California, Buffett’s PacifiCorp Approved for Western Market

Jun 19, 2014 3:35 pm ET

(Updates power price in 10th paragraph, adds ISO comment in 11th.)

June 19 (Bloomberg) -- Warren Buffett’s PacifiCorp power utility and the California Independent System Operator Corp., which manages the grid in a state that consumes more electricity than all of Mexico, won approval to start a regional market.

The Federal Energy Regulatory Commission conditionally approved the California ISO’s request, with modifications, for a tariff change that would allow utilities and generators within its territory to trade power in real time with those in PacifiCorp’s network, spanning six states from California to Wyoming. The market is scheduled to begin Oct. 1.

The system, slated to become the only real-time, regional one of its kind in the western U.S., will be capable of automatically dispatching power every five minutes from plants with a combined capacity of 68,846 megawatts, enough to supply 51.6 million homes. The ISO and PacifiCorp have hailed it as the first step toward an organized market stretching across the entire Western Interconnection, where 38 authorities from Canada to Mexico now manage fluctuations on their own grids.

“This is about saving a lot of money for consumers, in addition to enhancing reliability and making sure that variable resources growing in the West are better managed on a system that’s somewhat challenging,” FERC commissioner Philip Moeller said at the meeting, which was broadcast online. “We’ll be watching it very closely.”

Trades across territories within Western Interconnection are currently done through hourly, bilateral contracts.

Nevada Utility

PacifiCorp is a subsidiary of Buffett’s Berkshire Hathaway Energy Co. Its sister utility in Nevada, NV Energy Inc., which Berkshire bought last year, is applying to join the same “energy imbalance market” next year.

Acting FERC Chairman Cheryl LaFleur described the market at the meeting today as “something scalable for the region.” The move away from a traditionally bilateral market will help improve reliability across the grid as the region deals with growing volumes of renewable energy, she said.

Berkshire has invested $26 billion on transmission lines and power plants in the western U.S., including two of the world’s largest solar farms. It stands to gain from a market that will allow resources across a broader footprint to make up for sudden swings in output from renewable energy resources.

Renewables Mandates

Transmission operators around the U.S. are struggling to manage record volumes of intermittent resources such as wind and solar coming online to meet state renewables mandates. The variability can cause power prices to slide to zero or negative at times when output unexpectedly surges.

Wholesale spot power at Northern California’s NP15 hub dropped $4.95, or 12 percent, to average $37.27 a megawatt-hour for the hour ended at 1 p.m. local time, grid data compiled by Bloomberg show.

California ISO and PacifiCorp said in a joint statement today that the market is on track to start in October.

In its decision, FERC required some changes to the market design, including a surcharge to cover the costs of California’s greenhouse-gas regulations. It also rejected California ISO’s proposal to let its board of governors decide whether market power mitigation is necessary at borders between transmission areas, saying that should be subject to the commission’s approval.

--With assistance from Brian Wingfield in Washington.