A plan to expand management of California’s power grid to a six-state area is raising concerns that the energy – and the governance – might not be as clean as billed.
The idea is to restructure and expand what’s known as the California Independent System Operator, or Cal-ISO, a nonprofit based in Folsom that manages the majority of state transmission lines and the electrons coursing through them.
The California operator, run by a five-member board appointed by the governor, would join with a for-profit Oregon utility to create a regional energy market that serves six or more Western states.
State officials say the expanded market would allow California to sell excess solar and wind power to other states rather than let it go to waste. It would also create a single, clean, reliable and more efficient Western grid, they said.
“When you have a bigger geographical footprint, you have a deeper resource pool and a deeper demand pool,” Cal-ISO spokesman Oscar Hidalgo said. “This provides better integration in the day-ahead market. You’re able to optimize resources.”
After a transition period, the new entity would be governed by a nine-member board that answers to the Federal Energy Regulatory Commission, or FERC – not to Brown or any other elected leader in California.
That’s important because some public-interest advocates remain as skeptical of federal regulators, as they are of California regulators, because U.S. officials were slow to respond to the state Legislature-caused energy crisis in 2000-2001 that caused billions of dollars in ratepayer losses.
Multi-state power grids in other parts of the country are governed by board members with close ties to utilities and other corporate interests, similar to the situation at Cal-ISO and the California Public Utilities Commission.
California officials say regionalizing the grid could save customers up to $9 billion in the first 20 years. More important, it would better position the state to generate 50 percent of its electricity from renewable sources by 2030 and sell excess power out of state.
“Much of California and the West is operating under an outdated operating model,” state Energy Commission Chairman Robert Weisenmiller said at a workshop this month. “The question is not why we do this, but how we approach regionalization.”
Consumer groups and public power authorities have a different view.
They say the plan wrongly abandons state oversight of the grid – oversight they say is necessary given recent experiences with the Aliso Canyon gas leak, the San Bruno pipeline explosion and the failure of the San Onofre nuclear plant.
“This seems to me to be a strategy for bad policy,” said Kevin Kelley of the Imperial Irrigation District, a public agency that delivers water and power to Imperial County and parts of San Diego and Riverside counties. “I don’t see how it will serve California’s interests. It certainly doesn’t serve the IID’s interests.”
The proposal making its way through legislative processes in Sacramento and other state capitals would merge the nonprofit Cal-ISO with for-profit PacifiCorp of Portland, Ore., to create a regional transmission organization, or RTO.
The regional network would control transmission lines in parts of Washington, Oregon, Idaho, Wyoming, Utah and California – and the short-term power trading that supplies millions of their homes and businesses.
Most electricity consumed in California is purchased by utilities through contracts with generators.
ISOs and RTOs manage day-ahead and spot markets to balance what’s left, matching immediate demand with available loads. These real-time costs can change quickly, depending on weather, output, maintenance and other factors.
Who’s in charge?
Though regionalizing the grid would expand the California market, deciding who would be in charge has been a challenge.
Each state wants to preserve authority over its own energy policies, which can differ greatly. California agreed to generate at least half of its power from renewables by 2030, for example; other states rely on coal or fossil fuels, and have no mandate to increase production of wind or solar.
Utilities that participate in multi-state energy markets generally want to avoid having to comply with competing policies.
“If you’re going to have a regional grid serving states across the West, you need a governance structure that is not solely California-based,” PacifiCorp spokesman Bob Gravely said.
Establishing a regional grid has been a legislative priority for utilities since the 1990s.
Much of the language included in the bill signed by Brown last summer was already state law, having been enacted in 1999 but abandoned after the energy crisis that resulted from deregulation in 2000 and 2001.
Even though there are no bylaws spelling out how the latest regional-grid proposal would be governed, California officials are pushing for legislative approval this summer.
A draft report published by Cal-ISO this month said the plan would “preserve state authority over matters currently regulated by the states themselves,” but it is not clear whether the utilities would agree to such a provision.
The same document sets up a “body of state regulators” but there is no specific decision-making authority granted to those members in the initial draft.
Hidalgo said Cal-ISO is working on a final governing blueprint now and expects to submit it to Brown no later than August.
“The Governor’s Office will figure out how to present them to the lawmakers,” he said.
Matthew Freedman, a staff attorney at the Utility Reform Network consumer group, said he is concerned the entire proposal is moving too quickly.
“This is potentially the most significant change since deregulation,” he told policymakers at a workshop in Sacramento two weeks ago. “It’s probably a one-way street. It would be very difficult to undo, even if things go poorly.
“We need to take time to work through the details,” Freedman said.
At a meeting convened in May to review early plans, Utah officials withheld formal support until it is more clear how the effort will boost reliability, lower costs and promote diversified energy sources.
