Electricity Markets

California lawmakers advance RTO legislation

The California Independent System Operator would be able to form a regional transmission organization if the organization meets the criteria established under a bill that is moving through the California Legislature.

Although the bill (AB 813) creates a pathway for forming an RTO, it does not require any California utility or retail seller of electricity to join or remain in a multi-state organization.

In the most recent action, after clearing the Senate Judiciary Committee on a 4-2 vote in late June, the legislation was sent to the Appropriations Committee, the last stop before going to the Senate floor for a vote. The committee is scheduled to consider the bill at an August 6 meeting.

The bill, which would not allow a regional grid operator to begin prior to 2021, passed the Assembly in June.

For the last three years, the CAISO has been exploring the possibility of forming a multi-state RTO by including PacifiCorp as a participating transmission owner. PacifiCorp, which operates in six Western states, was the original participant in the Western energy imbalance market, run by the ISO.

Supporters of the effort contend the West could better manage the grid under a regional organization, which could reduce costs, help integrate renewables and lower reserve requirements. Currently, 38 balancing authorities oversee the West's patchwork grid system.

AB 813 would establish various criteria the multi-state RTO would have to meet before any California utility or retail seller could join or participate in that entity. Under the bill, the California Energy Commission, in consultation with the California Public Utilities Commission and Air Resources Board would have to approve a proposed RTO. The Federal Energy Regulatory Commission would also have to approve the effort.

One of the bill’s sticking points is a concern that an RTO could undermine a state’s authority for setting energy policy, such as California’s renewable portfolio standard, which climbs to 50 percent by 2030.

To address that issue, the bill requires that an RTO’s rules protect a state's authority over procurement policy, resource planning and resource or transmission siting within the state.

Even so, some California legislators contend that forming an RTO could open up California's energy policies to challenges at the federal level.

"If California attempts to regulate the type or amount of energy being produced while part of a regional market, there could be a challenge made that such laws either conflict with FERC jurisdiction and are preempted or that the laws unduly interfere with the interstate flow of energy and the energy generation and exchange in other states as part of the regional grid California would be integrated into," legislative staff said in a memo to the Senate Judiciary Committee describing the bill.

Opponents to grid regionalization, including the Sierra Club, contend FERC could challenge the state's RPS.

The Environmental Defense Fund and the Natural Resources Defense Council are among the groups supporting the bill, saying it would improve the integration of renewable energy by giving California access to a larger market to sell its excess solar power, and save ratepayers money.

Another area of concern among some western states is the possibility an RTO would be too focused on California.

Currently, the CAISO’s five-member board is appointed by the governor and approved by the Senate. A.B. 813 authorizes the grid operator to propose a new governance structure to give other states a role in overseeing a regional grid operator.

Among other things, the bill requires the RTO to have a decision-making process that is independent of any market participant or class of participants. The criteria also include providing for public input and access to information.

The RTO must also provide a clear process, structure and organizational support for state regulators to work with and provide guidance to the RTO, including on issues related to a required independent market monitor.

The RTO would have to set up a states’ committee, with three representatives from each state that has participating RTO member.

The state’s authority would be preserved and protected for matters regulated by the state, including procurement policy, resource planning, and resource or transmission siting within the state.

The legislation bars the RTO from establishing a capacity market in California. 

Under the bill, participating transmission owners would be able to unilaterally withdraw from the RTO after giving notice that cannot exceed two years.

California Gov. Jerry Brown is expected to sign the bill into law if it gets to his desk.