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Energy Gang
California’s grid under pressure: affordability, AI, and the future of electricity markets
00:44:16
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- [00:01]
A
We've onboarded 26,000 megawatts of new generation onto our grid in the last five years.
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B
They said all kinds of things about virtual power plant, no visibility, people don't really do it, you know, blah blah, blah. I've talked to the aggregators in other locations and utilities in other locations and they're not actually finding what PGE says.
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C
You have to understand what's happening in terms of where the loads are coming in, where the generation is going to be in order to do your job of managing the grid.
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Hello and welcome to the Energy Gang, a discussion show from Wood mackenzie about the fast changing world of energy. Hi, I'm Ed Crooks and on this show we're going to be talking about California, often seen as the cutting edge of the United States in terms of change. And it's certainly been that in terms of energy for several decades now. To talk about California, it's a pleasure to welcome back a former resident of the state, Amy Myers Jaffe. Amy now lives on the east coast where she is the director of the Energy, Climate, justice and Sustainability Lab at New York University. Hi Amy, how are you?
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B
I am great Ed, and I have to say I think my electricity is a little more consistent here in in New York metro area, but we can debate that as we go on with the show.
- [02:27]
C
Yeah, you may be right and certainly we can take that issue up with our other guest. It's a great pleasure to welcome back Elliot Mainzer who is the President and CEO of the California Independent System Operator Caiso, which runs the electricity transmission grid for most of the state. Hello, Elliot. Welcome back.
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A
Thank you, Ed. Nice to be with you. Nice to see you. Amy as well.
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C
Yeah, it's great to see you again. It's been more than three years now, I see since you were last on the show. Obviously a lot has changed since then and that's going to be one of the big things, things I want to talk about on this episode. Before we get into that, though, I think it's probably useful for our listeners just to get you to explain a little bit about what CAISO does. When I think about your responsibilities, I think of running the transmission grid, high voltage long distance power lines that connect up the state and connect to other states as well. You also run the wholesale power market for California, for most of California, I think. Is that right? And you oversee transmission planning. Have I got that about right? Those are the key roles.
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A
That's exactly right. We have those essential responsibilities for California. Maintaining real time reliability for about 80% of the state, conducting transmission planning and interconnection queuing, making sure that each transmission system is operated reliably. And of course, we're also the operator of the western energy imbalance market, which covers about 80% of the Western United States. So it's those two sort of dual responsibilities, core features for California and also the operator of that broader route time energy market across the West.
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B
But Elliot, you have a little bit of a less clear pathway in the sense that you're getting these load forecasts from the California Energy Commission. I guess your own team does the short term, but they do the long term. So that's got to be a little bit of a challenge in today's changing load market.
- [04:14]
A
It is, I would say, the thing that makes it work well. And I think something that, you know, we feel very positive about. We just finished up, you know, five years here at the Caisos. We have a very strong collaborative working relationship with California Energy Commission, with California Public Utilities Commission, you know, the state agencies, the utilities. We have a sort of pretty clear understanding of our requisite roles and responsibilities. And so yes, we work closely with the Energy Commission on their longer term energy forecast. We work with the CPC on their integrated resource planning and resource adequacy paradigm. And then we sort of provide the physics and economic optimization of the system. So yeah, it's, it's certainly there's a lot of, there's a lot of uncertainty in that forecast. But I would say that we're fortunate to have a good, very open dialogue and strong constructive working relationship with them.
- [04:57]
C
Right. And I wanted to get into some of those issues about the nuts and bolts of planning and forecasting and how you take that long term view and think about the investments you need to be making. Before we get to that though, I wanted to talk first of all about what seems to be the hottest topic in the power industry in the United States and in many other countries at the moment, which is affordability and prices and power prices. You don't need me to tell you that power prices in California have risen very significantly over the past 10 years. I mean, electricity in California has always been relatively expensive compared to other parts of the US it's got a lot more expensive. The last number. I just dug these data out from the EIA. Power costs for consumers averaged 32.6 cents per kilowatt hour in July. That is about double, almost double the price just eight years ago in 2017. There's a lot of reasons for that. Don't need to go into exactly why there's been so much pound price inflation in California. Not least, I think the impacts of the wildfires have been very significant and the need to invest in the grid following that. What I'm interested in though really from your point of view, Elliot, is what you can do about that when you're sitting at Caiso running that grid. How can you contribute to making electricity more affordable for consumers or at the very least kind of mitigating these upward pressures on prices?
