Western U.S. grid plan could remake renewables

By Edward Klump | 07/02/2021 06:16 AM EST

Efforts to create a regional transmission organization for the U.S. West have gained momentum, though the path forward remains uncertain. Chauncey Davis/Flickr (turbine); PJM (control room); Varistor60/Wikipedia (grid)

Stronger grid collaboration may finally be within reach for the western U.S., offering to reshape how wind and solar power is shuttled from state to state in the era of decarbonization.

But installing a regional transmission organization, or RTO, across Western states isn’t a sure thing, despite signs of momentum from Oregon to Washington, D.C.

The Southwest Power Pool, a grid operator based in Arkansas, is exploring a Western expansion of its RTO as some Western states with carbon-cutting plans and Federal Energy Regulatory Commission Chairman Richard Glick float variations of the idea. A state-led market study that’s backed by Department of Energy funding also is examining the potential for about $2 billion of annual benefits from a Western grid organization by 2030.

"The West deserves and needs an RTO," said Vijay Satyal, manager of regional energy markets at Western Resource Advocates.

Positives of such a system include creating competition and cost efficiency, and it could be easier to procure and dispatch renewables, according to Satyal. For example, wind could be sent from Wyoming to California, while solar could go from California and Arizona to Oregon and Washington, he said.

However, many questions remain when it comes to a possible western RTO — of geography and governance, of costs and benefits, of renewables and reliability. Who would run it? Who would join? How might wind and solar fare? What about consumers?

An organized Western market has long been under discussion by U.S. grid planners and advocates, and experts say this is a critical time to find out what’s possible. The Biden administration has endorsed the goal of a decarbonized national power sector by 2035, as well as proposed an infrastructure package that could bolster U.S. transmission. Recurring grid issues across the country, including recent extreme temperatures in the West, also have put reliability and resiliency on the minds of consumers and politicians.

Eyes are on SPP after it announced last year it was considering RTO expansion to the west of its central U.S. base. At the same time, experts point to the California Independent System Operator as a vehicle that could evolve into a more regional grid organization.

Both SPP and the California ISO already have limited offerings known as energy imbalance markets that are testing grid coordination among some Western power providers.

Glick said during a recent technical conference on resource adequacy in the West that greater regional grid coordination will be needed. The FERC chair argued that an RTO — or maybe a couple of them in the region — could "be a big part of the solution."

He said climate change will create increased stress on the system and power plants. A group of former FERC commissioners called on the commission to further the development of organized markets to help renewable energy development (Energywire, June 4).

Still, FERC raised questions with an April vote in support of a proposed rule that would reduce the financial benefits utilities receive for being part of RTOs (Energywire, April 16).

For some policymakers and members of the public, sprawling grid organizations that may stretch over multiple states are difficult to digest. RTOs — and similar entities known as independent system operators, or ISOs — "match power generation instantaneously with demand" to keep electricity flowing, according to the ISO/RTO Council.

"The ultimate goal is to ensure access to affordable, reliable and sustainable power — made possible through efficient administration of independent and transparent wholesale energy markets," the council says on its website.

PJM Interconnection LLC manages the largest U.S. power market, from the mid-Atlantic to parts of the Midwest. Along with parts of the West, a prominent holdout from having an organized market is a swath of the Southeast, which has been exploring options (Energywire, March 17). Texas, meanwhile, has its own primary grid operator and wholesale power market setup that remains largely isolated from the rest of the United States despite reliability concerns.

The push and pull of state and federal incentives has caused leaders in some states to rethink the need for regional grid membership as states seek to retain influence. And disappointing results of a recent PJM capacity auction prompted owners of several coal-fueled generating units to announce planned retirements, as questions linger about how various generators are incentivized or compensated for their power.

Former FERC and North Dakota Public Service Commission member Tony Clark and a group of 17 other former state regulators recently wrote to FERC to express concern about the potential to "abandon its long-standing policy of providing for voluntary RTO membership for utilities and the states that regulate them."

Incremental expansions, such as an energy imbalance market, "have proven more successful in the Pacific Northwest than all of the RTO attempts in the last 20+years," Andrea Platt, a Portland General Electric spokesperson, said in an email.

But Jon Wellinghoff, a former FERC chair who is CEO of GridPolicy Inc., said RTOs and ISOs are important because they can collectively save consumers tens of billions of dollars every year in energy costs.

"If you have individual utilities that all dispatch their own generators within their own small service areas," he said, they may not be using the "most cost-effective power, the least-expensive power" to serve customers.

