EPSA urges FERC to support establishing a regional transmission organization (RTO) in the West, with recommendations for success.
By Bill Zuretti, director, regulatory affairs and counsel, EPSA
EPSA is asking the Federal Energy Regulatory Commission (FERC) to take steps to help ensure Western states continue to have access to reliable and affordable electricity by encouraging the development of an independently governed Regional Transmission Organization (RTO), or an organized market design, in the region.
Our comments filed in February follow FERC’s Technical Conference this past June, which addressed ways to ensure resource adequacy in the Western Interconnection, which serves more than 80 million people over 1.8 million square miles in 14 states, parts of Western Canada, and the northern portion of Baja California in Mexico. In opening remarks, FERC Chairman Richard Glick noted that as the region experiences reliability challenges, “it is not difficult to recognize that grid regional coordination is going to be necessary… I believe a regional transmission organization… will be a big part of the solution.”
Over the past two decades, competitive wholesale electricity markets have proven to be the most effective approach to providing reliable, cost-effective, and innovative power solutions. Looking to the future, this market structure can best support a transition toward a cleaner grid while helping ensure just and sustainable outcomes for all consumers. That’s because these markets provide the necessary investment signals to support a regional power delivery system that serves customers cost-effectively and reliably while also incenting innovation and efficiency – while placing the investment risk of doing so in the hands of power generators rather than customers.
In the Face of Emerging Challenges, an RTO Can Boost Reliability and Promote Competition in the West
The benefits provided by RTOs and wholesale markets are needed now more than ever in the Western Interconnection to address imminent resource adequacy concerns by expanding access to the rich and diverse resources across this broad area of the country. An array of factors – changing weather patterns and extreme events, shifting load patterns, diminished access to hydroelectric resources, loss of resource abundance, and an emerging patchwork of climate policies – are all impacting the availability of power generation resources in the region. Developing an organized regional market will best meet these challenges while promoting competition, ensuring open access, and providing critical signals for proper exit and entry of resources as the grid evolves. Other benefits include coordinated efforts that more efficiently and cost effectively utilize the existing transmission network while integrating new generation technologies and assets.
Now Is the Time to Overcome Past Barriers to Establishing a Western RTO
Understandably, an RTO has been slow to emerge in the West due to the historically loose regional coordination across the interconnection and widely disparate business models serving power to customers in different parts of the region. However, the region now faces new challenges, with the retirement of some legacy nuclear and thermal resources – as well droughts that have greatly challenged the west’s hydroelectric fleet – that result in an electric system that frequently operates on a knife’s edge. This precarious situation is forecast to only deepen. Couple these challenges with an evolving grid that is rapidly integrating intermittent resources and the problems are compounded.
Growing Support for Expanding RTOs
Thus, as supported by numerous panelists at FERC’s June Technical Conference, the western states would greatly benefit from the ability to leverage the scale and diversity across broad geographic areas that a larger western RTO would offer. In support of this approach, just weeks before FERC convened the June Technical Conference, nine former FERC Chairs and Commissioners sent a letter to the current Commissioners to highlight the benefits of ISO/RTO markets and explain why they should be expanded across the nation. As the letter points out:
More than 80% of renewable generation has been deployed in the organized market regions, and emissions are falling faster in such regions. Organized wholesale markets are defined by features that are critical foundations for a least-cost, customer-centric transition to a low carbon or zero-carbon grid: large footprints able to handle the variability of renewable resources, level playing fields for all providers, non-discriminatory grid access, robust markets and efficient congestion management.
Accordingly, FERC should encourage the creation of just such a construct and support proposals to achieve that end.
Independent Governance Is Critical to the Success of any new Western Construct
Whether the western states opt to create a formal RTO or pursue a more incremental construct (such as the Western Resource Adequacy Program (“WRAP”), independent governance is critical to success. While an important effort to create a regional market assuring resource adequacy, the WRAP has been largely organized by incumbent, vertically integrated utilities – a fact that is understandable given the makeup of most of the western grid. However, these incumbent utilities have currently designed a governance structure for the WRAP that ensures that it will be a construct dominated by incumbents.
This imbalance risks delegitimizing WRAP or a similarly formulated market as it could come to be seen as an impenetrable cartel dominated incumbent monopolies, which inevitably would result in worse outcomes for consumers than a truly competitive environment. That outcome would be contrary to the very foundation of an organized wholesale market and could challenge open access requirements which ensures access to all resources by customers.
As an example, while an Independent Board is contemplated in the final WRAP agreement, the decision-making process appears to reside mostly with the Resource Adequacy (RA) Participants Committee, which is dominated by utility incumbents. Accordingly, the role of the Independent Board must be clarified to ensure the Board’s authority is paramount. For the WRAP to successfully work to preserve reliability in an economically efficient way, the stakeholder and governance processes must evolve to allow for fair representation from all types of market participants. This will allow for the development of open access policies and operations that are fair and non-discriminatory.
While areas of the Western Interconnection have been dominated by vertically integrated utility business models, Independent Power Producers (IPPs) and competitive suppliers have and will play a critical role in developing and operating the resources needed for a robust, reliable system. They therefore must have full and fair access and representation through the stakeholder and governance process. Data show that areas with access to competitive markets experience significant cost savings and faster emissions reductions, with greater potential for accelerated introduction of new, cleaner technology.
These types of changes will ensure that the WRAP establishes equitable policies and operates in a fair and non-discriminatory manner. Such modifications will set WRAP or market proposals like it up for success and greatly benefit the regional grid. Under such a construct, all available resources would be available to ensure reliability in an economically efficient manner – which will help to achieve cost effective reliability through what will surely be a dynamic energy transition and what could be uncertain times due to resource adequacy insufficiencies.