Clean energy journalism for a cooler tomorrow

A Western US energy market would boost clean energy. Will it happen?

Day-ahead energy trading could expand clean energy and save billions for customers from the Pacific to the Rockies — if California agrees to share power.
By Jeff St. John

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Close-up macro image of map North West America. Selective focus

Canary Media’s Down to the Wire column tackles the more complicated challenges of decarbonizing our energy systems.

Utilities, policymakers, and clean energy advocates across the U.S. West have long agreed that a region-wide electricity trading market would be a win-win. It would dramatically expand clean energy capacity — allowing California solar to shine in other places and wind from inland states to blow into power-hungry California — while also reducing power costs for utility customers.

But the idea has struggled to get off the ground after more than a decade of effort, as the stakeholders involved have failed to find a market structure that makes everybody happy.

The sticking point? How to incorporate California, with its massive demand for electricity and its gigawatts of clean power resources, in a region where only some states share its clean energy goals — and where few utilities are eager to let the Golden State’s grid operator dictate how they do business.

Late last month, the West-Wide Governance Pathways Initiative, a group supported by Western utilities and state regulators, approved a plan that could overcome an initial obstacle toward the creation of a shared regional electricity market that includes California.

The straw proposal” approved last month is just a first step in a longer plan created by the group, which was launched last year with support from utility regulators in California, Arizona, New Mexico, Oregon, and Washington state. In simple terms, it provides the California Independent System Operator (CAISO), which manages the transmission grid and energy markets in most of its home state, a pathway to share authority over a future West-wide energy market.

One of the biggest drivers of benefits to customers is having a large and diverse market,” said Pam Sporborg, director of transmission and market services at Oregon utility Portland General Electric and co-chair of the group. And in the West, maximizing the size and diversity of the market inherently means developing a market with California.”

Right now, the trading regime that meets that definition is the Extended Day-Ahead Market (EDAM), proposed five years ago by CAISO as a way to extend its energy trading services beyond California’s borders. Multiple studies indicate EDAM could enable from $500 million to more than $1 billion in annual savings by allowing its members to share lower-cost power and grid resources.

Those benefits have enticed several utilities in the region to formally begin the process of joining EDAM, including municipal utilities serving Los Angeles and Sacramento, Portland General Electric, Idaho Power, and, most recently, Nevada utility NV Energy. In April, multistate utility PacifiCorp, which was among the first to agree to pursue EDAM, signed implementation papers to officially join it.

Together, these utilities and CAISO make up nearly half of the West’s electricity demand, said Brian Turner, a director at clean energy trade group Advanced Energy United and an initiative launch committee member. That’s an attractive market — one might say, a market that would be hard for other entities to turn their back on,” he noted.

But the initiative doesn’t yet have buy-in from across the West. In particular, Idaho, Utah, and Wyoming have different priorities than the other Western states. Each has significant potential for renewable energy growth, though their lawmakers are fighting state and federal efforts to reduce the use of fossil fuels to generate power.

Nor is EDAM the only option for Western utilities. An alternative day-ahead energy-market proposal, called Markets+, has been brought forward by the Southwest Power Pool (SPP), a grid operator serving 14 Midwest and Great Plains states with territory abutting many of the Western states.

A number of Western utilities have expressed a preference for Markets+. And one major reason they cite is that EDAM, as it’s now structured, vests ultimate decision-making authority in CAISO, which is run by a board appointed by California’s governor and confirmed by the state Senate.

Members of the West-Wide Governance Pathways Initiative are hoping this first step toward changing that — putting other states and utilities on equal footing with California in governing EDAM — will start to entice utilities to prefer the option that includes the region’s biggest energy market after all.

Utilities are really the most direct audience for this discussion,” Turner said. And those utilities have a common question, he said: What’s the best market for you?”

Why energy markets can save billions and boost clean power

Today, about two-thirds of the country’s population gets electricity from transmission grids managed by regional transmission organizations (RTOs) or independent system operators (ISOs). Among the tasks these entities perform is operating real-time and day-ahead energy trading markets that establish common power prices for buyers and sellers alike.

Map of U.S. independent system operators and regional transmission organizations
(Sustainable FERC Project)

Western utilities outside of CAISO don’t have an RTO, however. Instead, the utilities and other entities that make up the 38 balancing authorities” that control different parts of the region’s transmission network rely on bilateral arrangements to buy and sell power — an inefficient way to optimize power flows across a massive and interconnected grid.

A map of the 38 balancing authorities within the Western Electricity Coordinating Council
Western Electricity Coordinating Council

There is an exception to this bilateral trading approach. CAISO already operates the Western Energy Imbalance Market (WEIM), a real-time energy trading market with 22 participating utilities and other entities representing about 80 percent of the region’s demand. WEIM has yielded about $5.5 billion in cumulative benefits since its launch in 2014.