Satyal said right now, clean energy developers interested in moving renewable power across Western states are limited by the location and power lines available — and can be beholden to incumbent utilities’ interconnection and transmission planning processes as well as existing market rules.

Satyal said a Western RTO could expand the current organized market in California to manage and deliver power across the West in a reliable way, compared with a focus of utilities in many Western states today on bilateral transactions. He suggested there could be implications for more than 10 states, from the Pacific Northwest to Montana and Idaho to Utah, Nevada and New Mexico.

"Clean energy developers [would] have access to multiple price points, multiple options [or] avenues to sell [their] energy into a larger transmission system where different buyers could be possibly at play," Satyal said.

SPP looks to grow

As the debate continues, SPP is going down a path that could lead to a Western RTO expansion that’s up and running as soon as 2024.

The grid operator currently helps manage the grid in all or parts of 14 states as an RTO, including places such as Oklahoma, South Dakota and Kansas. Its energy imbalance market pushes its footprint to at least parts of 17 states. Some possible Western RTO members are from states already in SPP’s 14-state RTO region. New states that may be added include Colorado, Utah and Arizona.

The entities considering membership in a western section of SPP’s RTO include Tri-State Generation and Transmission Association Inc., Basin Electric Power Cooperative, Deseret Power Electric Cooperative, Colorado Springs Utilities, the Municipal Energy Agency of Nebraska (MEAN) and certain regions within the Western Area Power Administration.

An SPP RTO in the West "may lead to operational and administrative efficiencies to serve our wholesale power members," Sarah Jones, a MEAN spokesperson, said in statement. "We continue to evaluate the opportunity of this new proposed market with the goal of bringing value to the members we serve."

Dan Walter, vice president for energy markets at Tri-State, a cooperative power supplier with members in Colorado and other states in the region, said his organization has long supported the idea of RTOs. He said he believes they can lower costs and increase reliability for member systems and consumers.

"They are even more critical, and a key component of, economically and reliably integrating high levels of renewable resources as we retire portions of our thermal baseload resources," Walter said in a statement.

Bruce Rew, senior vice president of operations at SPP, said the expanded RTO footprint could utilize several grid connections that run from the Western Interconnection to the Eastern Interconnection. The connections are in Montana, South Dakota and Nebraska. Additional connections could be considered later.

SPP’s bid to tie the nation’s main Eastern and Western grid networks together would be a first among existing RTOs.

"I think it’s a very significant change in terms of how the electric grid is [operated] and what the potential benefits that closer operation between the Western Interconnection and Eastern Interconnection can provide," Rew said.

He said features for new members would include day-ahead and real-time markets, plus other functions such as transmission planning and congestion hedging. SPP said it has a member-driven process to evaluate facilities, look at future scenarios for the resource mix and load, and examine potential transmission.

Satyal said any SPP RTO West plan should reflect Western needs and challenges, as well as account for state public policy goals such as decarbonizing and clean energy standards. But he expressed worry about a lack of robust engagement and transparency on the proposal with Western state regulators and public policy advocates.

"Doing it right is more important than rushing through something," Satyal said when asked about SPP’s plan. "And we are a little concerned about the pace at which this proposal is coming through."

Advocates are trying to understand different parts of the proposal and its possible impact on customers and the West, he said.

SPP said implementation costs for an expanded RTO would be spread throughout the overall RTO footprint. SPP has said the Western RTO expansion plan could produce around $49 million of savings annually.

The California factor

A wild card in any Western grid plan is California, where state regulators have ordered utilities to procure 11,500 megawatts of new power resources for future years.

But California will "need to reach into other parts of the Intermountain West, into Wyoming and into Nevada and … into Idaho and other areas so that we can import renewables with different and [diverse] generating characteristics," Elliot Mainzer, president and CEO of the California ISO, said on a recent webinar sponsored by the U.S. Energy Association.

California has been juggling the effects of wildfires, power demand and a changing resource mix given a state goal for a carbon-free power system by 2045. It’s not clear when or if the California ISO could act as a full RTO for the broader West as it examines potential changes.

Anne Gonzales, a spokesperson for the California ISO, said deeper collaboration in the West is needed as states and utilities pledge to meet clean energy goals.

"The ISO believes in the evolution of markets in the West, starting with the [energy imbalance market], and progressing towards a day-ahead market — and beyond, and will help to support these state actions," she said in a statement.

Satyal said there has been work on governance changes related to the California ISO’s energy imbalance market.

Still, there likely is work to do in terms of accounting for other states’ clean energy goals and how to incorporate more out-of-state views into the board of governors at the California ISO if its footprint were to expand. Candidates are nominated by a committee. But the California governor is the one who appoints people to the California ISO board. Its members are confirmed by the state Senate.