- [06:27]
A
Yeah, there's several things that we try to do. I think first and foremost we're very focused on really conducting very forward looking, very efficient and innovative transmission planning. Right. As a 501c3 public benefit corporation, our motivation is to take the major planning inputs from the state and try to develop the most cost effective transmission plans for the state, including the use of advanced conductoring, grid enhancing technologies, non wire solutions, et cetera. So focusing on affordability for transmission expansion, we also have tried to take a lot of friction out of the system in our interconnection queuing process. Right. We sent a big package of reforms back to FERC last year. We put those into production after they were unanimously approved. And we've already significantly reduced the number of study requests that we're having to process, which significantly improves our ability to onboard new resources. And we focus really on making sure that we're operating a very efficient energy market, not only within the state of California, but as I mentioned, our western energy imbalance market that's now been in place since 2014, has produced over seven and a half billion dollars of production cost savings for electricity consumers, including a significant fraction in California. And of course contributed majorly to improving reliability, especially during the types of extreme grid events that we've seen in recent years. So taking friction out of the efficient transmission planning, interconnection key reform and running a really good efficient energy market, all of those I think are helping us contribute to bedding the cost curve in California.
- [07:58]
B
So Elliot, let's take a step back here for a minute because the Q process is controversial all around the country and Caiso has done this very interesting thing. It says you approve projects that have the least impact first. In other words, it's not a first come first serve line. You can't game the line by trying to get jump ahead. And also load surfing projects get priority. I understand for independent power producers that might be a negative. Right. So that means that the incumbents here are kind of getting priority. So you have a shorter queue. But has the way you're doing it benefited consumers in terms of pricing? I get it. We have to, you know, these utilities have a big challenge. But part of the way we've all done what we've done is we've kind of had these bills blocking solar rooftop, we've got bills trying to throw down barriers in front of virtual power plants. So I know all those things are complicated to manage. Can you unpack that for us a little bit?
- [09:02]
A
Yeah, let's unpack a few of these things. So first of all, I think, and I know you guys have followed this for years, I think there has been a general recognition across the country that the traditional approach to interconnection curing form is just broken, needed to be fixed. We decided to kind of rip off the band and really try to reformulate and get the order of operations correct. Transmission planning should not react to interconnection queues. It needs to lead interconnection queues because transmission takes so long to build. Right. And what you want to do is you want to incentivize the development of projects that are located in places where you have existing or planned transmission capacity, whose developers have thought about their impacts on the grid and try to minimize their residual impacts on the grid and for whom Our load serving entities who have the fundamental resource adequacy responsibilities have developed of some level of commercial interest. And so we reformulated our process to say those projects that score highest on those criteria, their location, their impacts on the grid and the level of commercial interest, they're the Ones that are going to go into the study process. And we're going to study a much more rational number of requests that bears a stronger relationship to the actual demand for power in California. So you still get a strong supply curve, but you whittle it down to a set of much more ready and we think viable projects. We've already in our, what's known as our cluster 15 reduce the study numbers down by about 70%. And I can tell you the engineers are much happier to be studying relevant projects. We've put specific controls in place to make sure that the load serving entities are not tilting the playground disproportionately in their favor. We've been very careful about that. And this rewards smart investment, rewards smart money. And I think we're going to have a much better outcome. We're already feeling really good about where that's going. So we're going to continue to fine tune it. We'll continue to work with the IPBs, the utilities or regulators to fine tune the process, but we feel really good about where that's going. I think it's going to be transformational.
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C
And do you have numbers then on how much that's actually saving for consumers? I mean as you say, you the process is more efficient. Does that translate into actual kind of monetary value?
