Steps toward a unified electricity market in the western US

Unlike other parts of the country, the 11 western US states have not joined together in a regional transmission organization (RTO) to more efficiently and cost-effectively administer their respective electrical transmission systems. In this episode, Michael Wara, director of the Climate and Energy Policy Program at the Stanford Woods Institute for the Environment, discusses the current status of a potential western RTO and the political factors affecting the conversation.

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David Roberts

In about half the country, power utilities have turned over administration of their electrical transmission systems to regional transmission organizations (RTOs), or what amounts to the same thing, independent system operators (ISOs). RTOs and ISOs oversee wholesale electricity markets and do regional transmission planning, which increases system efficiency and reduces costs for ratepayers.

The power utilities in the 11 western US states are not joined together in an RTO. California has its own ISO, but it only covers that one state. In the rest of the region, utilities are islands — they each maintain their own reserves and do their own transmission planning within their own territories. It leads to enormous duplicated efforts and inefficiencies.

For years, there has been discussion of creating a western RTO, to bring the western states together to share resources and coordinate transmission planning. Analysts have found that an RTO could save the region’s ratepayers billions of dollars a year.

Recently the discussion has begun to heat up again. A regionalization bill in California was tabled this year but promises to return next session. Governor Gavin Newsom expressed his support for the idea. Nonetheless, numerous sticky technical and political issues remain to be hashed out.

To explore the promise and risks of a western RTO, I contacted Michael Wara, director of the Climate and Energy Policy Program at the Stanford Woods Institute for the Environment. We discussed the political forces pushing for and against an RTO, the way the west's electrical system has changed since the last time this discussion came up, and incremental steps that can be taken in the direction of greater regional cooperation.

All right then, with no further ado, Michael Wara, welcome to Volts. Thank you so much for coming.

Michael Wara

Thanks for having me.

David Roberts

So we're here to discuss something that is somewhat complex and rests on a set of concepts that might not be — that everybody might not come in understanding. But because I want to talk about the specifics and I don't just want this to be a 101 kind of thing, I'm going to assume Volts listeners have some basic background. So I think the main thing to know is the US electricity system is sort of divided in two. On the one hand, you have the traditional old school, vertically integrated utilities which own the generation and the transmission and the customer interaction, the whole deal.

And then the other half is what's called "deregulated" or "liberalized" or whatever the term is. Basically have created markets, wholesale energy markets, where generators compete and sell into the markets. And then distribution utilities which interact with customers buy power from those markets and sell it to customers. And those areas with energy markets are overseen by organizations called Regional Transmission Operators or sometimes Independent System Operators. RTOs and ISOs, as everyone in our world is so familiar with saying over and over again I'll just use RTO, I think from now on as a shortcut for those. So in these liberalized areas RTOs sort of manage regional transmission planning.

And the idea is if a bunch of different utilities can sort of share backup and share reserves and share generally they're going to lower costs for ratepayers. And so there are RTOs in the Midwest, there's one in the Northeast, et cetera. Listeners might be familiar with PJM and MISO. These are all regional transmission operators in various parts of the country. So as it happens, the western states, the eleven western states of the United States are almost all old school vertically integrated utilities which means they operate as islands. There's not a lot of sharing. So California has its own RTO or ISO, in this case California ISO or CAISO, but it only does planning for California.

So what we are here to discuss is the long standing discussion about whether the western states should form an RTO of their own, join together into a regional organization so that they can do more of this sharing. That is the question before us. And there are all sorts of ins and outs and details about this but that is the basic background. So maybe the place to start is just at a very general level, sort of abstract level. You could explain what are the advantages of joining an RTO versus just operating as an island? What is the pot of gold at the end of this rainbow?

Michael Wara

I'd want to start by saying that there are advantages and disadvantages, right? And it's important to be straight about that. I think the key thing for listeners to remember and understand is that the primary mission of an RTO or an ISO is to operate. It's to operate the electricity system in a particular geographic footprint. And in general it is the case that it is more cost effective to operate across a larger footprint. And so a discussion around increasing the size of the California ISO or CAISO is about increasing the operational efficiency of the overall system. What I'd say also is that it's important to think both about the average conditions or kind of the expected conditions and then periods of extreme stress on the system.

I guess my view is that the discussions around regionalization or growing the California ISO further outside of its California footprint have really become more important because of the challenges of the reliability that we've had in California and elsewhere. But especially in California over the last several years due to drought, the unavailability of hydro as a result, and the growth of intermittent renewables.

David Roberts

The duck curve.

Michael Wara

The duck curve.

David Roberts

The dreaded duck curve. Yeah. So the idea here is just if you have more states or a wider area involved, you just have a larger pool to draw. And so if you're having a sort of like choke point or grid congestion here or a shortage of power here, there's maybe power over there that you can import just the larger geographic area you're covering, the larger sort of base of power and the larger variety of power sources you're drawing from. And that generally leads to resilience.

Michael Wara

Yeah, I think an intuitive way for people to think about this is kind of national borders and trade, right? If you ship goods across an international border, they have to go through customs, and there are barriers to that. And we have rules about how those barriers are supposed to be under the WTO and other agreements we have with other countries. But it's just harder to ship things internationally than it is to ship something