Published: May 13, 2022
By: Concentric Staff Writer
Momentum is growing towards a wider wholesale electricity market in the Western U.S., but a rocky history and issues around who would govern such a market are among the many challenges to this effort.
Many of the utilities in the West operate outside an independent system operator (“ISO”) or regional transmission organization (“RTO”), but the need to integrate increasing amounts of renewable energy resources in western states is swinging the conversation back to a western RTO.
That conversation has heated up since last summer when the Federal Energy Regulatory Commission—which regulates wholesale energy markets—held a technical conference on resource adequacy in the Western Interconnection. At that conference, Commissioner Alison Clements noted that extreme weather events attributed to climate change and the West’s changing energy resource mix is bringing more urgency to the western RTO debate. She also noted that historically, the federal government has allowed western grid planners to operate with relative freedom from burdensome mandates coming from Washington D.C.
“The urgency of efforts towards broader regional integration has changed in the last year, even in the last six months,” Clements said. “Shared goals” and assuring reliability in the face of increased weather threats, as well as new state mandates and protecting consumers are other drivers towards regional integration, she added.
Clements added that she and FERC Chairman Richard Glick “believe that well-designed regional markets, in this case designed by westerners for westerners is the best path forward to protect customers and ensure reliability while addressing resource adequacy concerns and the other serious challenges facing the West.”
Last June, nine former FERC commissioners wrote to current agency members encouraging exploration of a western RTO, saying ISOs and RTOs “provide compelling platforms for renewable energy development and are achieving considerable consumer benefit.” More than 80 percent of renewable resources have been placed in regions with organized markets, the letter says. It was signed by former commissioners Nora Mead Brownell, James J. Hoecker, William Massey, Elizabeth Moler, John Norris, Robert Powelson, Branko Terzic, Jon Wellinghoff, and Pat Wood.
States throughout the West are exploring participation in an RTO. For example, Nevada passed legislation last year forming a working group to study the implications of the state’s utilities joining an RTO. A December, 2021 study by the Colorado Public Utilities Commission found that enhanced market participation through regional collaboration could save the state’s utilities four to five percent in costs per year, or about $230 million annually. And the Utah Governor’s Office of Energy Development, in partnership with State Energy Offices of Idaho, Colorado, and Montana received a grant from the U.S. Department of Energy to facilitate a state-led assessment of organized market options, a study that will last more than two years.
The discussion around a Western Interconnection-wide RTO is occurring as existing entities such as the California Independent System Operator (“CAISO”) and Southwest Power Pool (“SPP”) work to spread their footprints with regional balancing markets. These regional balancing markets do not include day-ahead power scheduling, a participatory governance structure, or other aspects of an RTO.
CAISO’s wider energy balancing market across the West is known as the Western Energy Imbalance Market (“EIM”), which CAISO recently announced has resulted in a cumulative $2 billion in benefits since its creation in 2014. In the first quarter of this year, the EIM resulted in more than $172 million in benefits to market participants, due to its ability to identify the least-cost resources to meet immediate power needs and manage transmission congestion, helping grid reliability, CAISO said.
CAISO is currently taking comments on a straw proposal to bring its existing day-ahead energy market across the EIM footprint, and by next year the EIM is due to have 22 utilities that serve about 80 percent of the electric load in the West. Expanding the day-ahead market is seen as an exploration towards a western RTO as it links CAISO with Northwest utilities such as the Bonneville Power Administration and others.
But the energy crisis of the early 2000s and the August 2020 blackouts in California, along with ideological and political rifts between the Golden State and other western states, have kept any regionalization of CAISO at bay. Leaders and market participants in other western states fear that an RTO operated by CAISO would spread many of California’s issues such as blackouts across the West. Legislation to regionalize CAISO has been introduced at the state level in California but has historically sputtered due to opposition by labor unions over fears it would take jobs out of California, as well as environmental and public interest groups that say it would take the state’s energy planning out of state hands.
In addition to CAISO’s EIM, SPP formed the Western Energy Imbalance Service (“WEIS”) market in 2021, relying on its long history of operating a wholesale market across 17 states, and includes several participants.1 SPP is currently working on broader market efforts. In July 2021, SPP officials approved policy-level terms and conditions for RTO expansion in the Western Interconnection. Western entities considering participation in the effort include Basin Electric Power Cooperative, Colorado Springs Utilities (“CSU”), Deseret Power Electric Cooperative, the Municipal Energy Agency of Nebraska, Tri-State Generation and Transmission Association, Wyoming Municipal Power Agency, and the Western Area Power Administration (“WAPA”). WAPA said its evaluation of full RTO participation in the Western Interconnection includes its Upper Great Plains-West region, Colorado River Storage Project, and Rocky Mountain region. All those organizations except Colorado Springs Utilities have joined SPP’s WEIS, with CSU planning on joining the WEIS this year.
Neither CAISO nor SPP has yet introduced a formal proposal for a full western RTO, although SPP has an offering known as Markets+ that includes centralized day-ahead and real-time unit commitment and dispatch, transmission service, and other services for entities that don’t yet want to join a full RTO.
An additional effort toward western energy market expansion is the informal Western Markets Exploratory Group (“WMEG”), dedicated to exploring additional market efficiencies in the West. Xcel Energy-Colorado, Arizona Public Service, Black Hills Energy, Idaho Power, NV Energy, Inc., PacifiCorp, Platte River Power Authority, Portland General Electric, Puget Sound Energy, Salt River Project, Seattle City Light, and Tucson Electric Power are members of the group, which was created in October 2021.
According to a blog post by PacifiCorp, the WMEG is exploring the potential for a staged approach to new market services, including a day-ahead market, transmission system expansion, and other power supply and grid solutions. PacifiCorp said the effort aims “to identify market solutions that can help achieve carbon reduction goals while supporting reliable, affordable service for customers.” Many of the companies in the WMEG also participate in CAISO’s EIM, but the WMEG discussions will not affect participation in that market in the short term, since WMEG is a long-term initiative.
Another west-wide effort is the Western Resource Adequacy Program (“WRAP”), operated by the Northwest Power Pool. The WRAP seeks to increase reliability for western entities “while maintaining existing responsibilities for reliable operations and observing existing frameworks for planning, purchasing, and delivering energy”.2 The effort includes 26 market participants representing an estimated peak winter load of 65,122 MW and an estimated peak summer load of 66,768 MW across 10 states and one Canadian province.3
With so many efforts underway to coordinate planning and generation dispatch across the West, establishing a Western Interconnection-wide market seems inevitable. Such a complex process requiring so much coordination among Western entities will be a challenge, but with so much market development underway and federal support, the effort appears to be gaining serious momentum.
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All views expressed by the contributors are solely the contributors’ current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The contributors’ views are based upon information the contributors consider reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.
1 Basin Electric Power Cooperative; Colorado Springs Utilities (effective August 2022); Deseret Power Electric Cooperative; Municipal Energy Agency of Nebraska; Tri-State Generation and Transmission Association; Western Area Power Administration (Upper Great Plains West, Rocky Mountain Region. Colorado River Storage Project); and Guzman Energy.