- [11:05]
A
It's a fair question. I not sure I can translate it into the financial way. And I also want to point out there's always a lot of sort of consternation and concern. It's fair about queues and backlogs and all that, but the reality in California is that we've onboarded 26,000 megawatts of new generation onto our grid in the last five years. Right. Including about 14,000 megawatts of four hour lithium ion batteries. So while we've been going through these reforms, we've also been bringing enormous sort of historically large amounts of new generation onto the system. So the queue has not been a fundamental barrier to onboarding new capacity. We also continue today have a pretty healthy inventory of available transmission capacity for our utilities. We're working off of about 65 gigawatts of what's known as deliverability inventory. So our utilities are still doing a lot of procurement and they're finding viable projects. We did 7,000 megawatts on board last year. We'll do several thousand megawatts this year. We've got to turn around and do it next year. So what we're trying to do is take the friction out of the interconnection queue so we can find the best projects that, that are lined up with the state's reliability and policy needs and then also to make sure that we're getting transmission not only planned, but energized so that we can maintain that inventory of transmission deliverability and not let transmission capacity become a major bottleneck to the onboarding of new resources, which would of course increase costs and equally importantly, undermine reliability and resource adequacy. So we're super motivated and I think becoming reasonably successful at maintaining inventory processing queues and planning and now starting to energize increasing amounts of transmission.
- [12:53]
C
Right. And of course, the other thing about electricity prices is they are increasingly becoming a political issue. And I was very struck. Your state's governor, Gavin Newsom, who knows, maybe wants to be president one day. You know, he's got his own podcast. He's certainly out there being a very public figure. And he had a big splashy announcement about refunds for consumers and reducing the cost of power for consumers. And he signed, I think it was about five bills that he signed into law. And he talked about as a $60 billion being refunded to consumers, said the largest electricity refunds in a decade. What effect is all that having on the grid and on your business at Caiser? It seems, I mean, the crucial bill, right, is this one, AB825, is that right? And so what impact is that going to have?
- [13:44]
A
Look, I work with, you know, nothing in California, but I work with utilities and grid operators across the country, right. And affordability and reliability are just, they're, you know, top of the list right now in our system, in our industry. There's just no doubt about it. And certainly, you know, the governor and the entire legislature were very focused on affordability this last session, took it very seriously. And fortunately, I think for the west, one of the key legislative outcomes of this last session, these last few weeks was Assembly Bill A25, which is something that folks in the west have been working on for years and years, which was to make a fundamental change in the governance of the energy markets that we administered to allow the CAISA to actually operate the Western energy imbalance market and our emerging day ahead market under a fully independent regional governance structure and to have a new regional organization come in to help administer that. That is something that folks have been working on for years. There was just this incredible coalition who I think recognize the fundamental reliability and affordability value of a seamless western electricity market who came together to support that. And at the end of, the governor supported and legislature passed it, I think it's 101 to 2, very, very strong endorsement of that concept. So there is a strong sense that having that wide area energy market under that type of equitable governance structure will contribute to significant affordability benefits, not only in California, but in the other Western states who are grappling with many of the same issues. So we're obviously very encouraged by that development, very appreciative of all the people that came together, the regulatory community in the west, big stakeholder groups, utilities, the environmental community, the independent power producers across the spectrum, to make that a reality after many, many years. Right.
- [15:32]
C
And just to be clear, in terms of the other states that are involved then in that Western energy imbalance, which other states are connected to California?
- [15:40]
A
Yeah, I mean, right now we're very well, first of all, thanks, Ed. It's a great question. First of all, as you, as you know, you've probably heard this concept before, you know, we're very, very fortunate in the west through the Western energy imbalance market, to have major transmission connectivity between California and the Pacific Northwest, California, the desert Southwest, California, and all the way out into the Intermountain west, across Utah, into Wyoming. And the Western energy imbalance market has been able to leverage that transmission connectivity and that resource diversity that exists across 11 Western states and 22 participating entities. You know, you've heard this folks say we're fortunate. We have a grid that's bigger than the weather here in the west and we're able to move power and capability around not only just on a day to day basis, being able to achieve significant production cost savings by leveraging differentials in cost during different time periods, but you know, when things get tight like we've seen, you know, in the last few years, whether super hot heat waves, you know, in California, the desert Southwest, or you know, crazy cold temperatures in the Intermountain west or the Pacific Northwest, that marketplace has been able to move power around to where it's needed under the most critical periods. And it's just becoming valuable for Western reliability. And so to now have this open up this new chapter where California and the other states will be able to maintain their long standing jurisdictional responsibilities around resource planning and resource adequacy, retail rate making, legislative policy prerogatives, those are all protected very carefully for California and the other states. But the energy markets will now be administered under independent governance through a regionally selected board. And that is a very powerful opening and we're certainly hopeful and we're going to continue keeping our head down to make our extended day headmark EIM really, really solid that we get as many folks to participate in that as possible. And we're scheduled right now to go live with pacificorp next May to really kick off the official operations of our.
