Crucial California energy reform hinges on critical fix to Senate Bill 540 | Opinion

The electric grid is a giant machine that needs to constantly balance supply and demand. Wind and solar power are cheap, fast to build and emissions-free, but it’s tricky to balance the grid with them because the sun doesn’t always shine and the wind doesn’t always blow.

Right now in the West, this job is unnecessarily hard (and expensive) because we have 38 different authorities scrambling to buy power to keep their corners of the grid running. A bill before the California Legislature would place the state as a leader in a new western-wide market that is electricity’s promising version of one-stop shopping.

Today, these 38 different “balancing authorities,” from Oregon to New Mexico, manage segments of the Western grid, moving electricity across transmission lines from power suppliers to utility customers.

Utilities within each authority shop around for the best deals for their customers, but today their options are limited: They can sign one-off, long-term deals with a specific wind farm or solar developer; they can buy electricity in increments in small, corner-store style markets in their own neighborhood; or they can participate in a voluntary venture known as the Western Energy Imbalance Market, launched a decade ago by the Folsom-based California Independent System Operator.

The Western Energy Imbalance Market is the largest electricity market in the West, with participants from British Columbia to New Mexico. Its broad geography has helped with efficiency: If there’s a heat dome in Southern California but it’s cool and windy in New Mexico, utilities serving Los Angeles can buy cheap wind power from New Mexico even without a contract. The same thing applies if a winter storm is battering Idaho and California has excess solar. Those capabilities have saved participants an estimated $7 billion over a decade.

But the Western Energy Imbalance Market can only handle transactions up to 15 minutes ahead of when the power is needed. And California has also constricted its electricity governance to the boundaries of the state going back to when the California Independent System Operator (CAISO) was created in the first place.

Breaking down borders and barriers is not possible if the Legislature doesn’t amend and pass Senate Bill 540, authored by Sen. Josh Becker, D-Menlo Park.

This legislation was crafted to address a simple request that nearly every utility and power supplier in the West has made to CAISO: They want a say in approving market rules. Without that, they’ve said they won’t join.

It’s a reasonable ask, and it’s how bulk electricity markets have operated in the Eastern U.S. for a long time. SB 540 would accommodate it by allowing CAISO to transfer the oversight of energy market rules to a nonprofit regional organization with an independent board, so long as a series of conditions are met that ensure the interests of Californians are protected.

But SB 540 is on the wrong track after a poison pill was inserted in the Senate to create a special oversight council that would undermine the market’s independence. The bill needs to be amended to strike the council and return to its original form.

If that doesn’t happen, the extended day-ahead market will fail to attract customers and grow to the size that would make it successful. And if it fails, the Western Energy Imbalance Market will begin to decay, leaving California worse off than it is today.

That’s because the extended day-ahead market has a competitor — the Arkansas-based Markets+ — that threatens its viability.

Markets+ is being launched by a grid operator in Little Rock known as the Southwest Power Pool. It offers many of the same benefits as the extended day-ahead market plus an independent board. As a result, it’s signing up high-value customers such as Bonneville Power Administration, the largest power supplier in the Pacific Northwest. Bonneville chose Markets+ because of its independent governance even after modeling showed it could save more money with the extended day-ahead market.

If that trend continues and Markets+ dominates the West, California will lose trading partners it depends on today. Those who join Markets+ will use the Southwest Power Pool’s platform for all their energy needs, including those currently served by the Western Energy Imbalance Market.

Cooperation beats isolation. Lawmakers should remove the poison pill from SB 540 and strengthen California’s energy alliances before it’s too late.