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Essential Energy Insights - October 2021


Western utilities, states battle California over summer power-sharing plan

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Safety personnel inspect the Detroit dam in Marion County, Ore., after fires tore through the area in September 2020. The U.S. West depends heavily on Northwest hydro to keep the lights on.
Source: U.S. Army Corps of Engineers


Determined to avoid a repeat of last summer's rotating outages, the California ISO and state energy regulators have rolled out a series of reforms to bolster the Golden State's precarious power supplies.

Among them are widely praised initiatives to integrate an emerging fleet of battery storage stations into grid operations and harness more conservation from utility customers through demand response. But one proposed measure, which would restrict the electricity that flows from the Pacific Northwest through California to the drought-ravaged Desert Southwest, has unleashed strong opposition across the region.

The dispute, which centers on critical power supplies for this summer, has exposed the fragmented nature of the far-flung electric grid linking most of western North America. And it could presage a more thorough overhaul of the Western Interconnection, which spans 38 grid balancing authorities in 14 states, two Canadian provinces and northern Baja Mexico.

In a recent filing to the Federal Energy Regulatory Commission, California's primary transmission grid operator proposed restricting so-called "wheel throughs" — in which surplus power from the Pacific Northwest is transmitted to utilities largely in the Desert Southwest, via California's grid — in order to prioritize power flows needed to fuel the state's economy, the fifth-largest in the world.

Backed by the California Public Utilities Commission and the state's big three investor-owned utilities — PG&E Corp. operating arm Pacific Gas and Electric Co., Edison International affiliate Southern California Edison Co. and Sempra Energy's San Diego Gas & Electric Co. — CAISO stated that market rules for wheel-throughs can unintentionally "crowd out" the resource adequacy capacity the state needs to keep its own lights on.

"If left unaddressed, the current framework could jeopardize the CAISO's ability to serve native load reliably during emergency conditions this summer, potentially forcing the CAISO to shed load," the grid operator said in its proposal in late April. Such emergency conditions could be brought on by another regional heatwave like the one the West experienced in mid-August 2020, when California found itself short on supplies, the grid operator said May 12 in its 2021 summer assessment.

The California ISO proposed its tariff revisions on an interim basis through May 2022 and plans to seek a permanent solution in collaboration with regional stakeholders, many of which participate in the expanding real-time Western Energy Imbalance Market, which CAISO operates.

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Protesting power grab

Grid operators, utilities and regulators in other western states and Canada see the CAISO proposal as a literal power grab for access to this summer's below-average hydropower and other resources in the Northwest that will raise their costs by forcing contracted supplies to take an alternative transmission route around California and increase the risks of blackouts during extreme heat events.

"If the Commission allows the CAISO to construct unduly discriminatory barriers to those wheeling through the CAISO's balancing authority area, it will inhibit reliable load service and upend competitive markets in the Western Interconnection," Sarah Kutil, an attorney for the Bonneville Power Administration, wrote in a May 19 protest to FERC. (Docket ER21-1790)

The Portland, Ore.-based federal agency, which markets power from 31 hydroelectric dams and one nuclear facility and operates a vast high-voltage transmission system linked with CAISO, is one of more than two dozen parties opposed to the wheel-through changes.

CAISO's proposal would come "at the direct expense" of grid reliability in other areas, added Vancouver, British Columbia-headquartered Powerex Corp., a subsidiary of BC Hydro and Power Authority that sells the province's excess hydropower. The company, in its May 19 filing to FERC, said very dry conditions and reduced hydroelectric production, as well as prior supply agreements with utilities outside of California, would leave any uncommitted volumes for California "highly limited this summer."

Conditions on the Columbia River, for instance, the heart of both BPA and BC Hydro portfolios, are well below average heading into this summer, compared to above-average hydro conditions during last summer's reliability challenges, Powerex said.

After a good start to winter, the region finished spring with rapidly melting snowpack amid unseasonably high temperatures. Oregon experienced its driest April on record. Seasonal precipitation between October 2020 and the end of April 2021 was only 70% or less of normal across wide swaths of the northwestern U.S. and southeastern British Columbia, according to the National Oceanic and Atmospheric Administration.

Meanwhile, state regulators in Arizona and Nevada, also struggling with exceptional drought and thin capacity reserves, backed utilities in their jurisdictions that previously warned against CAISO's proposed new rules for de-prioritizing power transfers from the Northwest.

"The Commission should reject these tariff changes and direct the CAISO to work with its neighbors to comprehensively address system planning and operations across the West," the Public Utilities Commission of Nevada said in May 19 comments to FERC.

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'Combination of crises' an opportunity

Some industry veterans see the short-term crisis as an opportunity to reinvigorate the long-sought full integration of the Western Interconnection.

"This is a seams problem," Doug Howe, a director at the Western Grid Group and board member at the New Mexico Renewable Energy Transmission Authority, said in an interview. "At its core, what this is illustrating is that we have this issue between how CAISO allocates its available transmission capacity and the way that the balancing area authorities outside of CAISO allocate their available transmission capacity."

There are also worries that the gradual warming of the U.S. West could elevate demand for power in the Pacific Northwest during the summer, when the region normally has excess power, leaving utilities in the Southwest with fewer exports to fight over.

Howe, who previously chaired the governing body of the Western Energy Imbalance Market, is working with Western Resources Advocates, the Western Grid Group and other public interest groups to turn the dispute over access to Northwest resources into a deeper conversation about creating a more integrated, transparent and cleaner regional electricity market in the West.

"This combination of crises is forcing the need to look long term, and solve this problem for the future," Vijay Satyal, manager of regional energy markets for conservation advocacy group Western Resource Advocates, said in an interview. "It just speaks to the need for more regional coordination."