Monday, April 24, 2017

Transmission, Part II: A Western RTO?

By Joni Sliger, Energy Fellow
"Photoshop art created from two NREL-Image Gallery
photos of sunset view of electrical power towers combined
with wind machines."
Credit: NREL and Raymond David (Photo Illustration)

A shortage of transmission capacity is a major constraint to the development of renewable energy resources, as I noted in my first blog post in this series on transmission. The Western Interconnection suffers from this shortage—termed a transmission constraint—as well as from transmission congestion, though not as much as other areas of the U.S. do, according to the Department of Energy’s 2015 National Electric Transmission Congestion Study. (The Western Interconnection is the aggregated grid that connects each transmission and distribution system together in all or part of the fourteen western continental states as well as parts of Canada and Mexico.) This post explores one popular idea for improving transmission systems in the West: forming a western Regional Transmission Organization (RTO).

What is an RTO?

An RTO is a third-party entity that manages the transmission systems of every participating utility within the RTO’s territory. (The term RTO is often used interchangeably with the term independent system operator, or ISO, despite some technical differences. As noted below, an RTO might take the form of an ISO.) An RTO balances the grid by managing the dispatch of electricity generation and by operating several wholesale power markets (such as a ‘day-ahead’ market and a ‘spot’ market). As I discussed in my last post, balancing the grid is vital to maintain the proper frequency and to avoid power outages. Ten RTOs now operate in parts of North America, such as the California ISO (CAISO). Together, they manage about two-thirds of the electricity sold in the U.S.

For a third party to manage the transmission system as an RTO, the Federal Energy Regulatory Commission (FERC) must approve it. FERC encourages the “voluntary interconnection and coordination” of electric facilities, such as by RTO formation, pursuant to FERC’s mandate in Section 202(a) of the Federal Power Act of 1935 (currently codified at 16 U.S.C. § 824a) to provide for a more efficient electricity system.

In the 1990s, FERC began taking significant action to promote RTO formation, when grid management grew increasingly complex as more independent power producers (IPPs) (that is, non-utility electric generators) began seeking transmission access and as some states began restructuring their monopolistic electricity sectors. In 1996, FERC issued Order No. 888 to require that transmission owners provide access to transmission to others on the same terms as they provide to themselves. This is called ‘open access transmission’ and discourages discrimination against IPPs. FERC noted one way to comply with this order would be to have an ISO manage the grid, where the ISO offers everyone the same terms. Order No. 888 thus described several “principles” to guide the formation of ISOs. The term RTO arose after the issuance of Order No. 888. In 1999, FERC promoted RTOs (which it said could take the form of ISOs) in Order No. 2000, which required all transmission owners to propose an RTO for FERC’s approval, report on efforts to form an RTO, or explain why the owner had not pursued participation in an RTO. Order No. 2000 also described the key characteristics and functions of an RTO. FERC does not require a “‘cookie cutter’ organizational format” but will review any proposal that meets its standards.

In short, an RTO is a FERC-approved third-party entity that manages the grid.

What are the Benefits of Having an RTO?

FERC promotes RTOs as a way to encourage a more competitive marketplace, which should theoretically reduce electricity rates for consumers. The ISO/RTO Council notes four major benefits are greater reliability, efficiency, transparency, and market innovation. For example, most renewable energy sources (other than those necessary to comply with a state’s Renewable Portfolio Standard) have been built in RTO territory, where intermittent suppliers, such as solar and wind power generators, enjoy a more favorable market. Short-term markets, such as a spot market, enable intermittent suppliers to sell power as they generate it.  

Another noted benefit is that RTOs eliminate a pricing inequity known as “pancaked rates.” To deliver power, producers must buy transmission services. When the transmission owners operate separately, each can charge a producer for using its transmission system. The pile-up of charges is known as rate pancaking. The total fee may be too high for a producer to afford to use transmission and therefore hinders long-distance transmission, even if necessary to get rural renewable power to power-hungry demand centers. The expense of facing pancaked rates rises with the number of systems one crosses; when one is participating in an RTO, one pays for transmission services but only from the RTO. Rates are not pancaked, which is a major benefit of RTO participation. Indeed, FERC describes the elimination of rate pancaking as a “central goal” of its RTO formation policy.

