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California Energy Decision Rewards Poor Planning

Tensions between state governments in the West are high as heat waves and the peak loads threaten to expose grid vulnerabilities

October 1, 2021

California’s grid is vulnerable, and high temperatures this past summer have clearly demonstrated its weaknesses.  Between brownouts and calls on citizens to voluntarily reduce their use of electricity during peak demand, the fragility of the states’ power supply was clear.

State governments are far more involved in their states’ electricity markets than they should be, and none shows the folly of centralized control more than California.

California’s convoluted workaround for its power supply woes takes the form of a Federal Energy Regulatory Commission (FERC) decision that would allow the California Independent System Operator (CAISO) to use power intended for other states in an emergency.

The ruling changes tariff rules for CAISO and allows it to block energy destined for other states from crossing its border and then repurchase this power for its own uses in a grid emergency.

One source that would be impacted by this is hydroelectric power from Oregon that has already been purchased by Arizona, and for which the state has transmission agreements with CAISO.

This decision could have serious consequences for grid reliability in other parts of the West because the power that comes through California can no longer be counted on in a situation where there is high energy demand.

This means that states that use energy transmitted through California can no longer count on that capacity in planning for peak load. Because it can no longer be counted on in a crisis, this capacity can no longer be factored into calculations for worst-case scenarios. The same conditions, namely major heat waves, that would cause California to keep back this energy for its own use would be those in which Arizona needed it the most. Instead of allowing energy to be bought and sold in a fair and open market, California is struggling to secure scarce power that has already been bought for itself. This situation provides a great lesson against state governments messing around with energy markets.

While the tariff changes were still under consideration, utilities from Arizona, Nevada, and Oregon filed petitions requesting that FERC reject the provisions that would allow CAISO to prioritize California load over transmission to other states, even when that power has already been purchased by the receiving state. To be clear, this is energy that is not generated in California, and for which CAISO already has transmission agreements in place.

The Arizona utilities said in their response to the proposal that it, “unfairly prioritizes transmission service for CAISO over transmission service used for the export of power and wheel-through of power to other utilities across the western United States and thus improperly jeopardizes the Arizona Utilities’ ability to serve their load with firm purchases that they have already made.”

On June 25th, FERC accepted CAISO’s tariff revisions, officially granting it the ability to intercept power destined for other states in an emergency.

The Arizona Corporation Commission was understandably chagrined by the FERC decision, Chairwoman Lea Márquez Peterson said in a press release: “This decision is problematic for many Western states, including Arizona.”

She went on to emphasize the disparity in energy planning between the two states.

“Our electric utilities did the right thing and planned ahead, securing pre-negotiated contracts with utilities in the Pacific Northwest to ensure that critical hydropower would be available to Arizonans when it would be needed the most which would be delivered across transmission lines through the state of California.”

CAISO is supposed to provide “open” and “fair” access to its transmission services, treating power destined for other states the same way that it treats native load. While the FERC decision claims that this change in tariff rules does not impede this, it is clear that this decision treats transmission to other states unfairly in relation to its treatment of native load.

This decision will have major repercussions for Western states as they can no longer rely on power transmitted through California not being intercepted on its way to purchasing utilities.

Paige Lambermont is a Research Fellow at the Competitive Enterprise Institute in the Center for Energy and Environment. She covers the electrical grid, energy regulation, nuclear power issues, and other free-market energy topics. Paige has a Bachelor’s Degree in Political Science from American University and a Master’s Degree in Public Administration from the University of Idaho. She is also a Columnist Fellow at Catalyst.
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