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Should California expand its energy markets to incorporate the rest of the Western United States?
This vital question for California’s energy future has been the subject of vigorous debate for years now. Supporters say it will allow California to access ever-cheaper wind and solar power from across the region, driving down energy costs and boosting jobs and the economy, while pressuring uncompetitive fossil-fuel-fired power plants to shut down.
Opponents fear it will drive renewables investment and jobs out of state, support coal plants owned by Rocky Mountain states utility PacifiCorp and others, and open California grid operator CAISO to losing its independence to determine its own clean energy and carbon reduction future.
The debate moved into sharp focus as of last month, when state legislators passed through a key committee a bill (AB 813) that would take the first steps toward creating a new regional energy market, giving it a chance to be brought to a vote before an August 31 deadline.
This week, the nonpartisan Next 10 Foundation released a report, A Regional Power Market for the West: Risks and Benefits, that weighs both sides of this debate, and largely finds that the benefits of grid regionalization outweigh the potential negative effects.
That’s largely because the report finds that the positive effects of regionalization — up to $1.5 billion per year by 2030 in reduced energy costs in California due to more competition, economies of scale, and cheap regional wind and solar power — outweigh the projections of losses for in-state renewable energy investment and jobs.
“Lower costs come from developing the best resources in the region, rather than restricting development to California,” report author Bentham Paulos wrote. “On the whole, studies say that regionalization would lead to greater job growth in California.”
As for the concerns that changing CAISO to a regional entity could undercut California’s control, the report notes that CAISO is already regulated by the Federal Energy Regulatory Commission (FERC). That fact that doesn’t change whether its board is appointed by California’s governor, as is true for CAISO today, or appointed via an independent commission, as is the case for the rest of the country’s grid operators.
“Because it has been responsive to state policy goals, some people think of it as a state agency, regulated by state policymakers. But it is not, and hasn’t been for almost two decades,” Paulos wrote. “A regional transmission organization, just like CAISO, would have to operate under a framework of FERC orders and federal law that require cooperation, free trade, and fair competition.”
In an interview this week, Paulos also noted that AB 813, if passed, “doesn’t just wave a magic wand and create a regional market.” Instead, it simply “sets the conditions under which California utilities can join a regional transmission organization,” he explained. “The California legislature can’t tell any other state what to do, but they can tell their utilities what to do. That’s the leverage that the legislature has, and that’s the reform mechanism” in play.
Jon Wellinghoff, former chairman of FERC, and Mike Florio, former California Public Utilities Commissioner, as well as members of groups both for and against regionalization, also advised Next 10 in its report.
The report was welcomed by groups like the Natural Resources Defense Council and Vote Solar, which have been arguing in favor of regionalization for the past three years.
However, Paulos also highlighted certain caveats to the report’s conclusions.
First, it does not include an analysis of a future in which California gets much of its energy from distributed energy resources such as rooftop solar PV, demand response or energy storage. That’s because, as he states in the report, “unfortunately, a distributed-intensive scenario was not included under the SB 350 studies mandated by the state to investigate a Western RTO, nor has it been adequately studied by other agencies, labs, universities, or think tanks.”
“On a technical level, a regional grid and a lot of DERs are really substitutes for each other — or could be,” he said in the interview. But without a DER-rich scenario to compare to the various bulk power-focused analyses included in the report, Next 10 was unable to measure how well DERs might serve to defer transmission-scale needs.
The Clean Coalition, one of regionalization’s biggest opponents at present — and a participant in the Next 10 report — has argued that California could obtain the same benefits of regionalization through DERs, without the risks and downsides.
Clean Coalition has also said expanding the regional Energy Imbalance Market, which has provided about $350 million in benefits by allowing California and other Western U.S. utilities that operate transmission systems to trade in a real-time market, is a more prudent move than pushing ahead with a regional authority.
Paulos also raised one more wild card in the regionalization analysis: the potential politicization of FERC by the Trump administration.
“Watching FERC these days is a real moving target,” he said. “All these Trump appointees, people aren’t really sure what they’re going to do. Is it going to be as politicized as the EPA? So far it hasn’t been,” he said, noting FERC’s unanimous rejection of Energy Secretary Rick Perry’s plan to force regulations that would guarantee payments for uncompetitive coal and nuclear plants in the name of grid resilience.
However, FERC’s recent split decision to force grid operator PJM to remake its capacity markets, in ways that could limit participation by state policy-supported resources including nuclear, wind and solar, has left many FERC watchers uncertain over its impact on clean energy policies across the country, he said.