RTOs: Illness or Cure for a Cleaner, Reliable, and Affordable Grid?

The California Independent System Operator (CAISO), which operates the state’s bulk power grid as well as the Western Energy Imbalance Market (WEIM), has faced some difficult times over the last few years. Three summers ago, what CAISO called “a series of unfortunate events” led to rolling blackouts across the state, fed by massive and relentless demand for air conditioning, even in the late night and early morning hours; wind power generation that fell off when it was most needed; and several natural gas peakers that went offline. At the end of 2021, the California Public Utilities Commission (CPUC) announced that it was putting in place new programs and modifying existing programs to reduce energy demand and increase energy supply during critical hours of the day. These included demand response, energy efficiency, consumer flex alerts, microgrids, temporary generation, and new dynamic rate plans.

But just last August, the Golden State’s grid was on the brink of collapse again during an “epic” heat wave, with 10 straight days of triple-digit temperatures, leading to the state legislature’s decision to postpone closing Diablo Canyon, its last nuclear plant, and execute a new PPA with some gas-fired generating resources that were intended to close. It’s ironic, of course, that the state leading the way nationally in moving to renewable energy is forced to pull “dirty” power plants back in, just when they thought they were out. Coincidentally, California’s beyond-ambitious goal to reach 100% emission-free electricity by 2045 requires an estimated 500% increase in the buildout of wind, solar, battery storage, and now (perhaps), new nuclear generation. On the “left coast,” all such activity is intensively politicized, including some staunch anti-nuclear (which isn’t surprising) and anti-renewables (which is) activism.

So where does this leave Californians and CAISO? Interestingly, a bill put forward by State Assemblyman Chris Holden (D-Pasadena), AB538, has just been tabled until next year’s legislative session. The bill would have moved CAISO, which now covers about 80+% of the state, toward expanding into a new Regional Transmission Operator (RTO) that would give California more access to electricity generated in other western states, including utility-scale wind and solar farms. Curiously, Governor Newsome wasn’t on record even mentioning the bill until a few hours after it was put on hold. And some of the usual suspects were opposed, including environmental groups and organized labor.

Of course, California’s policy actions often belie the situation on the ground, at least in the minds of those who oppose renewables as unreliable, inflexible, and asynchronous resources causing grid outages. They decry, too, probably out of indignation rather than grid concerns, that late last August, the state announced a ban on the sale of new gasoline vehicles by 2035. A scant few days later, another heat wave hit; CAISO again issued Flex Alerts, and asked EV owners not to charge between 4:00 pm and 9:00 pm (in fairness, it was a request only).

Still, on May 19, CAISO’s board approved its 2022-2023 Transmission Plan, to accommodate some 45 generation projects at a cost of roughly $7.3 billion. CAISO said “The vast majority of the transmission projects will be built in California, supporting more than 40 gigawatts (GW) of new resource development identified by the CPUC as cost-effective and needed to meet the state’s clean-energy goals over the next 10 years.” These include 17 GW of solar in California, Arizona, and Nevada, 3.5 GW of in-state wind, and 1 GW of geothermal. But it also includes importing 4.5 GW from Idaho, Wyoming and New Mexico.

Moves that would radically change the Western and ERCOT interconnections are also afoot. First, there’s a push from the Little Rock, Arkansas-based Southwest Power Pool (SPP) RTO to expand into western states. SPP has already moved its Western Energy Imbalance Service (WEIS) into the service territories of some utilities in Arizona, Colorado, Montana, South Dakota, Wyoming, and Utah; SPP contemplates making them—and more—full RTO members.

In parallel, there’s an organic push to create a massive new RTO, AB538 aside, based on CAISO and its WEIM footprint, which already has 18 participants from British Columbia to the north down to New Mexico in the south. This year, new utilities from Arizona, New Mexico, and east Texas are already slated to join WEIM. But creating the front and back offices, management structure and technology for a full RTO would be a heavy lift across an enormous territory and dozens of utilities. And while a new Western RTO would have many more resources and the ability to centrally coordinate, it would also have to contend with multitudes of regulatory, interconnection, transmission, interregional tie line, rate case, and resource adequacy challenges across many state lines.  

These days, the very existence of RTOs and their organized energy markets is sparking conversation and even controversy among stakeholders that just a few years ago were wholehearted supporters, or at worst, agnostic. FERC, state PUCs, consumer advocates, ratepayer counsel, and state legislatures all have voices in this, and they won’t be singing from the same sheet. Nor will AARP; it’s criticized RTOs as basically bad deals for senior ratepayers, and in its 2022-2023 Policy Book asserts that “Policymakers should refrain from approving utility requests to join a regional transmission organization (RTO) if they have not already done so.” 

The American Public Power Association (APPA), too, recently said “…wholesale electric markets are not really markets in the traditional sense,” and there are “potential problems with the markets that require vigilant oversight”…“that have arisen, and remain, because of a lack of sufficient FERC oversight.”

FERC itself, in a March 2023 open monthly meeting, noted criticisms of PJM’s and ISO-NEs capacity market operations, as well as those of NYISO and Midcontinent ISO, by their respective Independent Market Monitors (IMMs). This past January, in a move that received scathing criticism from the PJM Power Providers Group (P3), PJM held its schedule capacity auction from December 7 to December 13, 2022, but rather than release results as soon as possible after. “PJM has possessed—but refused to post—the final results of that Tariff-dictated process since December 19, 2022.”  Basically, P3 was saying that once PJM had the auction results in hand, but it didn’t like them, so it  delayed releasing them while it moved to retroactively change and take a Mulligan: “retroactive ratemaking.” And that’s after a three-year auction delay in 2018 during which PJM had to contend with FERC’s June 2018 ruling that found PJM’s Minimum Offer Price Rule (MOPR) unfairly suppressed capacity prices. PJM recently announced another capacity auction delay around resource adequacy concerns, following last December’s Winter Storm Elliott, and the need to modify its market design to compensate. But one observer believes that PJM’s proposed solution to resource adequacy shortfalls would actually make the problem worse.

All of this is taking place under a Biden Administration that promises to use the Infrastructure Investment and Jobs Act and the Inflation Reduction Act to fund and build new renewable generation and transmission projects designed to move clean energy from the boondocks to population-dense cities and ex-urbs. This, while dealing with unprecedented 1000-year floods, wildfires, unusually powerful hurricanes, and  deadly tornadoes that collectively wreak havoc on what is still mostly a “sticks-and-wires” grid infrastructure.

Determining the benefits—and hazards—of organized RTO/ISO energy markets must consider state-subsidized generation, massive interconnection queue backlogs, interregional transmission challenges, controversial cost allocation, FERC and state PUC oversight, renewables integration hurdles, poor system flexibility, and growing ratepayer burdens. As the nation’s energy leadership grapples with these issues, their decision may determine in large part whether vast numbers of Americans enjoy a cleaner environment and access to reliable electricity at fair and reasonable rates.