A bill recently introduced in the California Legislature, Assembly Bill (AB) 538, would open a pathway for the California Independent System Operator (CAISO), which oversees the state’s electric grid, to expand to more states in the West, a process known as grid regionalization. Whether California should proceed with expanding its statewide grid operator into a Western regional transmission organization (RTO) is a complicated discussion that I’m going to sidestep for now. But let’s assume California legislators pass AB 538. What happens next?
First, CAISO would need a new governance and decisionmaking system for this Western RTO. It’s unclear what this would look like and it’s easy to fall down the rabbit hole of possibilities. But RTOs are not a new concept. There are many in the eastern part of the country that have been operating for decades. Looking at these RTOs is a helpful exercise to sort through the speculation of how a Western RTO could be set up.
To better understand what works and what doesn’t in an RTO, I checked with my colleagues Sam Gomberg, who follows the Midcontinent Independent System Operator (MISO), and Mike Jacobs, who follows the PJM Interconnection and the New England Independent System Operator (ISO-NE), to find out what makes a good RTO.
Good RTOs must include a broad set of stakeholders
Although the RTOs in the eastern United States vary in their governance structures, they generally have an independent board of governors that approve final decisions as well as stakeholder sectors that vote on issues. All members are organized into these stakeholder sectors with common sectors including transmission owners, power generation owners, and utilities.
As it’s currently organized, CAISO differs from the other RTOs in that California’s elected officials appoint and confirm its governing body, and thus CAISO policies are often aligned with California state policies. Rather than having formal members and sectors, CAISO’s stakeholder process—that is, how advocates, experts and the general public participate in decisions—is technically open to anyone and often driven by CAISO staff. But AB 538 would fundamentally change CAISO’s governance structure, transitioning it to a system much more similar in style to the RTOs in the East.
Who gets represented by a sector and how voting power is split inevitably affects an RTO’s policies and grid outcomes. Ideally, the sectors would include a broad range of stakeholders, particularly community, environmental, and environmental justice-based groups, which would make the RTO more accountable to the people it serves. But in many of the Eastern RTOs, a truly representative stakeholder structure hasn’t quite gone as planned.
As Gomberg points out, “MISO arguably has the most robust sector representation on paper, but in reality, it still falls short in enabling inclusive decisionmaking. Take the end-use consumer sector, which you might assume would represent community or environmental justice groups, or ratepayer advocates. It’s actually dominated by corporate and industry interests.”
Jacobs, meanwhile, notes similar issues at PJM, where “incumbent stakeholders have accrued so much power that they can limit the growth of new market entrants, like clean energy generators. These newcomers need better protections if we’re going to move RTOs on clean energy policies and facilitate a faster clean energy transition.”
If California transitions to a new Western RTO, that RTO will have to do a better job than existing grid operators in enabling underrepresented groups to meaningfully participate. For example, it is difficult for community-based advocates to participate in many Eastern RTOs’ stakeholder meetings because they have limited capacity to attend all-day, in-person meetings, which are often controlled by industry groups. There needs to be new channels for these stakeholders to engage. Likewise, RTOs need to actively solicit their input.
In addition, a new Western RTO could facilitate transparent and inclusive stakeholder involvement by creating community and environmental-based sectors, shifting voting power to be more equitable, opening meetings to the public and news media, improving staff interactions with the public, and increasing face time between sectors and the RTO board.
The takeaway: A Western RTO will need to have its eyes wide open about pitfalls in the kind of sector-by-sector stakeholder voting system used in the East and intentionally reform the systems to more fully include underrepresented stakeholders with new ways for them to engage in decisionmaking.
Good RTOs must align with their states
To achieve the touted benefits of regional cooperation, state and RTO policies should be aligned. Unfortunately, that’s often not the case.
Jacobs, for example, has found that “PJM is often openly hostile to state policies. The governance has swung heavily in favor of industry and fossil fuel incumbent interests. They can push for policies that hurt state efforts to expand renewable energy.”
If AB 538 creates a Western RTO, California will lose its oversight over the governing board as it currently exists. Giving up this influence has been a major concern in the past for decisionmakers considering a CAISO restructuring. It’s certainly valid. Conflict between states and the RTO could weaken the potential benefits of regional cooperation and make it more difficult for states to pursue their clean energy goals. California is particularly sensitive to this given its more ambitious energy goals, especially achieving 100 percent clean energy.
