Episode 130: Partnership Key to Reliable Power Grid

Welcome to the Workplace, a podcast by Cal Chamber. I'm Alan Zarenberg, president and CEO of the California Chamber of Commerce. Joining me on the podcast today is Elliot Mainzer, president and CEO of the California Independent System Operator, what we often refer to as Cal ISO. And I think people have hearing about CAL ISO more today than they have in the past because it's a crucial element in the reliability of our delivery of our electrical system here in California. Welcome to the podcast. And Elliot, maybe you could start off talking a little bit about CAL ISO, how the Independent System Operator works, and also on top of that, how important it is to our reliability. Maybe you could start a little bit with that. So I'll turn it over to you, Elliot. Thanks for joining us.

Happy to do it, Alan, and it's a pleasure to be here. I really appreciate the opportunity. The California ISO is the entity that operates about 80% of the transmission grid in California and operates the energy market for about 80% of the state. We are the entity that at the end of the day, has to make sure that the supply of electricity matches the demand for electricity all the time across the course of the year. And, of course, all of us recognize how important reliable and affordable electricity is to everyone in California, not to mention our business community. So I really appreciate the opportunity today to talk about what's happening in the energy patch. What's happening? Reliability. And the steps that we're taking at the ISO and taking certainly in partnership with the major regulatory bodies like the California Public Utilities Commission and the California Energy Commission, to make sure that we can keep the lights on as we take on this big transition towards a decarbonized power system.

Great. Maybe you can talk a little bit about that, because where the vulnerability lies, I assume, is in the hottest months of the year, the end of August and September.

The sun doesn't shine as long during the month of September and October as it does in June. We in California have made a decision over the years to rely more on solar power.

Rather than certain fossil fuels. That creates opportunities for us to be leaders in using renewable power, but it also creates situations to make sure that we have our sufficient generation of power. Maybe you can talk a little bit about how you're working not just in California, but throughout the western United States to make sure that we can sustain that generation, to keep our lights on.

That's a great question. And when I step back and I think about the big picture, I think we really have the confluence of three major factors that are going on right now starting inside California first of all, the state has clearly made a very conscious policy decision to move away from fossil fuels towards cleaner energy generation technologies. And just in the last several years, we've removed a lot of fossil fired generation from our system, particularly natural gas plants. At the same time, we've brought on large amounts of new wind and particularly solar resources which behave differently than those traditional resources. And at the same time, we've seen, I think, an acceleration of the climate change signal. If you look back just to July 9, where we had very, very hot temperatures in California and in other parts of the west, we had a fire in Oregon that took out the major transmission lines coming into California. At a time when we're continuing to import a lot of electricity from other states.

We are seeing our grid now being stressed in very new ways, particularly after sunset, what we refer to as that net peak period. We are in a process right now of having to really accelerate the deployment of new clean energy generation technology and transmission to catch up with this changing climate signal in this changing pattern of load and demand. And it's taking a lot of focus, a lot of energy, and really an incredible sense of urgency from the governor and right through all the state agencies and to all of us at the ISO. We have our work cut out for us, but I think we feel a tremendous sense of accountability because just think about the business community in California. Folks really rely on affordable and reliable electricity and we don't want to have our grid operating at the edge for the foreseeable future. So we really need to step up that sense of focus and urgency to address these issues.

I think our audience, of course, right here are business people and they're also the people who are impacted the most by reliability. But at the same time, I think one of the purposes of our discussion today is to be able to point out to them how they can be part of the solutions to make sure that there are no interruptions in reliability. I know in talking to certainly some of the large energy users that pricing is important, but as they explained to me in the administration, one day we lose electricity for a whole day. That's about what it cost us in revenue for our energy for the whole year. Reliability is crucial. Maybe you can talk about how.

When we're vulnerable at the end of the day, when the sun starts going down and people are getting home from work and using their electricity, and that also impacts to make sure that we have a continuous and reliable supply for our businesses.

That's right. There are many members of the business community in California who have Been providing really valuable, valuable, what we refer to as demand response solutions to the state for years. Just this summer, going back to actually the middle part of June, with summer starting early and back into July 9, we were able to tap into several hundred megawatts, considerable amount of demand response, reduced electrical consumption from large industrial customers who operate under programs administered with those utilities. And quite frankly, that reduction in demand from those industrial customers was a major variable in our ability to avoid rotating outages so far this summer. And those programs are valuable, we recognize, and the ISO doesn't actually administer those programs, but we know in talking to the California Public Utilities Commission, talking to the utilities, that those programs need to be administered very carefully. It can be disruptive to consumers on the business side to have to reduce their demand during critical periods. But it is a tool that we have been using during emergency conditions. And it's something that we're likely to have to rely on for the next couple of years at least as we move through this real transition period. I think over time. The model for what we are referring increasingly to as load optimization that we want to develop is to work with businesses and residential consumers who have some flexibility to move their demand from sort of peak periods to off peak periods or from that period after sunset when things are really stressed to earlier in the day or later in the day, but who can do that without major disruptions to their business cycle or even their just day to day comfort. I think that we're now in the process of trying to reimagine what that demand response and load flexibility model needs to look like in California. So they can be done with advanced technology. It can be done on an automated basis. Quite frankly, it can be done in a way to help us avoid grid emergencies rather than sort of saving us when we're in the middle of them. So it's going to be a different model forward to working with the business community on that. Yes.