A map of the utilities and balancing authorities that are members of the Western Energy Imbalance Market
Western Energy Imbalance Market

But real-time energy markets like WEIM are mostly used to make up for unexpected shortfalls or mismatches between supply and demand. They constitute only a fraction of all the electricity flowing across regions. The vast majority of energy is bought and sold a day in advance under arrangements that also set the hour-to-hour operating schedules of power plants and other grid resources.

This makes a day-ahead market a potentially far more powerful driver of efficiencies, according to a host of studies. Last year, a report from analysis firm Brattle Group found that EDAM could save as much as $438 million a year in customer costs, largely by reducing the amount of clean power that would otherwise have to be curtailed due to a lack of buyers. Of those benefits, $53 million would accrue to CAISO and the remaining $385 million to the rest of the entities involved.

A 2022 report commissioned by CAISO and conducted by analysis firm Energy Strategies found similar savings of up to $543 million per year from reduced power production and operational expenses, a 4.5 percent decrease from current costs. Coordinating planning reserve requirements” — that is, sharing the cost of resources needed to cover the risk of grid shortfalls during extreme weather events, unexpected power plant outages, or other emergencies — could save another $557 million per year in avoided investments, it found.

In the two studies, California plays an important role both as a buyer and a supplier of clean power. California has more solar power than any state besides Texas — sometimes more than its grid can use — and could export more of that inexpensive power eastward under a regional day-ahead market. California is also the region’s most energy-hungry state and could absorb increasing amounts of wind and solar power from across the region.

The state is the linchpin of a Western energy market, said Sporborg of Portland General Electric. That’s why the members of the West-Wide Governance Pathways Initiative got together last year to find a way for utilities, regulators, and policymakers from states across the region to figure out how to make a region-wide market work for California — and everyone else.

Map of utilities that have expressed intent to join CAISO's Extended Day-Ahead Market, overlaid on map of WEIM members

The other option from the Great Plains: SPP Markets+ 

For more than a decade, the push to extend energy markets into the U.S. West has largely come out of California. But in the past few years, the Southwest Power Pool, which operates the transmission system and energy markets across 14 Midwest and Great Plains states, has been stretching its footprint westward.

SPP started by serving as a reliability coordinator” ensuring compliance with federal and regional grid standards for multiple utilities across the U.S. West — a function that CAISO also provides for utilities in the region. In 2021, SPP launched its own real-time energy market that operates similarly to CAISO’s WEIM. And in the past three years, it has been developing Markets+, which has emerged as a competitor to EDAM.

Map of Southwest Power Pool core RTO territory, as well as its Western services footprints

At least eight utilities that are now part of CAISO’s WEIM have also made commitments to support the development of Markets+. They’re putting money down to figure out what it will look like,” Mark Specht, western states energy manager for the Union of Concerned Scientists’ Climate and Energy program, told Canary Media in 2023. It doesn’t mean they’ll quit WEIM — but it does mean they’re interested.”

Specht spoke to Canary Media shortly before a bill that would have reworked CAISO governance to enable it to serve utilities outside the state failed to move forward in the California legislature. Previous attempts to enable this change in CAISO’s structure ended in 2018, after the last of three separate pushes by then-Governor Jerry Brown (D) faltered in the face of opposition from environmental and labor groups.

Back then, those groups worried that expanding CAISO’s scope to states with dirtier energy could undermine California’s own clean energy buildout. But today, EDAM backers say, the greater risk is that California will be shut out of an expanded regional energy-trading regime that could benefit climate goals and consumers, Specht wrote in a 2023 blog post.

Side-by-side maps showing CAISO's WEIM and EDAM footprints and SPP's Markets+ footprint
Union of Concerned Scientists (CAISO, SPP)

The West-Wide Governance Pathways Initiative plan put forward last month won backing from California environmental and labor groups by structuring its energy market expansion in a way different from previous efforts, Specht explained in an interview with Canary Media last week. But while the perspective within California has shifted in the past eight years, the perspective of utilities and regulators in other states has remained focused on the same issue: the risks of committing to an energy market in which California sits in the driver’s seat.

Choosing between a market with — or without — California

Neither EDAM nor Markets+ has solidified its structure, since those decisions require consensus among a membership that has yet to coalesce. EDAM won approval from the Federal Energy Regulatory Commission late last year, and Markets+ expects FERC approval later this year — a key step for any energy market that crosses state borders.

But the underlying structure of EDAM, which gives CAISO’s board of governors final say in what policies it chooses to submit to FERC for approval to implement, has been a longtime obstacle.

California’s climate and clean energy policies have likely played a role in keeping some states from the negotiating table. Utility regulators in Idaho, Utah, and Wyoming declined to participate in the West-Wide Governance Pathways Initiative, with Wyoming regulators telling the group in a letter last year that CAISO remains subject to control by California’s legislative and executive branches, precluding establishment of a truly independent governance structure.”

Another current holdout is the Bonneville Power Administration, the federal power marketing entity that manages about 27 gigawatts of power generated by federal hydroelectric dams in the Northwest and other resources and operates a 15,000-mile transmission network across the region. In April, BPA staff recommended that it join Markets+ rather than EDAM, citing ongoing concerns with governance,” as well as other issues.

