In the final hours of the 2015 session, the California legislature approved the Clean Energy and Pollution Reduction Act of 2015, which outlines a process to establish the first-ever regional transmission organization (RTO) in the West and boost the state’s renewable portfolio standard (RPS) to 50% by 2030. Governor Brown is expected to sign the bill as it encompasses aspects of his major environmental initiatives.
The legislation, also called Senate Bill (SB) 350 or the Golden State Standards, expands upon Assembly Bill 32, the landmark 2006 law that required California to meet a 33% RPS target by 2020, which most utilities are on track to exceed.
In November 2014, the California Independent System Operator (CAISO) and PacifiCorp (a Berkshire Hathaway Energy utility) launched a real-time energy imbalance market (EIM) covering California, Oregon, Washington, Utah, Idaho, and Wyoming. The EIM was the first step taken to balance fluctuations between power sources and consumer demand, share reserves between participating utilities, and enable a more efficient use of the regional transmission system. The new RTO would go further by consolidating the various balancing authorities into a single regional grid operator that would blend variable resources (e.g., renewables and conventional power generation), operate the grid, and run wholesale electricity trading markets in the region as a whole. Interest in an RTO comes as the West is seeing growing amounts of intermittent renewable energy supplies, and as utilities and other balancing authority areas are looking for cost-effective ways to better manage their grid systems. The RTO would allow excess power from renewables in the region to be distributed across multiple states, where it can be put to broader use.
The Road Ahead
California’s efforts to lead the charge in establishing an RTO must first overcome a significant hurdle. According to SB 350, “the transformation [to an RTO] should only occur where it is in the best interests of California and its ratepayers.” SB 350 dictates that launching an RTO should not change CAISO’s obligations to California-based electricity customers. But neighboring state regulators have expressed concern about their jurisdictional utilities ceding control to California. So, governance will be pivotal.
The regulatory process for getting the RTO approved will likely take until at least 2016. While CAISO is interested in moving quickly, SB 350 first requires the organization to prepare proposed governance modifications to facilitate the transformation of the organization from an independent system operator (ISO) into a regional organization. Existing law prohibits CAISO from entering into a multistate entity or regional organization unless the ISO receives approval from the California Electricity Oversight Board (EOB). The EOB ensures that wholesale energy markets and the electric transmission system function reliably and provide electricity at fair costs to California’s consumers and businesses. Before an RTO could even be established, the California Legislature must first specifically approve it in a stand-alone statute implementing the governance modifications. Next steps for CAISO include getting feedback from stakeholders, such as the California Energy Commission, California Air Resources Board, and California Public Utilities Commission, and conducting studies about the impact of an RTO on:
An RTO would impact areas outside of California by improving relations between states (California has not always played well with other states on interconnections), providing new markets for wind generators (who sometimes dump excess electricity), and simplifying and consolidating reliability coordination and dispatch. Notably, PacifiCorp has not yet made the formal decision to join the proposed RTO—PacifiCorp’s participation is a key to the viability of a regional energy trading market in the five western states outside of California.
California Legislative Information: SB-350 Clean Energy and Pollution Reduction Act of 2015
SB 350: Golden State Standards
This report is part of the Regulatory Minute series. To view all featured Minutes, please click here.
Sussex Economic Advisors is now part of ScottMadden. We invite you to learn more about our expanded firm. Please use the Contact Us form to request additional information.