Editor's note: This week's column is meant to be a snapshot of where the Northwest is in its move toward participating in a wholesale energy market. Most, but not all, of the sources were given anonymity to speak freely and give readers an idea of what people are thinking about either joining or forming a market.
The Southwest Power Pool and the California Independent System Operator are competing to manage a potential Western wholesale energy market, and they have the ears of both public power and investor-owned utilities in the Northwest.
It's a seismic shift for much of public power, which has historically been averse to markets over fears of the Bonneville Power Administration falling deeper under the Federal Energy Regulatory Commission's jurisdiction. While there's still a great deal of trepidation in public power over wholesale energy markets and what they might mean for BPA, the questions most utilities will be considering throughout 2022 are, "What will markets look like? And which should I join?"
BPA is set to join CAISO's Western Energy Imbalance Market in March.
Markets are "by far the number one issue for public power, and the investor-owned utilities, in 2022," one executive told me.
Elliot Mainzer, a former BPA administrator and current president and CEO of CAISO, is said to be "beating the pavement" and speaking with utilities around the region in hopes of selling them on joining the ISO's proposed Extended Day-Ahead Market. EDAM isn't a Western wholesale market, but it could be another step in bringing Northwest utilities into CAISO's fold, making it easier for CAISO to expand into a larger Western market.
SPP, meanwhile, has been working closely with the Northwest Power Pool to develop the Western Resource Adequacy Program, and is speaking directly with Northwest utilities to design a market that works for both the Northwest and Southwest.
While those are the leading options right now, there's also talk of the Northwest taking the lead on forming a regional transmission organization or ISO of its own, that could include the Southwest, British Columbia and possibly Alberta.
Neither CAISO nor SPP have released any formal market design proposals for a Western energy market. But Northwest utilities are in discussions with both organizations to help shape any proposal that might be released, sources said.
CAISO offers an advanced market design that could be a quicker path to a Westwide wholesale market, but Western state regulators and utility executives seem reluctant to join with an organization that answers to the California Legislature.
"It's really, really hard for me to imagine that state legislators, regulators and utilities in the 11 Western states in [the Western Electricity Coordinating Council] would ever agree to essentially turn over their energy policy to California, and that's what they'd be doing by joining the CAISO," a public power executive told me. "The CAISO's policy objective is to take care of California ratepayers first. Why would any state go along with that?"
Steve Wright, a former BPA administrator and recently retired general manager of Chelan County Public Utility District, told me that because of CAISO's current governance structure it would be a mistake to join a market operated by CAISO.
"The CAISO has well-advanced market design, it's got a really smart staff, good systems, and it's mostly ready to go—most of the Northwest already participates in the EIM," Wright said. "The problem is its governance structure is completely unacceptable."
Wright also warned against joining the proposed EDAM.
"It would be a huge mistake," he said. "The EIM represents about 5 percent of [the] wholesale energy market; EDAM would represent about 40 percent of the market. That's just too big a share to give them without a change in its governance structure."
One executive told me that the Northwest has never really gotten over the California energy crisis of 2000-2001. The rolling blackouts in the Golden State in August 2020 didn't help, and CAISO's 2021 summer preparedness report made it clear the ISO would focus exclusively on California, which only deepened skepticism of CAISO operating a larger wholesale market.
"I don't think it's a question of not liking Elliot or not respecting the folks at the CAISO," one executive told me. "But as long as they are ruled by the California Legislature, it will be a no-go for many of us."
SPP has helped develop the governance structure and stakeholder engagement process for the Northwest Power Pool's WRAP. While CAISO's pitch is "join us and we'll work with you," SPP is offering to develop a market based on the needs of utilities.
Another key factor is that WRAP's governance and stakeholder engagement process is working. Discussions are taking place, decisions are being made and the program is moving forward.
WRAP's stakeholder and engagement process could be the foundation from which an SPP-led Western market grows.
One executive compared the two sales pitches to buying a car. It's like deciding between buying a customized Tesla (SPP) and an old Russia Lada that comes in two colors—black and black (CAISO), he said.
"It's so important that an alternative to CAISO can be developed quickly," Wright said. "The clock is ticking, and there's some pressure from state and federal regulators."
Still, Mainzer has the ear of many Northwest utility decision-makers who are feeling the pressure of meeting Washington's and Oregon's clean-energy goals. "People like Elliot, and will listen to him," one executive told me.
In addition to fearing CAISO's governance structure, public power is concerned with how any market would value the emissions-free capacity that the region's hydroelectric portfolio would bring. They also worry about the impacts a market would have on BPA's preference customers.
"For public power, CAISO is a hard pill to swallow," one executive told me. "It's not just the governance structure; once you dump hydro into the market hopper with other resources, it loses its intrinsic value."
"I don't think there's a full understanding yet among public power on what would happen to preference customers—and that is a huge deal," another executive told me. "That's the primary competitive force in public power . . . It's hard to value that because it's so unique to the Northwest."
However, several people told me SPP is not "a knight in shining armor."
"We have to understand what they are offering and really vet it," one executive said. "We have to give both options a great deal of thought, and thoroughly understand what they are offering."
Roger Gray, CEO of Oregon-based PNGC Power, kicked the hornets' nest almost exactly one year ago when the 14-member generation and transmission cooperative released policy directives that called on the region to begin discussions to form an RTO and ISO.
"All options are on the table," Gray told me this week.
He said utilities are individually reviewing and thinking about market options, but "we need a vision and a path forward for the region—that's my hope."
"We need the IOUs, BPA and the [customer-owned utilities] to get on the same page and overcome past failures," Gray added. "There's plenty of models and examples out there—New York ISO, PJM, MISO and SPP—that respect participants' individual needs and rights."
PNGC hosted a forum for public utilities and BPA on Jan. 14 to discuss the various market options.
While there's tremendous momentum in the Northwest to join a market, there are still some public power executives who can't get over the California energy crisis.
Gray calls it "the traditionalist's perspective" that he says "uses a calculus that markets equal CAISO, the ISO equals blackouts, therefore markets equal blackouts."
The traditionalist's perspective also holds that "BPA has always taken care of them, so why change? It's been working for me," he said.
Gray is confident that a Western wholesale energy market can be structured in a way that values the emissions-free capacity that hydropower brings, protects BPA preference customers and returns strong revenue from secondary sales.
"While markets are critical, the transmission or RTO part is equally important," Gray said. "We need to build an interstate-highway-like system for transmission, with appropriate interstate governance."
A few things to remember and watch for in 2022:
Keep an eye on the formation of the EDAM, as well as which utilities join and the terms of participation. That could be an early test of how interested utilities are to further partner with CAISO.
"It's really, really important that the [Northwest] Power Pool's RA program gets finished," Wright said. "That is the number one priority, because we know the cost of being short on power—the West Coast utility crisis taught us that."
Just as a rush to the EDAM could be a positive sign for CAISO's efforts, the continued success of the governance and stakeholder engagement process at WRAP could set the foundations for SPP.
"When the dust settles and we get to the end of this analysis phase, the decisions we make will impact the region for decades to come. We have to get this right," a public power executive said.