Wednesday, January 23, 2019

RC Transition, California Wildfires Will Occupy 2019

By Hudson Sangree

CAISO will tackle its new role as reliability coordinator for much of the West in 2019, and California lawmakers will struggle with preventing wildfires sparked by power lines.

Major events in 2018 prompted both efforts.

CAISO will oversee reliability coordination in much of the West from its headquarters in Folsom, Calif. | CAISO

In July, Peak Reliability stunned the West by announcing it would end its RC operations across the Western Interconnection by the end of 2019. That set off a competition between CAISO and SPP to sign up clients for their own RC services.

Then in November the deadliest wildfire in state history leveled the town of Paradise, Calif., killing 85 residents in the Sierra Nevada foothills. Suspicion quickly fell on PG&E for the Camp Fire, prompting talk of state action to reform or break up the utility.

Other challenges that faced California and the West in 2018, and will continue in 2019, include making CAISO’s congestion revenue rights more equitable to ratepayers and continuing efforts to establish a Western RTO led by CAISO.

Keeping Reliability Coordination Reliable

Peak Reliability stunned the electricity sector in July when it announced it would wind down its role as reliability coordinator for the West and withdraw from its effort to develop a regional electricity market competing with CAISO. The Vancouver, Wash.-based company said it would shut its doors as early as Dec. 31, 2019, after transitioning its customers to other RCs. (See Peak Reliability to Wind Down Operations.)

Several months before the announcement, CAISO, a Peak RC customer, said it would “reluctantly” leave Peak, develop its own RC services and offer them to others at reduced costs. Most of the Western Interconnection signed nonbinding letters of intent to take advantage of CAISO’s RC services.

CAISO’s move was seen as a reaction to Peak entering a partnership with PJM to form a Western RTO to compete with the ISO’s expansion.

FERC approved a set of Tariff revisions covering CAISO’s new RC services in November, clearing the way for about 72% of the region’s load to sign on with CAISO, compared with 12% for SPP. BC Hydro is proceeding with plans to provide RC services for its own territory in British Columbia, representing about 7% of load in the region overseen by the Western Electricity Coordinating Council. (See CAISO RC Effort Gets FERC Go-ahead.)

CAISO, SPP and BC Hydro are scheduled to take over Peak’s duties in four handoffs through 2019. CAISO will assume the RC role for its existing territory on July 1. BC Hydro will become the RC for a large swath of southwestern Canada on Sept. 2. CAISO will then take over RC services for many areas outside of California on Nov. 1, while SPP will take responsibility for other regions of the West on Dec. 3, although NERC is encouraging the RTO to accelerate its timeline to match CAISO’s.

The process provides ample opportunities for errors and shortcomings, including staff attrition at Peak, those involved say. Some employees have already left Peak, and others could follow. The company is hoping that severance packages will encourage most others to stay until they’re no longer needed.

CAISO and SPP will become the reliability coordinators for the Western Interconnection in 2019. | WECC

Jim Shetler, general manager of the Balancing Authority of Northern California and chair of Peak’s Member Advisory Committee, briefed WECC board members on the transition process in December, saying he had concerns about whether Peak would remain in business until the transitions are completed at the end of 2019.

“What keeps me up nights [is worry over] whether Peak is a going concern in the next 12 months,” Shetler said during the board meeting at WECC headquarters in Salt Lake City. (See RC Transition is Fraught with Pitfalls, WECC Hears.)

Others have said they’re confident the transition will go as planned, but all agree it will be important keep a close eye on the RC switchovers in 2019 to avoid lapses in critical services.

“This is a risky year, and I think everyone’s posture is really focused on this,” Linda Jacobson-Quinn, regulatory compliance manager for the Farmington Electric Utility System in New Mexico, told WECC in December. “At the end of the day, it’s the customers that must have an RC.”

Wildfire Policy Could Target IOUs

When the California State Legislature reconvenes Jan. 7, one of its first orders of business will be dealing with the problem of catastrophic wildfires, particularly those sparked by electrical equipment operated by investor-owned utilities.

Lawmakers thought they’d made significant progress in 2018 when they passed SB 901, a 71-page bill of wildfire prevention measures that included new vegetation management and reporting requirements for the IOUs. The measure, signed into law by Gov. Jerry Brown in September, also provided a means for IOUs to issue long-term bonds to cover wildfire liability costs. (See California Wildfire Bill Goes to Governor.)

PG&E’s costs have been estimated in the billions of dollars for a series of devastating fires in Northern California wine country during the 2017 fall fire season. State fire officials have declared the utility at fault for at least 16 of the fires, though the Tubbs Fire, which wiped out part of the city of Santa Rosa, remains under investigation.