- [17:41]
B
Day ahead market for the listeners who aren't in the weeds in the West. Let's unpack that just slightly. So just to give people an idea, it means that California has more access to hydroelectric power from your northern neighbors and also from Idaho power if they join in. And then of course you get natural gas at NV Energy as about half of their system. I mean, I think what you're saying is it makes it less expensive. But you know, in Europe where they've kind of done a lot of that more, more forwardly and for a longer period of time than you have out in the west, there have been some hiccups about who builds capacity and who doesn't. And there's always the possibility that someone's going to free ride over somebody else's capacity. And so with this new governance board, how are you feeling about that? Do you feel like each state is going to really make sure that they're contributing to capacity additions?
- [18:42]
A
Yeah, it's a, it's a good question, Amy. I would say two things. Not only, of course, does California have access to the but the reciprocal is absolutely true. Right. I can tell you when in the, in a deep cold snap in the Pacific Northwest where I worked for many years, it's very fortunate to have power shipping out of the desert southwest in California up to the Northwest or vice versa on a crazy hot day in Phoenix if California has extra solar energy to export, which it often does in the summer. Now given our big fleet, there is real mutual benefit of this trade. The other thing is that, you know, speaking in California, one of the things that quite frankly we think has been working well here in terms of our market is we have a very clear definition of roles and responsibilities around resource adequacy in California. Right. The California Public Utilities Commission has that jurisdictional responsibility around integrated resource planning and administering the state's resource adequacy program and requiring the load serving entities to do that long term procurement. And we've been bringing this very steady and large amount of new capacity onto the system and really driving towards that 1 in 10 loss of load probability standard for resource adequacy and making a ton of progress. The other states outside of California are also working to different degrees to make sure that they have clear roles and responsibilities around resource adequacy as well.
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C
Right.
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A
Because These markets have to be built on a solid foundation of resource adequacy. That's absolutely essential. We are, we are not planning or interested certainly in California, I think in other parts of states to develop centralized capacity markets in the West. That is not a concept that for which there's a lot of interest out here instead of the states, the regulatory.
- [20:21]
B
Not working well in pjm. So okay, interesting to know.
- [20:24]
A
It's just not something that we're interested in here. We think we've got, you know, we think there are important roles for the states and for the regulatory community and for the load serving entities to get to sufficiency. What we're able to do though is that in lieu of a centralized capacity market to be able to bring the physics and the economics of wide area operation and leveraging diversity and connectivity, that's where you get that economic value without obviating the responsibilities of the participating load serving entities to maintain load service responsibility. So that paradigm I think is very important and will be central to the success of the western energy markets.
- [21:02]
B
Now are you worried about, you know, the topic of the day, you know, large load data center fluctuations. I'm training in one state or another state or I'm moving it around to the different states. Are you feeling like your system is going to be able to respond to that? I understand that CEC is saying that data center load just in case so is going to go up 2.3 gigawatts by 2030 and 3.3 gigawatts by 2035. The system you have in place today going to do that easily.
- [21:36]
C
Well and actually just before you answer that Elliot, because I think that that's a great question and as a what everyone's talking about 2.2 gigawatts, whatever. What was that number Amy?
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B
You just had 2.3 gigawatts by 2030.
- [21:47]
C
Yeah. So it's quite interesting to me that actually on the scale of what some power markets are going to see in the US or what they're expecting to see, that's actually quite modest.
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A
Right.
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C
If you think about in Texas, I was looking at the numbers for ERCOT a couple of days ago. So they're expecting I think 22 gigawatts more data center load by 2030. If you look at sort of Virginia and parts of PJM just been talking about again they're expecting kind of more than 10 gigawatts certainly of increased data center load over there. Partly it's a bit paradoxical, right, which is that California is.
- [22:25]
B
Well maybe because Electricity prices are so high.
- [22:28]
C
Well, exactly. I was about to raise exactly that possibility because as you say, you know, they've got all the tech companies there, right? That's where the headquarters are. But it doesn't seem to be a state where a lot of people are rushing to build data centers. So, Elliot. Yeah, I'm interested in your interpretation of that fact as well.
