Western US power market expansion top-of-mind for current, former FERC members

Federal Energy Regulatory Commission Chairman Richard Glick will tout the benefits of wholesale power market expansion to state governors in the U.S. West next week as the issue remains a key priority for current and former policymakers focused on the clean energy transition.

The region, largely dominated by vertically integrated utilities that operate outside of regional transmission organizations, or RTOs, has been struggling to keep the lights on as states add more variable renewable energy resources amid increasingly severe extreme weather related to climate change.

"I think there are a lot of good arguments for an RTO in the West," Glick said during a Dec. 2 panel discussion in Washington, D.C. hosted by the Solar Energy Industries Association.

A recent U.S. Department of Energy-funded study, for example, found that the creation of a single-footprint RTO in the U.S. West could produce up to $2 billion in gross annual savings by 2030.

Glick noted during the discussion that FERC arguably has the authority to compel FERC-jurisdictional utilities to join RTOs, but that is not the case with publicly owned entities such as the Bonneville Power Administration, Seattle City Light, and the Sacramento Municipal Utility District.

"You can't have a functional RTO if you tell all the jurisdictional utilities to join but can't tell the non-jurisdictional utilities to join," Glick said.

With that message in mind, Glick said he is headed to the Western Governors' Association's winter meeting, scheduled for Dec. 9-10 in Coronado, Calif., to encourage more cooperation on issues such as resource adequacy and electric transmission planning.

"I think that's where the RTO can provide some substantial benefits," Glick said.

Lessons learned

Suedeen Kelly, a former FERC commissioner, said the region has a unique opportunity to learn from past efforts to stand up RTOs, which were formed under FERC's oversight in the late 1990s and early 2000s.

New York and New England, for example, were unable to agree on a multistate governance structure, she noted. That eventually led to the creation of the single-state New York ISO and six-state ISO New England region.

"They just couldn't get along to form one RTO, so they formed separate ones," Kelly, now a partner at Jenner & Block, said during the Dec 2. event. "Within months, they realized what a mistake that was because they balkanized their markets."

Speaking to reporters after the panel, Glick acknowledged that governance is one of the main hurdles to expanding the California ISO, whose board is appointed by the state's governor.

"In several cases, California has been unable to pass legislation that would expand the grid because they distrust Wyoming," Glick said.

States in the West "need to get their act together," the chairman said. "They can't just rely on themselves anymore."

Alternative solutions

Tony Clark, another former FERC commissioner, agreed that RTOs can offer tremendous benefits by creating large economies of scale.

Having a large, integrated grid, especially as renewable energy penetration increases, "is important," said Clark, now a senior advisor at Wilkinson Barker Knauer LLP.

But Clark also questioned whether an RTO is the best way forward for the West.

Organized wholesale power markets achieve large consumer benefits through least-cost generation dispatch, but that model may need "a fundamental redesign" as an increasing number of renewable resources with zero marginal fuel costs compete with existing generators, Clark said.

"Given some of the challenges that the RTOs have with their market construct and in some of the governance issues that they would need to overcome to implement changes, I think that's where I would at the very least be open-minded to looking for alternatives," he said.

One potential option could be to "dust off" the utility industry's old independent Transco model, where a larger transmission operator is responsible for planning in specific regions, Clark said.

At the same time, Clark stressed that transmission planning should be a "bottom-up" process led by state utility regulators, given that they have jurisdiction over generation and transmission siting.

"Once you start with that reality, you almost have to build out the transmission plan from there," Clark said.