Brown and other policymakers worried about PG&E’s solvency following the 2017 blazes and enacted the bond provision, but that measure didn’t cover fires in 2018, and the Camp Fire’s estimated costs could equal or exceed all the wine country fires combined. PG&E’s stock price took a pounding in the days after the Camp Fire and remains less than half of what it was before the blaze.

The Camp Fire started at 6:33 a.m. on Nov. 8 near Tower :27/222 on PG&E’s Caribou-Palermo 115 kV transmission line, the California Department of Forestry and Fire Protection (CalFire) and PG&E reported in December. PG&E told the California Public Utilities Commission it had experienced a fault and fire near Tower :27/222 shortly before the Camp Fire ignited. (See PG&E Grapples with Line Safety After Camp Fire.)

If CalFire investigators eventually find PG&E equipment caused the fire, the utility could be held liable for all resulting damage, even without a showing of negligence, under the controversial legal doctrine known as “inverse condemnation,” the strict liability standard California applies to utilities for fires sparked by power lines.

During their 2019/20 session, state lawmakers likely will consider clean-up legislation that allows utilities to issue bonds to pay for 2018 fires. With public anger high, however, elected officials may fear a backlash for any bill deemed a bailout for PG&E or other IOUs.

Another possibility being discussed is state action to break up PG&E and hand over control of some of its parts to cities such as San Francisco. (See Camp Fire Prompts Talk of PG&E Bailout or Breakup.)

Changing PG&E’s corporate governance also is on the table.

National Guard soliders searched through rubble in November after the Camp Fire tore through Paradise, Calif., killing 85 and casting suspicion on PG&E. | California National Guard

Sen. Bill Dodd, one of the authors of SB 901, has called for a management shakeup at PG&E in the wake of the fatal 2010 San Bruno gas line explosion and the massive fires of 2017/18.

“PG&E has demonstrated a pattern of poor management and illegal conduct that has shattered lives across California,” Dodd said in a Dec. 20 news release. He called for “systematic change, which must include change on the board of directors and in the executive suite.” The utility currently has a “bunker mentality” that prevents improvement in its safety practices, Dodd said.

PUC President Michael Picker said in early December that state regulators would expand their investigation of PG&E’s safety practices after the Camp Fire. (See CPUC Expands Probe Into PG&E Practices After Deadly Fire.)

“This is the kind of thing that keeps me awake at night,” Picker said at the time.

On Dec. 21 the commission released a ruling regarding the investigation that asked whether the company’s management should be replaced, whether members of its board of directors should resign, and whether the company should be broken up into separate gas and electric divisions.

In the meantime, PG&E has vowed to do better. “We are acting decisively now to address these real and growing [wildfire] threats, and we are committed to working together with our regulators, state leaders and customers to consider what additional wildfire safety efforts we can all take to make our communities safer,” company CEO Geisha Williams said in a December news release.

CRR Shortfalls and Regionalization

CAISO’s other priorities in 2019 will include its continuing efforts to rein in congestion revenue rights insufficiencies that have left ratepayers footing a bill of about $100 million per year, according to the ISO’s Department of Market Monitoring.

The chronic shortfall in CRR revenues, which are allocated based on power consumption, has been an ongoing problem for CAISO. This year the ISO sought FERC’s approval for changes it hoped would help in 2019, but the commission only gave CAISO part of what it wanted.

In November, FERC accepted an ISO revised proposal, providing for CRR holders to be paid for their entitlements “only to the extent the CAISO collects sufficient revenue through day-ahead market congestion revenues and other sources to fund those entitlements.” (See FERC OKs CAISO Plan to Deal with CRR Shortfalls.)

CAISO may also continue to pursue its efforts to form a Western RTO, despite the failure of several proposals in recent years to begin the process. The latest, AB 813, failed to make it out of a legislative committee in 2018. The bill would have started the process of turning CAISO into an RTO by initiating changes in its governance structure to allow for out-of-state members.

California lawmakers have been opposed to relinquishing state control. CAISO’s governors are now appointed by the California governor and confirmed by the Senate. At the same time, industry leaders from other Western states don’t want to cede authority to a CAISO board controlled from Sacramento.

Proponents of a Western RTO have said they’ll probably take another run at regionalization in 2019. (See Western RTO Proponents Vow to Keep Trying.)

As Ralph Cavanagh, co-director of the energy program at the Natural Resources Defense Council, put it to a Northwest industry group in October: “We need a big bipartisan win, and I don’t think we’ll get it on carbon tax in the short term, but I’ll tell you a place where we can get it … enhanced regional grid integration.”

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