CAISO and PacifiCorp Shake Things Up

For those of us westerners working on decarbonizing the electricity system, the recent announcement that PacifiCorp is taking steps to join the California Independent System Operator (CAISO) literally rocked our world. PacifiCorp is one of the West's largest utilities outside California (1.8 million customers in six western states). CAISO runs the vast majority of California's grid (and a part of Nevada's), balancing 65,000 megawatts of generation serving more than 30 million consumers. This is a very big deal.

The rapid rise of renewable energy resources in the West, despite impressive progress, has been hampered by an antiquated and balkanized grid management system. Thirty eight different "balancing area authorities" operate portions of the grid across "seams" between them, and energy transactions are largely driven by bilateral contracts instead of day ahead and real time energy markets.

The bilateral construct was adequate when we got most of our electricity from large power plants that needed to operate more or less continuously, but not as useful when the power we increasingly rely on comes from fuels like sunlight and wind which are not continuously available. We have vast amounts of these clean energy sources, free of fuel price volatility, but to take advantage of their benefits we need a system that can adjust quickly and best use its network of transmission lines to cost effectively send power and share reserve energy over large areas. As I have written in previous posts, the on-and-off variability of renewable generation in one area can be smoothed out by renewable power operating at different moments in another. To take advantage of this, grid operators need to act more quickly than the current system allows.

A more coordinated type of system manaement is being done effectively in much of the country already, where regional transmission organizations (RTOs) or independent system operators (ISOs) run the grid and facilitate rapid-fire energy transactions in a wholesale market. While not perfect, the coordinated operation of RTOs has allowed for a relatively painless integration of large amounts of renewable energy, especially in the Midwest.

A Regulatory Assistance Project survey of studies on the feasibility of adding large amounts of renewable energy sources into the U.S. grid (including a landmark study by NREL in 2012) points out that a nimble, interconnected and well-coordinated electrical grid is an essential element to integrating large amounts (up to 80%) of renewable power into the electrical system. In fact it may not be possible to do so without it. One way to foster this coordination in the West is to adopt a wholesale energy market across its large geographies, as is the case across most of the Eastern Interconnection, and as CAISO and PacifiCorp now propose to explore.

RTOs govern grid operations over most of the country except for the southeast and the West. While the southeast is betting on central station nuclear plants (which I predict they may come to regret) the West is by contrast awash in renewable power. The region is blessed with some of the very best renewable energy on the planet. A system powered by renewable energy is best managed by a coordinated grid with consolidated control. From a climate perspective, that change can be huge. The grid's carbon footprint shrinks just by becoming more efficient. As coal plants continue to be closed for cost and environmental reasons, the system gets cleaner and cleaner.

This is not the first step toward enhanced coordination PacifiCorp and CAISO have embarked upon, and their leadership has been influential across the region. This past October they launched an Energy Imbalance Market (EIM) that has since expanded to include Nevada-based NV Energy (entering the market in fall 2015) and Washington State's Puget Sound Energy (fall 2016). Careful tracking by CAISO reveals that the market is delivering benefits at expected levels. Other western utilities are expected to join the EIM and parallel market coordination improvements are underway elsewhere in the region, specifically in the Northwest Power Pool. All trends point to ever greater levels of coordination and a steady move away from the balkanized inefficient system of the past. If the experience in the Southwest Power Pool is any guide, the western EIM could lead to a full-on wholesale energy market with participation from across the entire West as others join a now-regional ISO.

If PacifiCorp and CAISO decide to tie the knot and combine their systems the gravitational pull on the rest of the energy network in the West will be profound. The governance of CAISO (members of its current board are appointed by California's governor) will need to change to reflect its more regional focus. This change alone could make joining the ISO a much more appealing proposition for other western utilities and balancing authorities who view the current single-state governance with suspicion, fearing their own interests could take a back seat to California's needs or desires. The only way this can work is if all market participants are confident they will get a fair shake. Changing the governance is critical.

As more entities across the West join a regional ISO another benefit becomes more available: multi-state strategies to comply with the EPA's Clean Power climate mitigation plan become easier to develop and manage.

"This paves the way for an efficient, regional approach to clean power that will help meet Governor Brown's goal of at least 50 percent renewable energy by 2030. Climate change doesn't respect jurisdictional boundaries, and by working together, we can reduce air pollution and carbon pollution more cost-effectively." -- Mary D. Nichols, Chairman, California Air Resources Board.

Congratulations to PacifiCorp and CAISO for taking this bold step