- [22:45]
A
Yeah, no, it's a good question. I think, as you acknowledged, I mean, this is where, you know, the, the data center revolution, the whole artificial intelligence ecosystem was originated in California. We do have interest from the hyperscaling community. As a matter of fact, we are already in the of building out the grid in the Silicon Valley to accommodate the next wave of growth. As you pointed out, there is a lot of work to try to determine right now between the Energy Commission and the utilities just exactly how large that growth is going to be in the coming years. And so we're working very closely with the regulatory agencies. Our next phase of transmission planning will incorporate the very, very latest forecasts and we'll continue to try to stay ahead of the curve on that. So it may not be at this point as large as some of the other regions, but I know the state is very interested in continuing to cultivate this business. The utilities would like to bring some of these resources online. It's an important part of economic development in California. It's also the strong new customer base. It can actually help if done right on the rate side. So we're going to be there supporting it in terms of transmission infrastructure. We've also created some space in our interconnection queuing processes to make sure that the hyperscalers and data centers are able to kind of participate in that process so that we can get the best granular information about where they're going to be operating. And then of course, the question that I think we're all asking is what are some of the other services that these resources might be able to bring to the system? Will they be able to be part of the load flexibility equation during extreme grid events? Will that be a legitimate capability? What will they install in terms of backup capability? Capability? What will be their impact on the grid in terms of resource adequacy and helping us with actual infrastructure optimization? So we're staying very connected. I'm working with EPRI and the DC Flex Initiative and communicating with many of the entities, and I'm confident that California will be a part of this equation and solution as well. And we're just going to stay on it and try to Stay ahead of the curve. So once again, from our perspective at the Caiso transmission infrastructure does not become a limiting factor on their growth.
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C
And to that point, about data flexibility, do you have any answers yet? I mean, what is your sense of how flexible data center loads can be?
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A
I don't have a hard answer to it yet. But you know, when we think about the. I've said before, when you think about the potential positive opportunities and benefits of artificial intelligence and you think of all the brilliant people that are going into working on the grid and technology, if there's an opportunity to figure out the ability to bring some flexibility to the equation, they're going to figure it out. I said, let's apply artificial intelligence and human intelligence to the question of flexibility of data centers. I think there will be some benefits. I'm not sure every facility will be able to provide that, but I think the incentives are going to be there because we know that we don't want to take too much time to start getting these resources on the system. Right. It's an international race. I know the country is very vested in the success of the data center economy in the United States. And we want to make sure that we're able to bring them on. And if for some period of time they come on the grid and they can't operate 24 by 7.000, they might have some ability to back off during extreme periods. So I think everybody's. The incentives are lined up for innovation in that space.
- [26:17]
C
And then the other thing I'm really interested in is the question of just the process of how you get a new large load connected to the grid. So I was looking at this and in a way I was a bit surprised. So you've got a statement on your website about large loads and the way you think about them. And you say caiso is not the organization that has primary responsibility for connecting new large loads up to the grid. In other words, I'm a big data center operator, want to build a data center in California. I want to get it connected to the grid. The first, first call I make is not to Caiso, it's to one of the individual utilities. And in a way that surprised me because I thought, surely you have to have that visibility. You have to understand what's happening in terms of where the loads are coming in and where the generation is going to be in order to do your job of managing the grid. And so as I say, I wonder if you could kind of explain a little bit about how it works and where you do get involved and what your responsibilities are and do you ever have the right then to say to people, well actually, I'm sorry, you can't connect this load up because you know, we've done the maths, we've done the planning, we can see that there's not going to be enough generation available to cover this.
- [27:30]
A
No, that's right. At the end of the day, it does require a collaboration with the utilities who will ultimately host these data centers on their system. What we're typically doing is we will review those interconnection studies to make sure that they are consistent with reliability and that they're also aligned with our broader bulk grid transmission plan. So we do have oversight and we do have some ability to influence that for sure. But you're correct, we are not necessarily the first point of interconnection on that. And as I mentioned earlier, the utilities are very actively engaged right now with the data center community, really trying to get a handle on exactly what are going to be the best areas to locate within their systems, what the demand will look like. And also exploring some of these questions that you asked before about flexibility services. So we have that broader kind of reliability and planning overlay and engagement on the studies, but we also have to work with the local utilities who have the primary commercial relationships.
- [28:33]
C
Right. And does it sort of work that there are, as it were, two sets of studies then, one for supply and one for demand. So in other words, there's the interconnection queue we've been talking about for new generation seeking to get added to the grid, and then another separate queue for new loads seeking to get added to the grid. Is that how it works?
