Environmental Protection Clinic Assesses Regional Electricity Market in the Western U.S.

A new report released by the Environmental Protection Clinic (EPC) assesses the clean energy policy benefits and legal risks of creating a regional wholesale electricity market in the Western United States. The EPC is an interdisciplinary clinic of Yale Law School and the Yale School of Forestry & Environmental Studies (FES),

The California Independent System Operator (CAISO) currently runs a competitive wholesale electricity market in California and a small part of Nevada. Many clean energy advocates believe that expanding this market would help bring more renewable resources onto the grid and reduce the region’s use of fossil fuels. However, some stakeholders are concerned that the creation of an integrated Western electricity market might jeopardize California’s clean energy initiatives. The report found that the move to a regional wholesale electricity market “would enable more efficient, affordable, and reliable integration of renewable resources without increasing the legal risk to California’s clean energy policies.” The report was highlighted in a recent article in the San Francisco Chronicle.

As the report explains, the electric grid in the Western United States is physically interconnected but independently managed by 38 separate balancing authorities, including CAISO. Each of these 38 balancing authorities independently dispatches electricity resources within its area in order to balance the supply and demand for power. This balkanization creates inefficiencies in how the electric grid is run, often leading to the underutilization of renewable energy resources, the report said. While CAISO has taken some steps in recent years to offer market structures that extend beyond its traditional footprint, the report found that these efforts do not provide access to the day-ahead energy market, through which the majority of electricity is bought and sold. The report’s analysis showed that creating a full-scale regional electricity market would help achieve California’s ambitious renewable energy goals. The report also found that this change would “assist California in meeting its [clean energy policy] objectives by creating more market opportunities for renewable energy, reducing greenhouse gas emissions and other pollution, and improving the transmission system’s efficiency and reliability.”

“The benefits of a fully integrated regional electricity market in the West are staggering,” said Franz Hochstrasser (MEM ’18) one of the four co-authors of the report. “This is an opportunity to create jobs, save more than a billion dollars annually for utility customers, improve the efficiency and reliability of the grid, and cut carbon pollution from the energy sector in California by about 10 percent by 2030.”

However, some stakeholders have expressed concern that the move to a regional electricity market could expose important California clean energy policies to heightened legal risks. Chief among these concerns is that state policies might be challenged as violating the dormant Commerce Clause or as conflicting with (and thus being preempted by) the Federal Power Act. The report analyzed three major California policies — the state’s renewable portfolio standard, its greenhouse gas emissions performance standard for long-term contracts with baseload power plants, and its carbon cap-and-trade program — and concluded that the creation of a regional system operator would not make challenges under the dormant Commerce Clause or the Supremacy Clause more likely to succeed.

“Transitioning from a single-state to a multi-state wholesale electricity market will not increase the risk that California’s clean energy policies face from challenges under the Supremacy Clause and dormant Commerce Clause,” the report found. “Making the necessary changes to allow CAISO to add out-of-state balancing authorities as full-scale members will improve the reliability of the Western grid and will help facilitate cost-effective renewables integration without jeopardizing California’s existing clean energy policies.”

Each semester, the Environmental Protection Clinic solicits project proposals from NGOs and government agencies. The Natural Resources Defense Council (NRDC) proposed this project and provided valuable advice and feedback to the student team throughout the semester. In order to gain a deeper understanding of the electricity market in California, three members of the student team travelled to Northern California in March to meet with NRDC and CAISO officials.

“This project provided a wonderful opportunity to explore an issue that is complex but extremely consequential for our country’s energy future,” said Juliana Brint (J.D. ’17), a co-author of the report. “We hope that our analysis will contribute to the conversation by giving California legislators reassurance that the move to a regional market would create opportunities to bring more renewable energy resources onto the grid in a way that is economically efficient and does not put the state’s important clean energy policies at risk.”