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Western US Utilities Eye California ISO Expansion by Staff Argus, April 27, 2015

Houston -- PacifiCorp's surprise news that it will explore full participation in the California Independent System Operator (ISO) caught a few market participants off guard, but has now garnered attention from regulators, power producers and utilities.

"We are avidly monitoring it," New Mexico-based PNM Resources chief executive Pat Vincent-Collawn said at the IHS CERAWeek energy conference in Houston.

PacifiCorp, which serves 1.8mn customers in parts of California, Oregon, Washington, Utah, Wyoming and Idaho, controls a 16,300-mile (26,243km) transmission grid. The Portland-based company and the ISO plan to complete a feasibility study on full ISO participation this summer.

"Having additional areas join the California ISO is fine with us," independent power producer Calpine chief executive Thad Hill said.

Calpine operates gas-fired generation in several US regional grid organizations as well as in California. "What matters a lot more to us are the rules that govern competition in the markets," Hill said.

News that the ISO and PacifiCorp were in talks came after less than six months' experience with the ISO-led western energy imbalance market.

If PacifiCorp decides to join the ISO, the transition could occur in 2017.

"Southern California Edison is highly interested in this possible geographic expansion and looks forward to definitive analysis of the reliability and environmental benefits to our customers," senior vice president of regulatory affairs Ron Nichols said recently.

Integrating a growing surplus of renewable resources across a larger geographic area would help California. But PNM's Vincent-Collawn said she will focus on customer benefits.

"Key for us is to present a business case that would show benefits for customers," Vincent-Collawn said. "If we feel we could bring benefits to our customers in New Mexico, we would propose it to our regulators."

Initial reaction from the Bonneville Power Administration was non-committal. The federal power marketing agency said it is still absorbing the news and considering its implications. Transmission infrastructure operated by Bonneville could be critical to expanding ties between California and the Pacific northwest.

But Bonneville is pursuing a separate energy imbalance market with members of the Northwest Power Pool's market assessment and coordination committee, including British Columbia's BC Hydro, Seattle City Light and Portland General Electric.

Washington state utility Puget Sound Energy said last month it would follow PacifiCorp into California's imbalance market next year rather than wait for the northwest market to develop. Nevada utility NV Energy will join the California imbalance market in October.

Federal Energy Regulatory Commission (FERC) member Colette Honorable in comments at CERAWeek noted how quickly market evolution is occurring in the west.

Speaking about markets generally, Honorable said the commission is closely watching the expansion activity. "We want them all to work," Honorable said. Regulators want to "support development of markets which provide the lowest-cost resource, where feasible."

ISO governance and cost allocation for transmission will be key challenges that FERC will help to resolve. ISO board members are California political appointees -- an arrangement regulators in other states are not likely to accept easily.