Revised Western RTO Governance Plan Highlights State Authority
July 21, 2016
By Robert Mullin
CAISO has released a revised set of principles for governing a Western
RTO in a bid to convince skeptics that an expanded ISO will be amenable
to the entire region. The new document won initial praise, although
doubts remain.
The ISO’s governance changes seek to address the concerns of industry
participants in the broader West who contend that the original proposal
favored California interests and didn’t sufficiently protect individual
states’ authority over electricity-related matters. (See CAISO Governance
Plan Fails to Dispel Western Concerns.)
“I will say that the revised proposal appears to be a step towards us
rather than a step away,” said Bryce Freeman, administrator of the
Wyoming Office of Consumer Advocate, noting that he hadn’t yet studied
the proposal in depth.
“The question is, is it enough to keep the [PacifiCorp] states engaged?”
said Freeman, who criticized the original proposal as being “California-
centric.”
State Approvals Needed
That engagement will be essential for CAISO’s expansion into areas of the
West now served by PacifiCorp. A widely accepted governance structure is
key to the Portland-based utility gaining regulators’ approval to join
the ISO in 2019. Regulators from five states outside California — Idaho,
Oregon, Utah, Washington and Wyoming — must sign off on membership.
“We think the revised proposal marks a positive step in the right
direction and that the changes appropriately reflect input from
stakeholders, including on the key issue of striking the right balance
between the existing authority of the ISO’s board and California and the
other affected states,” PacifiCorp spokesman Bob Gravely said.
The updated proposal attempts to strike that balance in part by scrapping
a controversial plan to appoint an “initial” RTO board of governors on
which California-appointed members would have held a 5-4 majority. That
board was slated to remain throughout a transition period and would have
selected the “final” board based on a process developed by a transitional
committee. Freeman previously referred to the initial board as the
“mother of all California-centric concerns.”
Transitional Committee
CAISO is now proposing that the transitional committee develop a
nominating and approval process to select a new nine-member board. The
new board would be selected within 18 months of the effective date for
the governance plan, which the transitional committee would develop and
submit to the current board for approval.
New board members would fill seats created under the governance plan, as
well as the open seats of sitting board members as their terms expire.
Transitional committee members could extend the terms of sitting board
members after determining that doing so would be beneficial to the new
board based on the “expertise and institutional knowledge.”
The revised proposal also fleshes out the composition of the transitional
committee.
“The details are drawn from the Energy Imbalance Market transitional
committee, which was successful in developing a governance structure that
gave the entire region a voice in the market rules for the EIM,” CAISO
said.
Each state in the expanded RTO footprint will be entitled to appoint a
committee representative through its own process. In addition,
stakeholders throughout the region would select representatives to the
committee from nine sectors: investor-owned utilities; publicly owned
utilities; independent power producers; large-scale renewable energy
providers; distributed energy resource providers; generators and
marketers; federal power marketing administrations (PMAs); public
interest groups; and state- sanctioned ratepayer advocates.
In addition to developing the governance plan, the transitional committee
will be responsible for dealing with other issues, such as whether to
create a funding mechanism to facilitate participation in the RTO by
consumer advocates.
CAISO’s modified proposal clarifies the role and powers of the Western
States Committee (WSC), previously referred to as the body of state
regulators. A representative from each RTO state will be appointed to the
WSC, which also reserves one non-voting slot each for PMAs and publicly
owned utilities. State committee members are not required to be
regulators.
The WSC will “provide input on matters of collective state interest” and
hold “primary authority” over certain RTO policy initiatives related to
transmission cost allocation and resource adequacy.
“Primary authority means the committee will play the lead role for its
defined areas of authority, and policy approval by the committee would be
a prerequisite to any Section 205 filing with FERC in those areas,” CAISO
said.
Still, the ISO would reserve the right to file with FERC without WSC
approval “when reliability is imminently threatened.”
‘Genuine’ Effort
The proposed principles make an explicit concession to state sovereignty,
promising that governing documents will include “binding provisions” to
“protect and preserve state authority over matters regulated by the
states themselves,” including procurement, resource planning, retail
rates, and resource and transmission siting.
“The proposal appears to genuinely making an effort to preserve state
sovereignty,” said Michele Beck, director of the Utah Office of Consumer
Services. “But there’s a limit to what you can do in any proposal.”
Beck cited the U.S. Supreme Court’s April decision in Hughes v. Talen
Energy — which struck down a Maryland program to incentivize in-state
generation — as an example of how participation in an RTO can compromise
a state’s authority. (See Supreme Court Rejects MD Subsidy for CPV
Plant.)
“Ultimately, policymakers will have to weigh whether a certain amount of
loss of sovereignty is worth the benefit,” Beck said.
While Beck was encouraged that CAISO set aside a position for consumer
advocates on the transitional committee, she was also wary of a process
modeled on the EIM, which she said left out the perspective of consumer
groups.
Show Me the Benefits
She also thinks Western industry participants need to be looking beyond
the governance issue.
“I want to remind people that governance is a big concern, but we still
have to see benefits,” Beck said, pointing out that no studies have been
performed to assess how consumers in individual states will be affected
by PacifiCorp joining an RTO.
The utility says such a study is in the works.
“Having a final governance structure approved by the legislature that can
be supported by other states, as well as completing a full cost analysis
to determine net customer benefits, remain the two most important steps
that will determine if we continue to move forward,” said PacifiCorp’s
Gravely.
CAISO will take up discussion of the revised proposal during a public
forum held in Sacramento on July 26. After taking a last round of
comments, the ISO plans to send a final governance proposal to Gov. Jerry
Brown, who is expected to present the plan to the state legislature in
August. Lawmakers must approve any changes to the ISO’s governance
structure.