Additionally, an RTO enables greater efficiency by, for example, consolidating balancing areas. A balancing area is the territory within which an entity (called a balancing authority) must balance the grid to ensure reliability. A balancing area may be as small as an individual utility’s territory. By participating in an RTO, that utility can join its balancing area (or “footprint”) to those of other participants. As can be seen in the following map of the United States, each RTO manages its regional territory as a single balancing authority.  An RTO thus creates a geographically broad wholesale power market that enables participants to buy and sell power produced throughout a large area. This means, for example, that an excess of wind power produced in one state could quickly and easily be transmitted to serve demand in another state.

Credit: Energy Information Administration

Is a Western RTO Possible?

As one can see in the map above, most of the West is outside of RTO territory. CAISO only operates in portions of California and Nevada. Recognizing the potential benefits of forming an RTO, entities in the West have been discussing forming a western RTO. Such discussions are not new. In the early 2000s, there was a proposal called “RTO West.” However, the proposal failed, in part because of the California energy crisis and because of opposition to changing the Bonneville Power Administration’s operations (and potentially raising its very cheap rates). Nevertheless, efforts to form a western RTO continue today.

I have blogged previously on a proposal for PacifiCorp to join CAISO, which could enable more renewables to come online and save consumers money at the same time. Proponents continue to push to expand CAISO and form a western RTO. As an example of the incremental success, this past February, the Balancing Authority of Northern California agreed to participate in CAISO’s Energy Imbalance Market (EIM) starting in 2019. (Though an EIM does not offer all the benefits of an RTO, it has provided significant economic benefits to participants). Unfortunately, the election of (pro-coal) President Trump and concerns about maintaining state control have dampened some efforts to form a western RTO, but proponents promise to persist.

Hopefully the movement to expand CAISO and form a western RTO continues to spread and will bring the benefits of an RTO to the West. Until then, renewable developers may continue to face the unnecessary costs of pancaked rates, for example. 

Wednesday, April 19, 2017

A Stable Climate is a Fundamental Right and a Massive Economic Opportunity

By Ed Jewell, Energy Fellow
Photo Credit: C-SPAN. James Inhofe talking nonsense.

Youth plaintiffs from Oregon have filed a lawsuit against the United States government in the District Court of Oregon alleging that the federal government’s failure to take meaningful action on climate change violates a fundamental right held by the plaintiffs that is protected by the U.S. Constitution. Last November, youth plaintiffs survived a motion to dismiss, and Juliana v. United States of America is now scheduled to go to trial in either late 2017 or in 2018 (barring any successful delay tactics on behalf of the federal government). 

For more background on the case, see this Charged Debate post from February 7, 2017 in which I provide an overview of the parties and the plaintiffs’ legal theories.

The plaintiffs in Juliana allege that the right to a stable climate is an unenumerated fundamental right protected by the U.S. Constitution. Because the federal government helped cause the danger created by an unstable climate, they allege that the government has an affirmative duty to restore the climate to a stable condition.

The Due Process Clause of the Fifth Amendment provides, “No person shall be . . . deprived of life, liberty, or property, without due process of law.” Plaintiffs in Juliana argue that the federal government has violated this Constitutional guarantee through the leasing, permitting, subsidizing, and promoting of fossil fuel development at home and abroad. The direct result of these activities is the combustion of fossil fuels, which inevitably results in the release of greenhouse gases. The accumulation of greenhouse gases in the atmosphere leads to an altered climate system with property, health, and livelihood impacts on plaintiffs. Therefore, the plaintiffs assert, the government’s direct actions have helped to create the harm imposed upon plaintiffs’ liberty and property interests without satisfying the requirements of due process.

An “unenumerated fundamental right” is a right that is not explicitly written in the Constitution but is nonetheless protected by the Constitution. In McDonald v. City of Chicago, the U.S. Supreme Court held that it is proper for the courts to recognize an unenumerated fundamental right if it is either: 1) deeply rooted in the history and tradition of the U.S., or 2) fundamental to our nation’s scheme of ordered liberty. Judge Aiken, the District Court of Oregon judge hearing Juliana, wrote, “I have no doubt that the right to a climate system capable of sustaining human life is fundamental to a free and ordered society.”