While RTOs generally have an affiliated organization of the states as a “guiding body,” they often lack any real decisionmaking power. This is a divide that foreshadows dysfunction. A new Western RTO should give states membership, a direct line of communication with the RTO’s leadership, and meaningful voting power in the RTO via the sectors, or create another structure that would better align policies in the long-term and hold the RTO more accountable to state interests.
Alternatively, and perhaps preferably, a Western RTO could explicitly state from the outset that facilitating the success of state energy goals—and facilitating a resolution when state policies conflict—is a key purpose of the RTO’s existence. This may limit which states are willing to join, especially those without strong clean energy policies, but an explicit policy would better align the RTO’s purpose with state goals. While less state participation would mean losing some efficiencies of scale, it would speed up decisionmaking and make a Western RTO more effective in facilitating state policies.
The takeaway: A new Western RTO governance structure should be designed so that states have substantive representation and access to decisionmakers like other stakeholders. Working with a mandate to reflect state interests would help the RTO operate more effectively to achieve the broader energy transition goals for the region.
Good RTOs should help states build consensus
In a similar vein, it’s important that the states participating in the RTO can reach consensus. If a Western RTO is going to be successful, states will have to find a way to come together and resolve disagreements in a timely manner.
Transmission cost allocation is a prime example where conflicts among states inevitably arise. Coordinated transmission planning is the foundation for facilitating regional efficiencies, and states agreeing on cost allocation terms is a strong green light for the RTO to proceed with a new transmission build. But when it comes to negotiating these terms, as Jacobs points out, “everybody’s gaming to get others to pay.”
We’ve also seen this friction among states happen on the clean energy side. At PJM, disparate state policies (think Maryland versus West Virginia) make it difficult for the RTO to proceed with stronger policies to support a transition to clean energy. Looking at the mixed bag of state energy policies in the West, a Western RTO will run into similar issues if states aren’t aligned.
The takeaway: A Western RTO will need a platform to facilitate state consensus-building and an understanding by states (including California!) that participating in the RTO will require some compromise. Negotiations around cost allocation and transmission will ultimately need to happen among states, but the RTO has an important leadership role in enabling these conversations.
Good RTOs need to plan ahead
The energy landscape is changing across the board. There are new technologies, changing regulatory structures, and new state energy policies. It’s a lot to keep up with and it raises the point that RTOs need to be more forward-looking.
A quick example: At ISO-NE, the states’ renewable energy standards do not inform the RTO’s transmission planning. That disconnect between what the states are planning to do and what the RTO is planning to do could lead to significant problems for the future grid. A Western RTO should avoid this setup.
By contrast, Gomberg gives kudos to MISO as a leader in proactive long-range transmission planning. That RTO is working to evolve its transmission network to account for the changing resource mix (i.e. more renewables, less fossil fuel) feeding into the grid and areas of transmission congestion. And forward planning is particularly important given the long time frame needed to build out transmission.
However, he adds, “Beyond transmission, MISO has struggled to adapt to the transition happening across its system. The growth of demand response, for example, is an opportunity to improve reliability and resiliency in the grid, but MISO hasn’t properly implemented a market design to incentivize the integration of these demand response technologies.”
Essentially, RTOs need to do a better job thinking about what the future grid should look like and design for it. If that means electric vehicles (EVs) should be able to send power to the grid to support reliability, then RTOs need to ensure that the technology works with the grid and enact policies to encourage EVs to contribute. Considering the critical role California consumers played last September to help the grid avoid blackouts, distributed energy seems like a particularly relevant technology.
The takeaway: RTOs are typically slow-moving entities, but that hasn’t been a problem in the past when the grid was simpler. That’s no longer the case, and the urgency to modernize the grid is painfully apparent. Incorporating future-focused planning processes into a Western RTO from the outset may help it avoid a few missteps and develop a clean, reliable, affordable grid faster.
A new Western RTO shouldn’t be limited to what exists
A Western RTO will inevitably require tradeoffs for California, and whether those tradeoffs are worth it is a different conversation. But if California joins a Western RTO, the path will be uncertain. This is where learning from other RTOs’ trials and errors can help all parties guide a new Western RTO’s direction. It’s not about replication, but rather, it’s about applying other RTOs’ experiences to create an RTO that better supports the West’s goals and serves its residents’ needs.