Sunset on Grid West

Deck: 

RTOs in the region continue to struggle.

Fortnightly Magazine - January 2006

Efforts to develop more RTOs in the West came to a near standstill again after talks last year among key players Bonneville Power Administration (BPA), Grid West, and the Transmission Improvements Group (TIG) collapsed over BPA’s convergence proposal. The end of talks is one more failure in a long line of failures to find consensus on an RTO approach in the West.

“We’ve indicated our willingness to resolve this polarization in the region over whether you need a regulated centrally managed grid or whether you can do it piecemeal through contracts. The reason things collapsed was that one side felt Bonneville was advocating the other’s approach, which indicated to us that we were in the middle,” says Ed Mosey, spokesman for federal power marketer BPA. He said more members of the TIG group were open to the BPA convergence proposal. But Grid West rejected the whole proposal outright.

“What we were really proposing is moving slowly into a centrally planned grid operator in a methodical way, relying on characteristics of both approaches,” Mosey said. “None of the sides wanted to concede anything, which led to its failure. We’ve given it our shot. We still think the convergence proposal is sound. If others have a better idea, we’re open. But it will be hard to form a Northwest grid operator without Bonneville. We are supportive of any effort to resolve the impasse.”

Grid West is attempting to reorganize following BPA’s withdrawal, but its fate is indeterminate. Key issues are funding for continued development and achieving agreements with BPA and other transmission providers in the region.

A House Divided

Grid West had been moving ahead last fall with its plan despite opposition driven by governance concerns of the regional transmission organization (RTO) and concerns that costs would outweigh benefits. In addition to economic concerns, many parties had concerns over the significant change that would occur if oversight of the transmission system were shifted to an independent board with FERC oversight.

Much of the system is not subject to FERC oversight today, but is instead influenced by elected representatives in Congress. A cost-benefit study in 2002 for RTO West (now Grid West) by Tabors Caramanis indicated that benefits would exceed costs by a ratio of about 3 to 1. This result is in large part due to the fact that the study assumed major inefficiencies in the market that are corrected by an RTO.

That study met significant criticism. Global Energy redid the cost-benefit study and showed that costs of Grid West outweigh the benefits. Global Energy’s experience and analysis do not confirm that major inefficiencies exist today. (Global Energy’s cost benefit study is posted at www.snopud.com under Grid West, Reference Documents).

Figure 1 shows the boundaries of Grid West and WestConnect from the perspective of Global Energy’s modeling topology of the Western Interconnect.

Grid West, a coalition of utilities in the Northwest and British Columbia covering (prior to BPA’s withdrawal) most of the same area as the Northwest Power Pool, would, as envisioned, geographically be the largest of the three RTOs in the Western Electricity Coordinating Council (WECC). Numerous non-jurisdictional entities within the area have been invited to join.

British Columbia Transmission Corp. has participated in Grid West meetings, serving on its board of trustees. The Alberta Electric System Operator (AESO) has monitored Grid West without deciding whether to join.

Grid West Versus TIG: Two Competing Plans

Over the past several months two groups with competing visions for addressing transmission issues in the Pacific Northwest had been holding seminars and workshops to make their respective cases: Grid West would have created a new transmission services provider under FERC jurisdiction; TIG would work within existing entities.

Grid West planned to act as the central scheduling entity, the planning authority, and the reliability/transmission authority for the entire system. It also planned to operate a consolidated control area as a balancing authority for those transmission owners that voluntarily consolidate their control areas under Grid West. Grid West planned to operate the resulting consolidated control area, a day-ahead reserve market, and a real-time balancing market. At the request of BPA among other Grid West members, FERC issued a Declaratory Order in July 2005, recognizing that Grid West will not be an RTO as defined by Order No. 2000. TIG, on the other hand, believes the main difference between itself and Grid West is that TIG would not be FERC jurisdictional and would govern via contracts. Furthermore, TIG states that its start-up and operating costs would be lower than those of Grid West, and that its governance structure would not alter utility and regulator relationships in the region.

The Sad State of the Western RTOs

The Western Electricity Coordinating Council (WECC) is a highly interconnected electric grid that covers nearly 1.8 million square miles, characterized by a diversity of resources, both in technology and location, and diversity in loads with seasonal power exchanges between the hydro-rich Northwest and other areas.

The WECC still has only two RTOs—AESO and the California Independent System Operator (Cal-ISO).

Proposals for additional RTOs have met varied fates—Grid West, representing the Northwest, was actively pursued through this fall, and WestConnect, representing the Southwest, has faded from view.

Market redesign is a critical issue. In December 2004, Grid West filed articles of incorporation replacing proposed RTO West to officially become a membership organization, with a target of 2007 to be up and running. WestConnect in the Southwest is withering for lack of support, following the route of its predecessor Desert Star. FERC continues to officially encourage the formation of RTOs. However, RTOs have had ever increasing budgets, raising questions about appropriate cost controls on these mostly non-profit organizations. In September 2004, FERC announced a notice of inquiry on accounting and financial requirements and oversight of RTO and ISO costs, asking about incentives to control costs and why each RTO and ISO needs to spend large sums on computer systems when it may make sense to have similar or identical computer systems. Increasing costs of RTOs have led stakeholders involved in the formation of RTOs in the West to question if the benefits of the RTO will exceed the costs. Figure 2 illustrates the geographic scope of existing and proposed RTOs in the WECC.

In the Southwest, the WestConnect RTO effort is dormant, and the cost-benefit study still has not been released. However, wesTTrans.net was launched in 2004 as a common OASIS serving the WECC, an Internet-based regional transmission market that is not limited to members of WestConnect or to the Southwest.

Cal-ISO, which began operation in March 1998, continues to work on implementing its comprehensive market redesign (now called “market redesign technology upgrade project,” or MRTU), which involves a completely integrated forward market process (including a day-ahead market) and computer software using locational marginal pricing for congestion management. The target completion date is 2007.

Alberta opened its wholesale electricity market to competition in 1996 and has continued to refine it. The province’s Department of Energy completed a market design review in June 2005, considering a binding day-ahead energy market and proposed resource adequacy mechanisms.

This history line in Table 1 shows key milestones in restructuring energy markets in the West and the obstacles to that vision.