So to that point, which I think is, you know, if people know what their responsibilities could very well be, as their businesses are, if they can plan in advance and know that, as you pointed out, you know, immediately following sunset, which sunset occurs much earlier in September than it does in June, so we have a, a longer period of vulnerability. Are there opportunities to work with you with ISO to be able to know exactly when they can participate in your programs to make things work?

Well, absolutely, I would say, I will say this. I think right now the principal point of interface for the business community to work on these type of programs really is with their host Utilities, and probably to a large degree with the California Energy Commission, the California Public Utilities Commission. That's where the bulk of the programs are being administered and designed. What we have tried to do, and we will continue to do, is to define the time periods when those things are problematic. So certainly what we've said is it's really that 4pm to 9pm timeframe during times of the year, particularly in the summer, when we know it's simultaneously very hot in California, and it's also going to be very hot in the Northwest and in the desert Southwest and the Intermountain west, which are places that we import electricity from. What we've been doing is we've been communicating much more actively. We use a tool called a heat Bulletin that gives Folsom advance notice. We also trigger what are referred to as flex alerts, which are that indicator that we're moving into stressed grid conditions. And then of course, we've been working with the media and the utilities to try to get that message out more accurately. So you can pretty much think right now, I would say that the grid is getting stressed during west wide heat events after sunset. And that four to nine time period is when it happens over time. Now our goal, of course, is to try to get away from having to call flex alerts and constantly be on the edge of sort of an anxious kind of operation. And we want to try to systematize this more effectively. But I will say that any additional either voluntary participation or enrollment in the emergency load reduction program at the California Public Utilities Commission or with their utilities, or even participating in the new sort of statewide demand response effort that Governor Newsom initiated as part of his Emerg Emergency Proclamation a couple weeks ago, would be very helpful as we try to navigate these next couple of summers.

Well, that's great information and to be able to work with your local utility to make sure that you're part of the solution. So even though you may be able to reduce demand or your need for electricity, you don't necessarily get in a position where you don't have any at all. So that's what we want to make sure of and make sure everybody has access, whether they be a residential consumer or a business. So maybe you could just touch on for a minute here. The drought has impacted certain hydro generation in California and the West Coast. I imagine just adding one more layer of challenges to your goal to maintain enough generation now.

That's exactly right. And you know, coming out of last August, with the rotating outages of last August, the state, you know, we Took a number of actions. There was some additional procurement of additional capacity. We pretty good amount of new battery storage, which is actually really well equipped to store energy during the day and reinjected in the grid after sunset. There were a number of, I think, positive steps that were taken. But by the time we got to about April, May, we started to see conditions really moving in the wrong direction. The drought, which really is in many ways unprecedented across the west, started taking a real toll on the hydroelectric production here in Californ. I think you saw just recently, Lake Oroville is no longer producing electricity because its reservoir has dropped to a critical level. The other adjacent areas of the west that we import electricity from, particularly the Pacific Northwest, are also experiencing below average conditions. And so that took probably close to close to over 1,000 megawatts. Between 1,000 and 1,500 megawatts of hydroelectric production off the table. I think this year. I just saw a number this morning. I think hydro production inside California this year is about 50% of what it was in 2019.

Which is our last decent water year. As we've gone into the summer and we've also had some other issues. We had a major gas plant that went out of service. We've had some supply chain problems importing the battery technology from overseas. There's been shipping and supply chain issues.

We got into the June, early July timeframe and just realized that things were really moving in the wrong direction. I had expressed guarded optimism about grid conditions back in March, April and by June just about every variable was moving against us. That culminated of course a couple weeks ago in Governor Newsom's emergency declaration that we really experiencing a crisis situation here for the summer. And he opened up some additional tools for us and some extraordinary measures to deal with extraordinary conditions for this summer. And also just to generally help expedite the procurement of additional resources here in the next year or two to help get us off the edge.

No pun intended. But maybe there is a long term light at the end of the tunnel that you might have touched on here, which is the improvement in battery technology and to be able to sustain a reliability supply during those, those crucial post sunset hours. So is that where we're going in the future? And so that people know that this is an important aspect to be involved in today, but there are solutions on the horizon.

