Tom Philp: Electricity in California could cost even more if we don't work with our neighbors

Electricity is already too expensive in California, but it could get even worse if we can’t find a way to partner with our neighboring states.

That’s because California could be left out of a fundamental shift in how electricity is bought and sold. Imagine if there wasn’t a New York Stock Exchange and that regions within every state had to sell and trade the very same equities. That is the inefficiency of today’s Western electricity world, with 38 different authorities left to buy and sell power. It makes no sense and there are competing movements to consolidate.

Why would this be important to California consumers?

“The bigger the market, you’re going to get better affordability, reliability and decarbonization benefits,” said Kelsie Gomanie, a sustainable energy advocate for the Natural Resources Defense Council.

But to create an electricity market in the West that can pass savings and reliability onto California residents, the path to this brighter energy future is fraught because California is not universally seen as a good partner for quite valid reasons.

Our state’s ferocious fight for water on the Colorado River, our dearth of gasoline refineries and our repeated (failed) efforts to control more of the electricity grid have irked one neighbor or another. And our legislative track record of inventing new electricity markets isn’t so great either.

“There is a real issue of trust in the West,” said Severin Borenstein, a UC Berkeley business professor who has studied electricity markets for three decades. “There is a general distrust, maybe even animosity, towards California when it comes to resources.”

Love us or hate us, our California Legislature now plays an oversized role in the future of the electricity market of the western United States and Canada. If lawmakers this session choose to do nothing about shaping this market, which is the default setting in Sacramento, the inaction by the Democrats in charge could cost us for years to come.

At issue is how these numerous “balancing authorities” must now independently scramble to buy electricity on a daily basis to keep their respective corners of the Western Interconnect grid humming. This bifurcated system of inefficiency has spurred efforts in recent years to merge these disparate energy-purchasing markets into one.

The future may be a single western electricity market centered just outside Sacramento in Folsom, the home of today’s California Independent System Operator (CAISO).

Or the market may be run elsewhere by an outlet born in Arkansas. California is without question the prize, with the largest electricity load in the West. But California is also the problem.

California’s spotty market history

It was a different legislature 30 years ago that began “restructuring” electricity in California that has led to today’s dilemma. Before this century, the state’s investor-owned utilities generated much of their own power. Passed unanimously, Assembly Bill 1890 in 1996 directed the utilities to sell most of their power plants to the private sector and to create CAISO and its new electricity market to procure the needed power.

This market melted down in 2001 as the private merchant generators withheld power, skyrocketing prices amid rolling blackouts and leading to the 2003 recall of Gov. Gray Davis. What endured, however, was this system of private companies developing the new electricity and CAISO planning for the needed transmission and matching buyers and sellers in markets. One CAISO market sells power for the next day. And since the grid must always carry enough electricity to meet demand, there is another CAISO real-time market to buy power for that day’s needs.

There is widespread agreement that all these mini-markets throughout the West make no sense. And that is where the consensus now ends.

Rival proposals duel for dominance

Gomanie has been working with other stakeholders, in an effort known as the West-Wide Governance Pathways Initiative, to expand CAISO’s intrastate electricity market throughout the Western Interconnect. A new regional board representing various electricity stakeholders (not selected based on statehood) would oversee this market.

Support for Pathways includes heavyweights such as the Portland-based PacifiCorp, which serves parts of Oregon, Idaho, Utah, Washington and Wyoming.

A rival effort with a similar head of steam is emerging from Little Rock, Arkansas, and the home of another grid operator known as the Southwest Power Pool (SPP). Its proposal for the Western Interconnect, known as Markets+, has the tentative support of some major Arizona utilities and the federal Bonneville Power Administration, serving communities throughout the Columbia River basin and the Pacific Northwest.

“SPP is coming for the entire western market,” said Borenstein, who also serves as chairman of CAISO.

The Pathways proposal has one advantage — regional experience. CAISO has been steadily building trust by helping to balance the Western grid every minute of every day through a decade-old market voluntarily used by utilities throughout the West.

Yet California also is an impediment. AB 1890 confines California to its own electricity market.

Legislation introduced last month to allow California to join a multi-state market has already divided our often-warring stakeholders who have blocked one reform proposal or another for years. NRDC, for example, supports Senate Bill 540. But Loretta Lynch, former chair of the state Public Utilities Commission, opposes California losing its control.

“Right now, California is the one that flies that plane,” Lynch told lawmakers at a March 12 hearing. “Pathways gives up California’s control of the pilot seat.”

The true power of regionalism

Inaction in Sacramento would not prevent every other western state from creating a single electricity market and surrounding California. That, in electricity-speak, would create a new “seam” in the grid that would create a bureaucratic barrier to California importing a full quarter of needed power and selling excess solar power out-of-state.

“If the rest of the Southwest merges into a market and we’re not part of it, we could have some stranded assets,” Borenstein said.

Frankly, California has to get over itself and our history of resource parochialism that does not serve us going forward.

Regionalism, done right, is our cheapest and most reliable future. Our neighboring states can learn to trust us while Californians realize how much we actually need them.

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