- [28:51]
A
That's a fair characterization. I think our principal focus from our transmission plan that we do both on a long term basis, kind of a 20 to 25 year outlook and then our 10 to 15 year transmission plans is to take the source information. Of course it's always indexed back to load forecasts which will have the data center load embedded into them. But to really be looking at what it's going to take to onboard new generation and how to bring the most efficient transmission solutions to mix. And this area, as I will also say, particularly around data centers, is an evolving area of collaboration with the utilities. I think a year from now we'll have some greater clarity. We posted that information on our website just to additional insight into the evolving thinking and the evolving processes. But it will be an iterative process, especially as we see the different commercial business models, the different ways of bringing generation to the system, the different questions around cost allocation, and just the general framework that ultimately evolves in California to get these resources onto the system. So it's a work in progress and something quite dynamic.
- [30:04]
C
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- [30:41]
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- [31:42]
B
So I'd like to kind of revisit my question that got deferred, right? Because you mentioned at the top of the episode that batteries were really playing a pretty significant role in stabilizing the system. And I'd like to kind of help have you help us understand the distinction between batteries where you have visibility onto those batteries, and batteries where some other group of people say this isn't working for me and so I'm putting in a battery or some aggregators coming into some low income community and say hey, we're going to put some solar panels and some batteries in for you because you can't afford your electricity bill. Like there seems to be a real tension in California between the individual resident who wants to take matters into their own hand and use new technology and the way the system is set up here where you're really favoring the utilities. And let me just throw in, sorry to be, you know, such a critic, but we had PG&E on the podcast and they said all kinds of things about virtual power plants, no visibility, people don't really do it, you know, blah, blah, blah, that I've talked to the aggregators in other locations, in utilities and other locations and they're not actually finding what PG and E says. They're finding that you can have very predictable load and very predictable ancillary services or energy services coming from these resources. But PG and E seems to be really unsuccessful with it and wants to like, like blotted out. And so, you know, from the operator point of view, is it really a problem when individuals in California take matters into their own hands who are deploying the batteries that you can see?
- [33:25]
A
Sure. Let me, let me start out just speaking for the caiso, the things where we have strong span of influence, et cetera. So first of all, we get excellent visibility through our transmission planning process, our interconnection queuing process and of course operations to the 14,000 megawatts of four hour batteries that have come onto the bulk electricity grid in the last five years. Right. And those resources have played an invaluable role in strengthening resource adequacy in California. And you see them operate, they really are doing exactly as designed. They are able to charge and store extra surplus solar energy during the middle of the day and then they're able to re inject it back into the evening seamlessly. And it's worked really well. They've provided ancillary services to the grid. They provide that energy shaping. And I can tell you when I head on down to the floor and speak with the control center operators, particularly in summer, they are very pleased with that fleet. And I give a lot of credit to the battery storage industry for showing up in a constructive fashion. As we continue to work through complex issues, we're continuing to refine the market design for batteries. But at the end of the day, energy storage, which is a key part of the portfolio in California and part of the reason that we've been able to get through the last three very challenging summers without a single flex alert in California. That's a good story. And yes, I think the state, look, there's a lot of energy and I understand the concerns that you're articulating about trying to also make sure that we have a healthy distributed energy resource ecosystem in California and that we're able to tap into virtual power plants and do all that. Again, I can't speak and I won't speak for PG and E or any of the other utilities. What I will Say again is what we're. Our focus at the CAISO is always to try to stay ahead of the curve. We're trying to anticipate where things are going and we do not want to be a bottleneck to the development of resources. And so what we are doing right now is we are working with the distribution utilities to try to make sure that we have really clear communication and information transfer protocol between the grid operator and the distribution owners. Right. So that as those distributed energy resources and virtual power plants and load flexibility start to grow in the years ahead, that they will either be able to operate very effectively within the distribution system or to the extent to which they are interested or capable be able to come in to the wholesale energy market and participate on a level playing field. We were the first ISO in the country to have a fully approved FERC order 2222 tariff a couple years ago and we're very motivated. I understand there's a lot of work and again, I'm certainly familiar with the debates and the dialogue and I think people bring a lot of passion to this issue and I think appropriately we are, as I've said many times before, we are fans of seeing, you know, load flexibility and distributed energy resources participate actively in California. Obviously right now there's still a lot of work to figure out the business model, to figure out the cost allocation, to figure out the compensation mechanisms, to figure out the RA qualifications. We see all that. But what we're going to do do at the CAISO is to make sure that your bulk grid is ready, that we know what level of visibility we need to operate the wholesale energy market effectively and quite frankly to make sure that not only are we able to have healthy participation of distributed energy resources and load flexibility in California, but for all the different states and utilities that we operate particularly through now, the emerging extended dayhead market, that these resources can participate in other states as well to the extent that they're interested. So a lot more work to be done. I think you're going to see in the next 12 months a lot of focus on this by the utilities, by policymakers, the service providers, because everybody knows there's late capability. It's just you got to get all the pieces lined up right.