Yes, the battery storage technology is definitely going to play a big role. And we've seen just this summer, I think we now have, we have about 1,000 megawatts more batteries on our system than we did last year and they have been performing really well. So the lithium ion batteries that we're putting on the grid right now, I think are going to be important part of the solution, but they're only going to be part of the solution. I think it's important that we remain clear eyed about the challenges that the state has ahead of itself and why we need to stay so focused. Over the next few years, we're looking at the retirement of the Diablo Canyon nuclear plants, we're looking at some additional retirements of gas units. And it's going to take a portfolio of resources, battery storage, renewable energy generation. But we're also going to have to make sure that we have other forms of sort of what we sort of round the clock dispatchable capacity to technology like geothermal and other resources that can really provide that reliability component to the grid. And from our perspective, the other thing that's going to be absolutely essential, and this is where we have big responsibility at the ISO, is we need to make sure that our transmission grid is reinforced to be able to deliver these new electricity supplies to where the demand is. And that's not been an easy equation inside of California. Just getting the state to fundamentally embrace the importance across the board of transmission development and transmission construction of getting us access to resources both within this, you know, onshore, within the state, offshore, and even accessing resources from out of state in other parts of the western United States. That's going to be essential. And then making sure that our permitting and siting processes don't slow us down to such an extent that we're unable to get the resources onto the grid. That's going to be a major focus area for me and I think the rest of the state here in the, in the months and years ahead as well.

And do you see cooperation from the rest of the states? I mean, the census just came out and we see parts of the western United States growing dramatically, whether it be Phoenix, Arizona or other places in the West. And are our generation tied together and is this part of the problem or is it also part of the solution?

I think for me it's unequivocally part of the solution. After your first question, I didn't talk as much. I'll introduce this notion. Certainly we're the operator of the transmission grid and the market for 80% of California. But we also administer what's known as a real time shorter term energy market, known as an energy imbalance market that extends across a pretty significant fraction of the western United States. Other utilities in the Pacific Northwest, like Portland, General Puget Sound Energy in the Desert south, we have Arizona public service and NV Energy. We have folks in the Intermountain west like PacifiCorp and Idaho Power. All of those utilities, they come to the table every hour and they look for ways to further optimize the economic and environmental value of their resources. And that energy imbalance market has been a tremendous success. It was formed back in 2014, and just over the last seven years, it's produced over $1.4 billion of benefit, with a significant fraction of that accruing to California consumers. And so that market has helped support affordability and reliability for the utilities that participate in it. And that cooperation and that collaboration, that partnership with utilities across the West, I think is going to be critical, whether it's through importation of resources from other states, through enhanced transmission, or continuing to grow that market partnership and looking for additional ways to extend those benefits into longer time horizons beyond just the real time market. So that partnership with adjacent states is really important. As a matter of fact, many of the issues that we're grappling with inside California right now are really shared across the western United States. The biggest, the broad entity in the west that keeps an eye on overall reliability in the western United States is known as the Western Electricity Coordinating Council. Wec. They produced a report earlier this year that said, look, just about every, I think every sub region of the western United States is having resource adequacy problems, is running into the same forms of scarcity and shortage that California is working through right now as well, which means that we all need to be coordinating and sharing resources and being aware of each other's situation and supporting each other to the maximum extent possible, because we're all part of an interconnected grid in the West. And if one of us has major reliability problems, it affects the rest of us. So reliability, affordability, collaboration, partnership, those are a big thrust and focus for us at the ISO. And we're just excited to continue to work with the business community and the utilities and everybody in California to continue to further develop those partnerships.

So maybe we can wrap this up. And I think what everybody needs to take away here is, yes, businesses are the vulnerable population along with everybody else, but they're also a very important part of the solution to work with your local utility to manage your demand when, before sunset, so that we can make sure that the lights stay on. And, you know, you seem to know, I mean, I think, you know, obviously weather forecasting is not perfect, but you seem to know when these dramatic heat waves come and whether we can plan ahead and how far ahead businesses can plan for that.

That's exactly right. Those few hours after the sun goes down and the grid gets stressed during those really, really, really hot periods, they don't happen very often. But when they do happen, that participation and that support of business to help tamper back consumption for a few hours makes a big difference. We recognize that that doesn't come, that has impacts. We really appreciate the support. We appreciate the partnership and we are going to do everything we can here at the California Independent System Operator to partner with the regulatory bodies, with business and to help California really restore that margin and to get to a point where we can be achieving our decarbonization goals with a little bit less disruption to day to day life. So thanks. I really appreciate the opportunity to speak with you today. Alan. Great questions, great conversation. We look forward to staying in touch with your members and feel free to reach out and we'll stay communicative and look forward to the partnership.

Well, thank you so much Elliot for being part of this. And I think what we want to make sure everybody to take away is yes, there may be risk involved, but everybody in the business community is part of the solution and has a role in making sure that our reliability is sustained and our energy system stays on track. So thank you so much for joining us on the workplace. Please comment, share and subscribe to Cow Chambers podcast by visiting cowchamber.com.