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.