The BPA put in writing what has been stated quietly across the region,” Mona Tierney-Lloyd, head of regulatory and institutional affairs for distributed energy and demand response provider Enel North America, told Canary Media in an April interview. That’s why she’s heartened by the breadth of support the West-Wide Governance Pathways Initiative has garnered for its multistep plan to successfully pass some form of governance change.”

The goal of that plan, approved last week, is to take governance off the table” as a concern for utilities and regulators across the region, according to Advanced Energy United’s Turner. Step one goes pretty far in that regard. Step two would go further.”

Building a bridge between California and the rest of the West

The newly approved plan starts by giving the standing five-member governing body for the Western Energy Imbalance Market, made up of former utility regulators and utility executives from across the Western U.S., an equal stance with CAISO.

Today, that body holds joint authority with CAISO’s board of directors over decisions for that real-time market. But if those two groups can’t agree on what policies to pursue, CAISO’s preferred policy is filed with FERC, while WEIM’s governing body is limited to filing a statement of opposition” to that course of action, Turner said.

Under the plan, any disputes between CAISO and the WEIM will lead to both groups filing for federal approval simultaneously — a so-called jump-ball filing.” Both filings go to FERC, they have equal status, and then FERC decides which they think is more just and reasonable,” Turner said.

These seemingly minute distinctions over governance and authority are in fact a very big deal for bringing skeptical utilities and regulators on board, Turner said. But to achieve true independence, EDAM will need its own regional organization with sole authority over those sections of the tariff that have impact on the Western market,” he said. Step two of the initiative’s plan lays out how to develop that governing body while preserving CAISO’s authority over California-specific matters.

CAISO will need California lawmakers to pass legislation authorizing it to carry out that next phase, according to a legal analysis commissioned by the initiative. But Turner highlighted that the law to make this happen is considerably less complicated than the legislation that’s foundered in the state over the past decade.

What’s more, California’s previous legislative efforts proposed to first give CAISO authority to become a multistate entity and then figure out exactly how that would be structured, he said. The initiative’s effort works in the other direction — getting stakeholders from across the region to define what it takes to start a regional market,” and if the next steps require legislation, let’s propose targeted legislation to address that.”

That perspective was echoed by Kevin Thompson, a member of the Arizona Corporation Commission. Giving primary authority to the WEIM as the governing board is a step in the right direction,” since it gets us away from the joint authority and starts moving us closer towards independent governance,” Thompson said at the Pathways Initiative meeting last month. Arizona utilities Salt River Project, Tucson Electric Power, and Arizona Public Service are members of CAISO’s WEIM but also support Markets+ development, putting them in the either-or camp in terms of future affiliation.

A long first step in an even longer journey 

Kelsie Gomanie, an advocate for the Natural Resources Defense Council working with the Sustainable FERC Project, gave kudos to the initiative’s two-step plan in a May 31 blog post. But she also highlighted hopes for a longer-term step three” — the eventual development of more regional market services, including a full Regional Transmission Organization (RTO).”

Many other EDAM backers also hope to see an RTO emerge across the U.S. West. But despite laws on the books in Nevada and Colorado requiring their utilities to join an RTO by 2030, that’s still very much a work in progress.

Energy markets are a big part of what federally regulated RTOs do, but that’s far from their only function. RTOs also organize capacity markets that pay for resources needed to maintain grid reliability when power demand outstrips supply, such as during summer and winter peaks in electricity demand. And they plan and allocate the cost of building new transmission grids that the country needs to meet decarbonization goals, lower power costs, and help reduce threats of power outages during extreme weather events.

The savings that can come from coordinated capacity resource and transmission planning are significant. A 2022 study commissioned by Advanced Energy United (formerly known as Advanced Energy Economy) found that creating an RTO across the U.S. West by 2030 could yield $2 billion in annual energy savings, enable 4.4 gigawatts of additional clean power, and create hundreds of thousands of jobs.

These shifts may not be financially advantageous for the utilities involved, however. Utilities across the U.S. West earn a regulated rate of return for investments in power plants, power lines, and other capital infrastructure. Structures that require them to share generation resources or transmission lines might save customers money but eat into utility profits.

At the same time, utilities face pressure from regulators and customers to limit the cost impact of the power plants and new power lines they must build to serve growing demand for electricity and to maintain grid reliability.

In an interview last week, Specht of the Union of Concerned Scientists highlighted the potential for an expanded energy market to introduce policymakers in other states to the broader benefits an RTO can bring. One of the main things we’re trying to keep in sight is to leave open a pathway for this organization to eventually offer RTO services if that’s what folks in the West want,” he said.

Setting up this independent regional organization is the key hurdle we have to get over,” he said. We have a lot of hard work to figure out exactly how the new regional organization is structured, how it’s governed, how its stakeholder processes work. … And we need participation and input from folks around the West.”

Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.