Wellinghoff stressed that imbalance markets help with possible shortages and excesses in energy between different areas. That’s not the same as dispatching power across the region through a fully organized market.

"It doesn’t give you a full, real-time and day-ahead energy market that actually dispatches the system on a daily basis across that footprint," Wellinghoff said.

To him, the best option for a broader Western grid organization includes working on governance issues with California, changing the name from the California ISO to mention the West and operating it from the infrastructure base that already exists. Wellinghoff said board members should be selected in a way that’s like other RTO boards under FERC jurisdiction, rather than being politically appointed.

Satyal said a possible Western RTO from SPP also raises governance questions, both for people to the east as well as how it might reflect Western state views and clean energy: Would an expanded SPP represent the views of parties across an even larger swath of the United States?

In a statement, Rew said SPP looks "forward to opportunities for discussion with interested parties on the benefits that SPP membership provides."

Typical market design challenges, Satyal said, include having fair cost allocation for using transmission across a large system as well as creating incentives for demand-side solutions.

It remains to be seen how utilities will proceed or react as various plans gain attention.

"We support efficient markets and generally believe that regional markets have the potential to increase benefits to our customers," said Chris Abel, a spokesperson for Southern California Edison. He cited the potential for lower costs, better reliability and improved renewable integration.

But he said "the details matter," suggesting the utility would need more information to comment on specific proposals.

Clark and the group of 17 other former state regulators said "mandatory RTOs would become a flashpoint in the state-federal relationship."

"Collectively, the public interest will be better served by state and federal regulators seeking common ground, working towards shared goals, and not fighting each other in the Courts and in Congress," they wrote.

‘Nothing happens in a vacuum’

While uncertainty remains about a regional market, some Western states are taking action.

S.B. 448 in Nevada and S.B. 72 in Colorado both have provisions calling for utilities to join an RTO or organized market by 2030.

"Those two bills send a very strong signal," said Amisha Rai, managing director of Western states at Advanced Energy Economy.

Rai said what’s needed in the West "is really the RTO of the future." That means protecting state authority and states’ clean energy vision — while ensuring any actions are in the best interest of ratepayers, she said.

"We do know that regulators and decisionmakers and utilities in the other [Western] states are watching," she said. "Nothing happens in a vacuum, and that’s a good thing."

Xcel Energy Inc., a major power provider in Colorado and several other states, said it "considers a broader western energy market key to supporting the transformation of Colorado’s electricity system."

"We continue to monitor developments in the West and are focused on studying the different options available and how each might best serve our customers and communities with affordable, reliable, and clean electricity," the company said.

Xcel applauded bill sponsors and others in Colorado for making sure "the long-term policy direction under the bill remains in alignment with the state’s clean energy goals while maintaining important cost protections for our Colorado customers."

In Nevada, NV Energy said it’s supportive of coordinated regional planning and markets.

"We look forward to participating in Nevada’s Regional Transmission Coordination Task [Force] that was established through Senate Bill 448, which will evaluate the costs and benefits a regional transmission organization could bring to Nevadans and its potential to help our state and the region achieve clean energy goals in a cost-effective manner," Jennifer Schuricht, an NV Energy spokesperson, said via email.

NV Energy, for example, is part of the California ISO’s Western energy imbalance market that Schuricht said has provided over $14 million in benefits to NV Energy’s customers since 2015.

Oregon also saw recent legislative progress via S.B. 589, which calls for the state to prepare a report on the benefits, opportunities and challenges from possible RTO development or expansion in the state.

Platt, the spokesperson for Oregon-based PGE, said the company is "supportive of and leading efforts to advance resource adequacy frameworks in Oregon and more broadly across the region and is doing so through a separate effort that is not connected to an RTO/ISO."

"We are not ruling anything out, just putting resources and priorities towards efforts that are making significant, demonstrable progress," Platt said, noting that the company would offer support related to the preparation of the new report expected in Oregon on the topic.

At a July meeting, SPP’s board could approve prospective terms that would be given to potential Western entities for them to evaluate. The parties could have to make a commitment to the RTO by mid-April 2022. Other entities could also look to join. FERC likely would review certain proposed changes related to SPP.

Time will tell if anticipation turns into reality for a more coordinated Western grid in some way, but states and grid operators have the idea on their radar.

"We are moving out of just the dialogue phase and moving into execution," Rai said. "And there are a lot of challenging questions ahead of us and a lot of important conversations that still need to take place."

Reporter Miranda Willson contributed.