Expansion of the Western Transmission Grid

 

Background  

On October 7, 2015, the Governor signed into law Senate Bill (SB) 350 - The Clean Energy and Pollution Reduction Act of 2015.  Among several important energy policy objectives, SB 350 set forth statutory requirements related to the possible expansion of the California Independent Systems Operator’s (CAISO) authority from the existing system to a western regional independent system operator (ISO).  An expanded ISO could enhance grid reliability and reduce costs through among other things, efficient resource sharing across the western states, renewable energy integration, and resource diversity.

Under current California law, the CAISO is a nonprofit public benefits based corporation that manages 80% of California’s and a small part of Nevada’s transmission system.  The CAISO manages wholesale markets and provides transparent information about the state of the transmission grid in real time and wholesale prices.  The CAISO is overseen by the Federal Energy Regulatory Commission (FERC) and presided over by a five-member independent Board of Governors appointed by the California Governor and confirmed by the California Senate.

SB 350 states the Legislature’s intent to expand the CAISO into a regional ISO if it is in the best interest of California and California ratepayers. Specially, SB 350 established Public Utilities Code Section 359.5 (a), which provides in part: 

“It is the intent of the Legislature to provide for the transformation of the Independent System Operator into a regional organization to promote the development of regional electricity transmission markets in the western states and to improve the access of consumers served by the Independent System Operator to those markets, and that the transformation should only occur where it is in the best interest of California and its ratepayers.” 

Expansion of the CAISO requires modification of the CAISO’s current governance structure.  As such, SB 350 requires the CAISO to prepare proposed governance modifications.  It also must conduct one or more studies on the impacts of a regional ISO including the overall benefits to ratepayers, creation or retention of jobs and other benefits to the California economy, environmental impacts in California and elsewhere, impacts on disadvantaged communities, emissions of GHG and other air pollutants and, reliability and integration of renewable energy resources.

The CAISO has initiated a series of stakeholder processes in order to obtain public input on the required subjects listed above.  SB 350 set forth a procedural schedule wherein the CAISO would submit its studies to the Governor who would transmit them to the Legislature by December 31, 2017 with the Legislature enacting a statute to implement necessary governance changes thereafter.    

 

ORA's Participation

ORA is actively participating in the CAISO’s stakeholder processes and other discussion forums. Our participation has focused on ensuring that the benefits of regionalization accrue to California ratepayers. ORA’s comments focus on five major study areas: SB 350 Studies, ISO Governance, Transmission Access Charge, Resource Adequacy, and Greenhouse Gas Accounting.

SB 350 Studies 

ORA agrees with the CAISO’s SB 350 Studies that regionalization would likely yield benefits to California ratepayers. However, the lower bound of the range may be lower than the CAISO’s estimates. The CAISO’s SB 350 studies include analysis reflecting potential annual benefits as low as $767 million by 2030. ORA finds that additional analysis by CAISO, combining several plausible sensitives, would be useful.

See ORA’s Comments to the CAISO:  

 

ISO Governance

ORA recommends that the CAISO seek FERC approval of the proposed governance structure so that states understand whether FERC will provide approval that determines the states’ level of authority over transmission cost allocation and resource adequacy, as well as reduce regulatory uncertainty. ORA supports load-weighted voting for approving proposals within the primary authority of the Western States Committee. This voting structure will help ensure that each state’s policies are considered and that current CAISO ratepayers, who have funded the CAISO and existing transmission infrastructure, are not burdened with more than their fair share of costs for decisions that impact the expanded ISO. 

See ORA’s Comments to the CAISO:  

 

Transmission Access Charge (TAC)

This issue area considers who will pay for existing and new transmission facilities under a regionalized grid structure. The existing TAC collects the cost of existing transmission facilities from all customers at a common rate. ORA modeled several scenarios using the CAISO’s TAC Options Impact Assessment Tool, and found that the TAC could range from $13.44 per megawatt hour (MWh) to $16.35/MWh, depending on the allocation of these costs to sub-regions. ORA recommends a similar treatment for existing facilities based on the potential benefits to the sub-regions.

See ORA’s Comments to the CAISO: 

 

Resource Adequacy

ORA has provided comments on the CAISO’s proposal to determine resource adequacy rules and reliability assessments for load serving entities (LSEs), and recommended that the CAISO should adequately address the potential for “capacity leaning” to prevent a Load Serving Entity (LSE) from under-procuring capacity and unfairly relying on the excess capacity procured by another LSE. The CAISO should use penalties and enforcement for LSEs who fail to meet resource adequacy requirements. ORA recommends that each LSE be held accountable for meeting its individual procurement requirements.

See ORA’s Comments to the CAISO:  

 

Greenhouse Gas Accounting

Given California’s important environmental goals to reduce GHG emissions, a regionalization plan should establish a process to accurately measure GHG emissions with associated resources. ORA submitted comments on the CAISO’s issue paper, Regional Integration California Greenhouse Gas Compliance recommending that California meets its GHG goals at the lowest possible cost.

See ORA’s Comments to the CAISO:  

 

 

 

Resources

CAISO Stakeholder Engagement Webpage

California Energy Commission Western Regionalization Webpage