Charlie Brown or Henry V? Market Development in the West

 

Before I start in on the latest frustration along the path to market formation in the wider West, let me pause and explain recent developments to my friends in the Western Interconnection.  Most of the trade press and the attention of FERC and the rest of Washington barely noticed the surprise of Xcel’s pulling out of Mountain West. Rather, the folks in the East are consumed by the cries of anguish emanating out of First Energy, Murray Coal and whether the DoE and DoD might invoke a Cold War legal mechanism to save coal and nuclear units in the East.  This is the regulatory version of “East Coast bias” that many Pac-12 fans have asserted ESPN and other sports outlets have for things that don’t happen in a convenient time zone.

Good Grief — Speaking of recurring frustrations…

… market formation in the West. Unfortunately, there are several missed opportunities for market formation: “Desert Star”, the Arizona ISA, “Indigo” and “RTO West” to name a few. With Xcel’s recent exit, it seems likely we will add “Mountain West” to the list of failed efforts at an efficient network in the West. I know some friends in the companies that remain think that Mountain West can still make it over the goal line, but when 45% of the load is removed from a system it is hard to recover. Yet, there is a way out. Is this the opportunity for the PEAK/PJM proposed platform? Looking at the facts rather than the emotion of the moment it would seem the answer is “yes”.

If one looks at the publicly available version of the proposal, it’s pretty standard stuff: 1) real-time market, 2) day-ahead market, 3) transmission rights allocation. The governance is open to whatever the stakeholders want, and the corporate governance can be “whatever the West wants.”  Clearly the folks in Valley Forge who work with the PEAK RC folks did not want to impose a solution that seemed like a take-it-or-leave-it ultimatum.  Still, it has fewer problems associated with it than the remaining market platform – the EIM.

The Doctor is IN — How do we get to a healthy Westwide market?

I would love for the EIM to grow up to be a big, regional RTO but let’s face it; it would be very challenging for this evolution to occur. A rational transmission owner simply will not join the CAISO until the governance arrangement whereby the Board is picked by the Governor of California changes. Despite considerable efforts in Sacramento over the past two years, the legislation needed to fix this is as far away as ever. Further, nobody with any standing to bring a 206 complaint at FERC – that the governance of this FERC tariff is facially “unjust and unreasonable” – will take the path of doing something so unpopular in California.

This is why the discussion around the attempt to create a “day-ahead” product in the CAISO’s EIM without having CAISO control the transmission has been of interest. It has been viewed as a creative work-around. The question of how transmission would be made available and whether it could be considered accessible to the rest of the market leaves me wondering how this could be acceptable at FERC. What I’ve heard as to how transmission would be treated – the fundamental element of an electric network – has not left me feeling confident that it would be deemed “just and reasonable.”

“That he which hath no stomach to this fight, Let him depart” — W. Shakespeare

After I got over the shock of the Xcel bombshell, I started calling around to folks in utilities and state regulators across the West. The Business Plan supplied by PEAK/PJM to possible members includes proposals for stakeholder governance as well as the corporate structure that were considerably more robust in scope than the public version of the Business Plan. I was also told that the base assumptions for members were conservative – on the level of 25% of Western load – and the resulting cost was still very low. This last point – the assumption of how much load to form the “denominator” for the “numerator” of costs – seemed very hopeful.

In one discussion, a representative from an EIM member suggested that after investing in systems for the EIM they could not just walk away from EIM. This surprised me since I would expect that whatever investment in systems to prepare for EIM would still be useful in another market platform. In particular, such systems would be highly relevant for an entity that adjoins the CAISO and would thus be transacting into CAISO. (No doubt FERC would insist on a Joint Operating Agreement to facilitate trans-regional trade.)  The level of concern expressed does reveal the underlying angst about undertaking any significant change to market structure.

My conversations with potential utility members revealed a reluctance to be “the first one” to embrace PEAK/PJM. The EIM never would have gotten off the ground if PacifiCorp had not just said “we’re going to do this.”  Similarly, it would seem we need one or two utilities of size to step up and publicly indicate they are seriously looking at the PEAK/PJM value proposition.

What is needed to move toward a broader Western market construct is some executives of courage to step forth and look at the cleanest, most likely to succeed market option left in the West. In closing, let’s take heart from as bit of Shakespeare and Henry V. Let’s hope that a few utilities, a “happy few”, could take the standard of markets and look to what is available. The rewards could be great.

 

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