- [37:15]
B
And the interesting thing, in some places it's working like, I mean crazy like Vermont, you wouldn't even think solar and batteries is really going to be viable in Vermont given the weather and the seasonality. But they have actually flattened their duck curve. But when they interact with New England ISO, New England ISO hasn't done, I think as good a job as CAISO in terms of maintaining visibility into these distributed resources. And so, you know, like you're saying there's like many different dimensions to this problem of how to integrate these resources in. And I do think they play, like you're saying, a really substantial role and also in really managing, you know, how much generation resource capacity do we need to really, you know, handle these extreme days? You know, we don't need to be building $10 billion nuclear plant to handle 10 days of the summer. Right. And so thinking that through, it sounds like, Elliot, that you guys have a pretty good process that maybe needs some refinement, but that you understand the issue.
- [38:20]
A
We unequivocally understand the issue. I can tell you that we physically feel it and the potential on super hot days, you know, we know. Know what the low duration curve looks like in California and we're encouraged. And I'm also, I am actually optimistic, quite personally speaking, with so many folks in California across the west, that there is in just the energy that you bring to this, you know, I. I can feel the level of engagement. There's a. There's a lot of energy going into this issue. And I think that the state and its many partners is really trying to figure out how you put it together, because you've guys led off with affordability. And I know that one of the principal concerns that we have in California still amongst our policymakers is how do you do this at the distributor side in a way that really actually lowers costs for the consumer? How do you make sure that you're paying for the right services, you're getting the right benefits, and at the end of the day, you're bending the cost curve. And I think if we can really see that business model come together where you're lining up compensation, resource adequacy, participation and real grid optimization, then you've got a winning equation. I don't think the factors in the equation have been totally lined up perfectly yet. And we got to get that done.
- [39:33]
C
Right. Because that whole question of cost allocation has been one of the most difficult things in terms of new transmission investment, hasn't it? It's just been, I know, really, really painful for people trying to develop projects.
- [39:46]
A
This is again, part of the ethic of the caiso. You know, we're an organization that's very focused on delivering results and actually energizing new infrastructure. Right. The planning is very, very important and we're very supportive of all the different planning efforts, but we also need to bring new capacity Online, get resources generating and continue to make real and material progress on resource adequacy. This is so important right now for the broader health and affordability of the grid.
- [40:14]
C
Just before we go, I wanted to think some more about the future because it also seems to me that the challenges are only going to get more severe with everything that you're doing, the progress you've been making. As you say, lots of interesting developments going on, but that 20:45 goal is out there. I was looking earlier at your draft transmission plan that you published in April. That's available on the website site. Very interesting, recommended people go and take a look. And that is talking about still very, very significant quantities of additional wind and solar being added to the grid. I think it's another 30 gigawatts of solar, it's 7 gigawatts of wind in state, another 9 gigawatts of wind out state that we connected up. So that's a very large number of variable renewables that are going to be added to the grid. That is going to make managing the grid increasingly challenging, isn't it?
