picture that represents nearly all the internal thermal capacity. Secondly, the CAISO Board, in its August 17 call, noted that outages of generation were at their lowest ever. Supply showed up. So what gives…?

Well, as to “what gives” … the second part of this chart represents pricing. This can appear complicated as there is “day-ahead” pricing (DA) of energy, fifteen-minute pricing (FMM) and real-time pricing (RT). Prices went up with the issuance of the Stage 2 alert as one can see around hour 15:30 and reflected in the scale on the right. And then, the real-time market really began to go up as Stage 3 was called and load-shedding (a.k.a. rolling black outs) occurred. Since the system was maxed out in terms of available supply at that time, the fact that prices were high is appropriate and to be expected.

An additional point of interest in this context – but not reflected in this chart – is that prices for energy in the areas around Las Vegas and Phoenix were even higher than in the CAISO according to Intercontinental Exchange (ICE) data. It was quite hot in those places and any resources that were external to California and were not under RA contracts were obviously being delivered to the areas that were also in need.

To be clear: I am all in favor of the integration of renewable resources. Let me repeat, I am an advocate for renewable integration. I am not a “climate denier.” However, having some thermal resources around as the transition toward decarbonization occurs is going to be critical, especially as several resources that use “once through cooling” (OTC) will be retired in a few years, just about the time that the 2,000 MW Diablo Canyon Nuclear Power plant is taken down. What I am increasingly taking away as a “lessons learned” is the following:

Poor planning, combined with unclear lines of responsibility and exacerbated by a broken relationship between the CAISO and the CPUC have put California in a precarious position in the near-term.

Now What?

While the “blame game” has already started, the proper response should be to dispassionately assess what needs to be fixed in the short-term and then how to structure the RA program going to meet the state policy goals of decarbonization while maintaining reliability. This should include resisting the urge to press the “outrage” button which is an all-too-familiar political tactic to deflect blame.

  •          Establish clear lines of authority between the CAISO and regulatory bodies. Limit the ability of regulators to second guess CAISO decisions to meet reliability within an operating year.
  •          Carefully assess available resources in California in the next 5 years, to include the planned retirement of Once through Cooling (OTC) generation and the retirement of Diablo Canyon Nuclear station. Fold into that analysis likely available resources from imports. This suggests a need to coordinate with utilities outside of California.
  •          Begin to structure the California RA program to work in coordination with efforts of the Northwest Power Pool (NWPP) to establish a regional RA procurement process.
  •          Accelerate integration of CAISO with entities who have committed to the Energy Imbalance Market (EIM). Ideally this would mean one RTO, but governance issues may require a separate RTO that can operate and transact in coordination with CAISO. This will be key to integrating renewables reliably.
  •          Involve FERC in the decision-making. CAISO’s tariff comes under FERC, but deference to the CPUC sensibilities has left FERC a non-player in the last 15 years. FERC needs to engage as it is ultimately responsible for reliability in a FERC-approved RTO. Otherwise, CAISO is an unloved orphan and driven by the winds of the California political moment.