Last week I attended a workshop at which where BPA layed out its long term vision for its Transmission Business. To BPA’s credit, they have identified many of the reasons they won’t be able to continue business as usual (though they still need to implement a transmission planning mechanism that is effective in identifying, planning and constructing projects to meet regional transmission needs). BPA recognizes that it has failed to comply with its obligation to plan and expand its transmission system to meet the load growth requirements of its preference customers. BPA has also recognized that it can no longer build its way out of relieving congestion on its transmission system.
Unfortunately, the “solutions” BPA has identified during its workshops are the wrong ones for the wrong time. The pro forma OATT (the industry standard transmission tariff) was developed in Washington, DC in 1996 when natural gas-fired generation was the “revolutionary” resource that would be competing with coal and nuclear plants. Because it assumed a large fleet of predictably dispatchable generation assets, the OATT was never a good fit for the NW hydro system. With the closing of nuclear plants, planned coal retirements, and the rapid expansion of wind and solar generation, the OATT is a poor fit for the NW generation mix of the near future.
BPA’s plan for the future is to fully comply with the OATT (to the extent its statutes allow). Now that may sound good, but when a utility adopts a “compliance culture” and expresses its intend to fully comply with the tariff, it’s speaking in code. “Full compliance” means that it will ignore the policy goals underlying a regulation and do the absolute minimum it must do in order to “check the box” for compliance. This “compliance” mentality is one of the reasons that regional transmission planning around the west has been completely ineffective.
With its evolving generation mix, the NW will need a transmission system that is very flexible. Flows on the transmission system will ebb, flow and even reverse direction on a daily or hourly basis. The NW will likely absorb surplus solar generation from California during the day and return it in the evening. Ramping of Gorge wind resources will require balancing resources throughout the day. The major utilities surrounding BPA are (or soon will be) all participating in the Energy Imbalance Market. With an increased reliance on variable generation (wind and solar), a continued reliance on seasonal hydropower, development of fast start flexible gas plants and budding interest in storage and demand response, the Pacific NW of the future will need a transmission system that is able to respond rapidly to changes in the quantity and direction of flow.
Currently (for all its other problems), BPA’s tariff allows flexible use of the transmission system and facilitates a highly liquid energy market in the NW. Customers can use their existing long term transmission rights to change the point of delivery using “hourly firm” transmission. So if you have a generator on the Columbia River with a long term transmission contract to serve load in Seattle, but Seattle doesn’t need the energy that hour, you can send the energy to Portland, Idaho or California instead. And the next hour you could send it somewhere else. And to BPA’s credit, it has been very supportive in facilitating implementation and expansion of the Energy Imbalance Market. But as part of its “Transmission Business of the Future”, BPA is proposing to eliminate hourly firm transmission. Customers would be able to buy a 24 hour transmission product (at significantly higher cost) or use non-firm transmission (exposing the seller to liquidated damages in the event of a transmission outage).
BPA’s proposal to do away with hourly firm transmission is coming at the worst time. Just as the NW is entering a new era where more flexibility – not less – is needed to reliably and cost effectively integrate new types of resources, BPA is eliminating the very feature that gives its system the limited flexibility it has now. BPA will effectively lock customers into a daily dispatch. The “OATT compliant” structure will likely increase costs to customers in several ways. It will increase the amount of renewable energy that is wasted, require utilities to build more dispatchable gas plants, and limit trading of hourly energy products. Most importantly, when utilities in the NW expect that they will have surplus renewable energy, they won’t be easily able to share it with their neighbors.
The solution to all of BPA’s problems (serving its preference customer load reliably, finding new sources of secondary sales revenue, cost effectively integrating renewables, avoiding expensive curtailment of wind during oversupply conditions, ensuring the ability to recover its transmission revenue requirement) are all solved with a market. A day ahead energy market (like California’s) would solve all the problems listed here and would also make it easier for Oregon and Washington (and California) to meet their carbon policy goals. The energy imbalance market is a good start. But in order to allow renewables to displace coal and natural gas those resources need to be incorporated into the day ahead dispatch — not just the five minute market.
What is most disappointing is that many BPA staff – privately and without attribution – agree with me that an organized energy market is the best solution. They explain that their inability to move forward into a market (or even suggest it) — whether to join the Energy Imbalance Market or push for a day ahead market in the region is “political.” Leaders in the NW learned the wrong lesson from 2001. Too many of them decided then that energy markets are bad. The lesson they should have learned is that poorly regulated markets are bad. If they have been paying attention they would have learned that once its design flaws were fixed and abuses corrected, the California energy market has saved its ratepayers millions of dollars and allowed California to continue to push to increase its reliance on carbon free energy sources. They also would have learned that over the last three years, utilities in the Energy Imbalance Market have been able to save additional millions of dollars.
Unfortunately we have too many elected officials in the NW whose opinions about energy markets have not evolved since 2001. We have state energy policy experts who don’t understand the role BPA plays in the NW energy ecosystem and don’t pay attention to how BPA’s policy choices can subvert state policy goals. Leaders of public power are – understandably – more obsessed with keeping their BPA rates low than exploring how they could help BPA achieve state and regional energy and carbon policy goals. And most disappointing — NGOs in the NW have subscribed to the anti-market group think. No NGO in the NW carbon or energy policy space is actively pushing for a market, or trying to educate intransigent or oblivious public officials to the need for an energy market (at best when given an opportunity to advocate for an expanded regional market there is some handwringing, vague references to the experience of 2001 and a mumbled call for balancing area consolidation — balancing area consolidation would mimic the Energy Imbalance Market but not resolve the day ahead dispatch issue).
We need to educate our elected and appointed officials about why the Pacific NW needs a market to achieve its energy and carbon policy goals. And that requires the leaders of our regional NGOs to learn about BPA and its role in the NW (too many think that state energy policy is limited to the utilities in their state) and to explain to dubious elected leaders why a market is needed. Right now I’m a lonely voice in the wilderness, but I’ll keep shouting until others join me. The deadline to comment to BPA is October 4. Tell them we need a market.
And yes, I know that CAISO governance needs to be fixed, so lets do it.