The right to privacy is an example of another unenumerated fundamental right protected by the Constitution, under which numerous more specific rights are protected. The U.S. Supreme Court rested its decisions in Roe v. Wade (articulating a woman’s right to choose whether or not to have an abortion), as well as its decision in Griswold v. Connecticut (upholding the right to purchase contraception regardless of marital status), and its recent decision in Obergefell v. Hodges (articulating the right to marry the person of one’s choosing, even if that person is of the same sex) under the right to privacy. While the right to choose, the right to purchase contraception, and the right to same-sex marriage are not explicitly protected by the Constitution, they are all protected under the umbrella of an unenumerated right to privacy.

The proper relationship between the judiciary and the political branches is a key theme in Juliana. On the one hand, it is the judiciary’s duty to interpret and declare the law. On the other hand, the Constitution allocates policymaking authority to the political branches. Because the courts do not write laws, judges exercise caution before pronouncing an unenumerated fundamental right. However, certain terms in the Constitution, such as the word “liberty” in the Due Process Clause, are undeniably vague and require interpretation by the courts. As the Court recently stated in Obergefell v. Hodges, “[t]he identification and protection of fundamental rights is an enduring part of the judicial duty to interpret the Constitution.” Thus, Juliana hinges on the question of whether the government’s failure to take meaningful action on climate change has crossed the threshold from mere policy decision to constitutional violation.

Judge Aiken was careful to limit her holding in her Order on defendants’ motion to dismiss to recognizing that a “climate system capable of sustaining human life” is a fundamental right. In so limiting her holding, Judge Aiken took care to ensure that the judiciary is properly fulfilling its Constitutionally prescribed role as a check on the political branches, but is not straying into policymaking. Judge Aiken did not state that there is a Constitutional right to a climate system as it existed before the industrial revolution, or to a pristine environment totally devoid of human impact. To make such a declaration would be to make a policy determination that environmental purity is more important than other policy objectives. Instead, Judge Aiken held, “In this opinion, this Court simply holds that where a complaint alleges governmental action is affirmatively and substantially damaging the climate system in a way that will cause human deaths, shorten human lifespans, result in widespread damage to property, threaten human food sources, and dramatically alter the planet’s ecosystem, it states a claim for a due process violation.” Seems fair.

If plaintiffs ultimately succeed on their claim that there is a fundamental right to a stable climate capable of sustaining human life, the judiciary’s authority to constrain and direct the actions of the executive and legislative branches will be tested to its full extent. Additionally, the judicial system’s ability to act expeditiously and require remedial action of the political branches on a timeframe that is meaningful in relation to the scientific imperatives of quick and decisive action on climate change is uncertain. Without all three branches of government pulling together in the same direction, the U.S. Constitutional system favors maintenance of the status quo over quick and decisive action.

Juliana is an important and interesting case that is pushing the conversation on climate change and potentially reframing the issue from one of partisan bickering to one of Constitutional proportions, but climate change mitigation will require the political branches to cooperate. While Juliana seeks to compel the judiciary to hold the political branches to account, this alone is not enough.

The viability and benefits of a transition to a clean energy economy must be broadly recognized in order for climate change to be mitigated in a meaningful manner. On an optimistic note, solar energy already provides more jobs than the coal, oil, and gas industries combined. Additionally, because of the disbursed nature of renewable resources, renewable energy development has inherent potential to benefit landowners in rural districts, potentially providing more disbursed vested interests and greater overall political viability than a moral call to action on climate change.

Juliana is a powerful component of the transition to a sustainable economy because it brings to light the regrettable reluctance of the political branches to fulfill their obligations to the American people to maintain the conditions necessary for ordered liberty to prevail. Juliana alone, however, is not sufficient to achieve a stable climate system. To successfully mitigate climate change, more people must experience the economic benefits of renewable energy, political pressure must be increased, technological development must continue, state and local governments must fill the void in the absence of federal leadership, and private companies must lead the way until sense returns to the political branches.