- [41:11]
A
Yes, it will be challenging, but that's the challenge is energizing. Right. And I don't want to sound Pollyanna, sure. But you know, that's what gets us up every morning, coming to work. We enjoy these challenges. Right. I think all of us at the Caiso are many partners. These are very, very meaningful challenges. I think you also have to remember, you have to contextualize this all in the context of our existing portfolio. I mean, we are certainly bringing on a lot of new variable generation, but it's being built on a base with a very healthy hydroelectric portfolio. We've got 25,000 megawatts of natural gas that still operates in California. We've got a nice geothermal base. We have a very healthy transmission grid that we're continuing to expand. And I think that there are going to continue to be many learnings. And as we've seen over the last 25 years, there's going to be resource innovation. There's going to be new forms of generation that are going to come online. We're going to continue to have the benefit, as other states will as well, of managing the variability and volatility of variable generation over a broad electrical footprint that is extremely valuable not only to California, but that it's going to be valuable to the Desert Southwest and the Intermountain West. Remember, we're not the only state bringing large amounts of new solar and batteries and other variable generation on their system. That's happening across the western United States. And we get to work together to figure out how to leverage that diversity and take advantage of the resource in California. Yeah, the hydro up Northwest, the resources in the desert Southwest, that vast transmission connectivity across Nevada and Idaho and Utah and Wyoming and across Montana, et cetera. So these are assets and there will be learnings. I often think back. I came in the industry in the late 90s, I think it was 1998, 1999 and I always laugh with my friends who are all around in the early days of renewable energy. And I'm sure Amy, you were there and Ed, you've been watching the industry for a long time. It's just mind boggling where we are today. Right. We just never would have imagined people.
- [43:11]
B
Were arguing whether they could go past 10% renewable energy. That was like a big debate back in the day.
- [43:17]
A
So I'm ready to bet on us and the next generation. I also, I get a huge kick. One of my favorite things at KAISO is I just every year we bring in these amazing summer interns or fresh out of college and grad programs who are just so motivated and so bright and so resourceful to figure out issues. And of course my existing team. I am extremely proud of my team. I've just hit my five year anniversary at the KAISO and I just am so honored and so fortunate to have such a committed group of people. Right from my right hand person, Mark Rothleader, our chief operating officer, all the way down to every last staffer and hard working person, control center and everybody from settlements to policy to GC to finance, you name it, they're you know, our HR group, amazing group of people. So we are in good hands and you know, and I think we're going to figure it out. Right.
- [44:13]
B
So it was a miracle that you guys did not have a flex alert in 2022. That was nothing short of a miracle.
- [44:20]
A
Well, yeah, well 2012 to be fully accurate was we had plenty of flex alerts in 2022, but that was the last time. So 2023, 2024 and of course this summer, especially with all the new resources that have come online with the benefits of the Western energy imbalance market. Remember it wasn't just here. The other parts of the west have had some very, very stressed grid conditions and they've been supported from a reliability perspective from that wide area market, we're all benefiting. That is the power of wide area collaboration. Right. And we are all part of one integrated western electricity grid. And the more we can work together, the More we can break down the barriers between ourselves and really recognize our shared interest in reliability and affordability for the consumer, the better we're going to be. And that is just the theme that has kept me going for the last 20 years and is going to keep me going for hopefully the foreseeable future. So I appreciate the opportunity to talk with you guys about all this stuff. It's an exciting time. Time, you know, and the one thing I'll also mention, you know, I'm very blessed. I'm. I'm able to interact on a regular basis with great operators from the UK and Ireland and Denmark and Australia, out in Texas, where they're, you know, dealing with a lot of the same issues. And it's the power of collaboration, not only across the west, but across the world. We're learning from each other, we're sharing experience. We're coming up these curves and figuring it out. And so I just think we stay optimistic. I think we stay intellectual, actually honest about the issues. Right. That we can't wish away these challenges, can't pretend they don't exist, but let's also recognize our capacity to address them successfully.
- [45:58]
C
Yeah, that is a great point. And certainly, as you say, in the long run, betting against human ingenuity has never been a winning bet. People can do things that you would never have believed possible. And particularly, as you say, when they work together and harness efforts towards achieving their goals, it's remarkable what can be done. Well, we certainly wish you all the best facing the challenges that you are going to be facing over those coming years and decades. It's going to be fascinating to see what you managed to achieve and how that evolves. But say for now, we're going to leave it there. It's been great talking to you, though. Thanks very much, Eliot, for coming in.
- [46:37]
A
Thank you, Ed. Really appreciate it. Thank you for everything you're doing. And Amy, always a pleasure to, to hear you and now to engage with you directly. And good luck with all your work as well. Thank you.
- [46:46]
B
Thanks so much, Elliot.
- [46:47]
C
Absolutely. Thank you, Amy, very much for joining us. I know we'll be talking again very soon. Thanks to our producers, Stuart Duffy, Toby Biggins, Gilchrist, and Dan Cottrell. And above all, many thanks to all of you for listening. We really do value your feedback, so please do keep that coming. And we'll be back soon with all the latest news and views on the future of energy. Until then, goodbye.