The US Environmental Agenda Might Finally Bring an Electric Power System Operator to the West

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The last 20 years or so have been very eventful for the U.S. power industry, with markets opening and the government exercising its authority by stipulating what type of generation should be used for electricity production. It has been less than 20 years since FERC’s Order 888 of 1996 effectively unbundled the generation and transmission parts of the business. This policy introduced competition in the U.S. power industry, and even now the marketplace is still in the process of developing. One area that is undergoing development is the Northwest region, where multiple balancing authorities have been attempting to integrate the operation of electric transmission grids for years. Although these balancing authorities have been unsuccessful in their attempts, they might just have a chance now. This chance has been brought about by two events that are not related but have a similar basis–the U.S. environmental program. One of these events is the expansion of the California Independent System Operator’s (CaISO’s) Energy Imbalance Market (EIM) to Western states. Simultaneously, U.S. environmental legislation, such as the EPA’s recently introduced Clean Power Plan, continues to set high emission reduction goals for each state and emphasize renewable generation and its integration into the grid. In what follows, I discuss how these two events may potentially create a movement towards consolidation in the Western electricity market.

Consolidating Western Electric Transmission Grids in the Deregulated Market

A few of us may recall the role Western states and provinces played in the process of deregulating power markets. The first region that jumped on the opportunities posed by deregulation was the Canadian province Alberta, which in 1996 restructured its grid operations into a market-based system by forming the Alberta Electric System Operator. Next was CaISO in 1998, which closely followed PJM Interconnection LLC (1997). And that was it for the Western states. Take a look at a July 1, 2014 map of organized market places in Figure 1: Alberta and California remain two isolated spots in an otherwise pale-colored sea of Western power markets managed by almost 20 balancing authorities.

Figure 1: North American Regional Transmission Organizations. Source: FERC
Figure 1: North American Regional Transmission Organizations. Source: FERC

Ever since the advent of the power industry’s deregulation, there has been an ongoing, even though rather sluggish, process of trying to add some color to the Northwestern part of the RTO map. Entities in the Northwest region have discussed different approaches and launched various initiatives for consolidating and integrating the operation of their electric transmission grids.

Some of these efforts included the Grid West initiative, the Northern Tier Transmission Group, and Columbia Grid proposals, all of which were considered but eventually failed to fill the regional gap. Why? Explanations varied, but these failures may be explained by the overwhelming dominance of the Bonneville Power Administration (BPA), which owned and managed about 75% of the region’s transmission assets through gargantuan hydropower generation units, in a setting of relatively low and predictable demand. Given this state of affairs, what was the point of investing in, rebuilding, and stressing out the system and participants when cheap power was generated and managed by an efficient, low-cost federal agency in the region? This situation was acceptable, convenient, and not contested until pressure started building on the system from regulatory bodies as to requirements about what type of generators should be given preferential and/or unfavorable treatment. The complex hydropower network, with its mandate to balance electricity generation, flood control, and fish management, started experiencing serious scheduling disturbances as a result of these requirements which sometimes led to reliability dumps and conflicts between different generator types. BPA even faced lawsuits filed by wind turbine generators. To refresh your memory of the case, or just to learn about it for the first time, read our In-Depth article “The Case of Wind Power Generators in the Pacific Northwest: How Trend Analysis Can Support Investment Decisions.”

Meanwhile, all those conflicting situations remained on the shoulders of individual balancing authorities, the BPA being just one of them.

Read a lengthier version of this article on the ZE DataWatch website.


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