“Utah will need to be confident that those benefits are real, sustainable and exceeding any accompanying costs before being able to support integration,” the state Office of Energy Development commented.
Gov. Matthew Mead of Wyoming also expressed reservations.
“In weighing whether to support PacifiCorp’s participation, I will look at the proposal and the evidence to determine if I believe this is in the best interest of Wyoming ratepayers,” he wrote to Brown last month. “As of today, I’m not convinced this is in the best interest of Wyoming.”
As Brown administration officials continue to meet privately with nearby governors and their staffs to resolve such concerns, California legislators are raising questions of their own.
In February, Senate and Assembly leaders sent Brown a letter asking him to explain more specifically how state renewable standards would be met, how the plan would promote economic growth, how it would reduce greenhouse gas emissions, where customer savings would come from and how it would maintain public transparency.
“We look forward to working with you this year to ensure that any proposed regionalization of the California grid protects the values we all share for the future of California and the planet,” the six lawmakers wrote.
They have not received a formal response.
PacifiCorp coal and gas
PacifiCorp is a regulated utility that was first incorporated in 1910 under the name Pacific Power & Light Co. It now serves 1.8 million retail electric customers in parts of six Western states covering 143,000 square miles.
The Portland-based firm is a subsidiary of Berkshire Hathaway Energy, a holding company owned by the Berkshire Hathaway empire controlled by billionaire investor Warren Buffett.
Berkshire Hathaway Energy also owns a portfolio of other utilities that serve customers in 11 Midwestern and Western states and swaths of Canada and Great Britain, meaning the regionalization effort could expand further.
In total, Berkshire Hathaway Energy owns or is developing 30,000 megawatts – almost as much electricity as the California demand during last week’s heat wave, according to U.S. Securities and Exchange Commission filings.
Most of that power comes from coal and fossil fuels, the very energy sources California is working to eliminate.
According to PacifiCorp, 62 percent of its energy is generated by coal and 15 percent comes from natural gas, a mix that raises questions about how the merger would help California meet its commitment to wind, solar and other sources of alternative power.
Spokesman Gravely said PacifiCorp expects to use less coal in coming years, and creating a Western grid will speed up that process.
“The transition from coal and fossil fuel toward greater renewables is going to increase throughout the region,” he said. “When you coordinate the grid and those resources across the area, you’re reducing costs for everybody.”
Critics are not so sure. Without mandates to use renewable energy ahead of coal and fossil fuel, California’s drive toward more climate-friendly power sources could be in trouble, they say.
San Diego energy consultant Bill Powers has worked with some of the largest RTOs in the country, including the Mid-Atlantic ISO, which is governed mostly by former energy executives and other corporate leaders.
“Individual state control is diluted and weakened by a multi-state RTO structure,” he said. “And a state like California that tends to be in the lead on energy innovation may find its energy maneuverability substantially hampered.”
PacifiCorp also has announced plans to spend $6 billion on a new transmission line and the expanded grid could make it possible to bill California ratepayers some of that cost.
The utility also has been a recognized participant in the Cal-ISO market for years. That means the company can buy and sell whatever California power it wants now, without expanding to a regional market that may not answer to state authorities.
“There’s no reason to change the governance,” said San Diego attorney Michael Aguirre. “They can buy and sell through the ISO right now without any change in legislation. What they want to do is basically privatize ISO so they can run it the way they want.”
The drive to expand the state energy market comes at a difficult time for California utilities and their regulators.
Pacific Gas & Electric is defending itself against criminal charges filed by federal prosecutors over the 2010 San Bruno explosion that killed eight people and destroyed dozens of homes.
Southern California Edison was fined $17 million for improper communications with regulators about how to divvy up billions of dollars in costs related to the 2012 closure of San Onofre, on San Diego County’s north coast.
Sempra Utilities, which owns San Diego Gas & Electric and Southern California Gas, is facing questions about a massive methane leak in the Aliso Canyon area of Los Angeles that took four months to cap.
Two criminal investigations into the California Public Utilities Commission’s dealings with utilities prompted Assemblyman Mike Gatto, D-Los Angeles, to introduce a measure to assign most commission duties across other departments of the state government.
Gatto, who is chairman of the Assembly Committee on Utilities and Commerce, said he is watching the grid-expansion proposal closely.
“It is the appropriate role of the Legislature to make sure the integration would not result in additional reliance on coal-fired power anywhere,” he said. “We’ve heard conflicting data on that.”
It is also unclear how the Cal-ISO tax-exempt status would be affected by joining with a for-profit company.
Federal tax law calls for nonprofit assets to remain in a public-benefit trust in perpetuity. When charities go out of business, leftover cash and property is required to be donated to another tax-exempt organization.
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