Authors

David Hurlbut, Mark Greenfogel, and Brittany Speetles

National Renewable Energy Laboratory

Executive Summary

Changes inside and outside the power sector are making the potential benefits of regional cooperation in operating the electricity grid more compelling than ever before. To keep California policymakers abreast of the most current information, the California State Legislature asked the California Independent System Operator (CAISO) to work with other California balancing authorities (BAs)¹ to develop a knowledge base on regional cooperation and the possible effects on California’s energy and environmental goals. Assembly Concurrent Resolution (ACR) 188, approved by the California State Assembly and Senate in August 2022, requested a report synthesizing the studies, policies, and papers on the potential benefits of expanded regional cooperation in California, with a focus on key issues that will most effectively advance the state’s energy and environmental goals, including Senate Bill 100 (Chapter 312 of the Statutes of 2018).² This includes any available studies that reflect the impact of regionalization on transmission costs and reliability for California ratepayers.

CAISO and the BAs agreed on securing an independent third party—the National Renewable Energy Laboratory (NREL)—to conduct the review and synthesize the findings. As a national laboratory of the U.S. Department of Energy, NREL is independent of any stakeholder and state authority.³ NREL’s approach in conducting this review is to provide an objective synthesis of
proposals, studies, and papers dealing with regional cooperation in California and the West.

Assembly Concurrent Resolution (ACR) 188, approved by the California State Assembly and Senate in August 2022, requested a report synthesizing the studies, policies, and papers on the potential benefits of expanded regional cooperation in California, with a focus on key issues that will most effectively advance the state’s energy and environmental goals under Senate Bill 100 (Chapter 312 of the Statutes of 2018). This includes any available studies that reflect the impact of regionalization on transmission costs and reliability for California ratepayers.

Aside from compiling studies, ACR 188 asked CAISO to provide updates on the transmission development and resource diversity estimates that were included in the 2021 SB 100 Joint Agency Report. The next joint agency report will not be published until 2025, and the California Energy Commission confirms there are no updates at this time. Section 5 of this report examines the estimates most recently used and contrasts them with California’s increasing need for capacity in the near term and the long term.

Lastly, ACR 188 requested a discussion of “regional transmission organizations [RTOs] in Colorado, Nevada, and other regional states, collaboration between states on energy policies to maximize consumer savings while respecting state policy autonomy, and engagement between neighboring states on the future of regional transmission organizations in the west.” No RTO currently exists in other western states, but several states and a number of regional forums are assessing key topics including governance, resource adequacy, resource sharing, and transmission development. For example, utilities in the Rocky Mountain region have been
looking at cooperative arrangements with a neighboring RTO, Southwest Power Pool (SPP). Section 2 of this report summarizes these regional activities.

This report interprets the term “regional cooperation” broadly. Expanding CAISO to be a Westwide RTO is one option that has been studied, but regional cooperation can take many other forms. Some of these models have been or are being implemented already, demonstrating a general momentum towards greater regional cooperation.

• Some regional cooperation is already taking place through existing joint operating agreements, power pooling arrangements, and bilateral contracting platforms such as the Western Systems Power Pool and Intercontinental Exchange.
• Since 2014, CAISO has operated a voluntary real-time Western Energy Imbalance Market (WEIM), which has saved participants more than $3 billion.⁴
• On Feb. 10, 2023, the Federal Energy Regulatory Commission (FERC) approved the Western Resource Adequacy Program, a cooperative arrangement for sharing reserves and reducing the cost of resource adequacy.
• Also in February 2023, the CAISO board approved measures to implement an Extended DayAhead Market (EDAM) that utilities may choose to join without becoming full CAISO
  members.

Though the focus of ACR 188 and this report is how regional cooperation might benefit and impact California achieving its energy policy and environmental goals, in a practical sense, achieving regional cooperation depends on finding mutual benefits for the rest of the West too. Joining a voluntary regional power market is a decision each potential participant will need to make based in its own analysis of benefits, costs, risks, and policy goals. Significantly, the preponderance of literature suggests regional cooperation will help California and other states realize cost savings and common energy policy goals. However, some of the technical studies included in this review suggest the benefits of more comprehensive forms of regional cooperation such as a West-wide RTO might not be spread evenly across participating states and their utilities. Reconciling the differences will likely be a matter of good-faith negotiation among the parties after each has assessed the magnitude of its own potential benefits and risks, and ultimately some may opt out.

Expanding CAISO to become a multistate regional transmission organization (RTO) is an option that ACR 188 calls out specifically.⁵ The literature affirms that such a scenario would not remove the jurisdiction of California (or any other state) over its retail rates, resource planning, resource siting, transmission siting, renewable energy policies, or emissions reduction policies. ⁶ However, the literature also suggests strongly that such a move would require changes to CAISO’s governance.⁷  All other multi-state RTOs in the country have an independent governing board and a special advisory committee that includes energy officials from all states in the RTO’s geographic footprint. Typically, the board is elected by RTO members from a slate prepared by a nominating committee, and members of the regional states committee are public utility commissioners, state energy officers, or other officials from affected states.⁸ CAISO’s rules for operation would continue to be under federal jurisdiction through its open-access transmission tariff approved by the Federal Energy Regulatory Commission (FERC).

The studies and papers summarized in this report form a consistent narrative. The points frequently made include:

• The measurable benefits of regional cooperation include production cost savings, resource capacity savings, and emission reductions.
• Qualitative benefits include greater transparency, increased stakeholder participation, and more efficient use of the transmission system.
• Regional cooperation can enhance reliability, especially under stressful conditions that impact the availability of some generation and transmission assets.
• A geographically larger operational footprint tends to yield greater resource and load diversity.
• An RTO, because it is a more comprehensive structure for cooperation that optimizes a wider array of grid functions, tends to yield greater cost savings and grid flexibility than more limited forms of cooperation.
• Larger and more comprehensive structures also expand the types of issues that need to be addressed, such as governance and principles for allocating the cost of new transmission.
• More limited forms of cooperation also yield benefits such as cost savings, even though the benefits might not be as large as they would be with more comprehensive frameworks for cooperation.

The literature reviewed in this report shows there are many factors that policymakers in California and other states must balance in choosing regional cooperation solutions that are right for the time. However, experiences in other parts of the country suggest regional cooperation is not one single decision. Rather, it is an evolutionary progression. In the Western US, participant experience with the WEIM provided a foundation for CAISO’s development of the EDAM, therefore it is reasonable to expect that participant experience with EDAM and WRAP might over time inform the next phase of expanded regional cooperation.

¹ Besides CAISO, other BAs involved in the preparation of this report included the Balancing Authority of Northern California, the Turlock Irrigation District, the Western Area Power Administration, the Los Angeles Department of Water and Power, NV Energy, PacifiCorp, and the Imperial Irrigation District.

² See Appendix A for the full text of ACR 188.

³ There is no endorsement by NREL, expressed or implied, of any position that any agency of the State of California
may take in discussions with other western states on regional cooperation.

⁴ The WEIM began in 2014 and now includes 19 utilities across the Western United States and Canada. Three additional utilities will join the WEIM effective April 1, 2023.

⁵ An RTO is an entity of sufficient regional scope that maintains operational or functional control of facilities used for the transmission of electric energy in inter-state commerce, and ensures nondiscriminatory access to these facilities. Federal Power Act Section 3(27).

⁶ For a summary analysis, see Gardner (2019).

⁷ This view was also stated by several stakeholders who commented on a preliminary draft of this report.

⁸ The issue of CAISO’s governance structure is discussed further in Section 1.3.