Competition for the benefits of operating a west-wide Regional Transmission Organization (RTO) power market is intensifying.
A Western RTO could create "nearly $2 billion" of customer benefits in 2030, according to a July 30 Department of Energy (DOE)-commissioned study by Energy Strategies, by coordinating and optimizing power system economics and reliability across multiple jurisdictions, under the Federal Energy Regulatory Commission's authority.
In the West, the California Independent System Operator's (CAISO) real-time market is the most successful version of a Western regional market to date because it has attracted the most participants and produced the most benefits over its seven years of operation. But the Southwest Power Pool (SPP) real-time market went operational in February, challenging CAISO's dominance.
Though providing "only a subset of the services," these real-time markets are driving new ambitions by demonstrating "the scale of benefits" RTOs could offer, Energy Strategies said.
Finally, an Xcel Energy-led Western Markets Exploratory Group (WMEG) of 11 power providers is "exploring" such opportunities, it announced October 5. The participating utilities control "about 60 GW load," which alone could be "a viable RTO," said Colorado State Sen. Chris Hansen (D). Hansen wrote Colorado Senate Bill 72, requiring state utilities to join an energy market by 2030, which passed June 24.
The WMEG's exploration, along with new CAISO and SPP proposals and a proposed Northwest Power Pool (NWPP) capacity sharing program, "will immediately change the conversation," Hansen said.
Previous Western RTO efforts have failed, but the climate crisis and new reliability needs are attracting competing approaches to capture all or a piece of this action. A single Western-wide RTO could provide as much as $569 million greater annual benefits than markets divided between competing system operators, Energy Strategies modeling found.
The RTO advantage
Replacing today's "inflexible" dispatch in 11 Western states with an RTO's optimized operations and avoided capacity costs could deliver up to $1.3 billion in annual benefits that would likely grow to almost $2 billion in 2030, Energy Strategies reported.
Those efficiencies are needed "to reach President Biden's goal of a decarbonized electricity sector by 2035," DOE Acting Assistant Secretary and Principal Deputy Secretary for Energy Efficiency and Renewable Energy Kelly Speakes-Backman said in a statement.
In the last two years, CAISO and SPP started planning interim day-ahead markets to move from their real-time energy imbalance markets (EIMs) to RTOs, Energy Strategies said. Day-ahead markets offer "optimized day-ahead unit commitment and real-time dispatch" but, unlike RTOs, they require fewer commitments from participants and less shared transmission management, it added .
The modeling showed a West-wide day-ahead market, which has not been tried in the U.S., could deliver $747 million in annual gross benefits, Energy Strategies estimated. But, like separate RTOs, separate day-ahead markets would produce "measurably lower" annual gross savings across the West. Energy Strategies estimates CAISO and SPP day-ahead markets would produce a combined $642 million in annual gross savings.
The numbers show RTOs and day-ahead markets offer benefits, Energy Strategies said. But market structures that differ in prioritizing state authority, power provider independence, and stakeholder input can affect those benefits, it added.
Markets with less state input tend to procure resources "in conflict with state energy mandates at consumers' expense," according to a 2019 Duke University study. But SPP and the Midcontinent Independent System Operator allow significant state and stakeholder decision-making input, and more effective mechanisms in one region "could be adopted in another," it said.
California stakeholders are testing that suggestion in their exploration of governance solutions for the new day-ahead market.
The California-led Western EIM has led to $1.42 billion in cumulative benefits since 2014, and is on track to secure 22 participants with 84% of the West's electricity demand by 2023.
But CAISO's potential loss of control of governance, procurement and transmission decisions has stopped past California efforts to become part of a broader market, acknowledged California Assemblyman Chris Holden (D), who led an unsuccessful 2017 effort to make the necessary legislative changes to allow CAISO to create a Western market.
That has led both utilities and other stakeholders to prefer "an incremental approach" to broadening the Western market, an independent assessment by Western Resource Advocates Senior Staff Attorney Jennifer Gardner, who participated in previous efforts, said.
California's EIM has demonstrated that more customer savings can be achieved by an incremental "next step" to an extended day ahead market (EDAM), many stakeholders agreed in an October 13 EDAM forum.
Recent governance changes that require some sharing of authority by the CAISO Board and EIM members make re-starting a COVID-delayed EDAM stakeholder process timely, they also said.
But some in the West doubt CAISO's willingness to similarly share EDAM control. EIM governance reforms were a start, but EDAM will require significantly more, said Idaho Public Utilities Commissioner Kristine Raper. California must recognize and address states' "different goals and legitimate interests."
Governance remains "the thorniest issue" for EDAM, Southern California Edison President and CEO Kevin Payne said in the October EDAM forum. Providing participant representation will be "a key test" for CAISO's stakeholder process.
To put EDAM into operation in 2024, establishing fair participant representation will be "the first issue" in a process that began with an EDAM stakeholder workshop November 12 and will be completed by Q4 2022, CAISO President and CEO Elliot Mainzer told the EDAM forum. Western states' reliability challenges "are better resolved collaboratively," he added.
"[I]t is still too early to forecast how and if a full RTO will develop in the West and what authority will manage it."
Director, Western Grid Group
Questions about a fair EDAM governance "can be answered," agreed Pacific Power President and CEO Stefan Bird and Pacific Gas and Electric CEO Patricia Poppe. But the "real lift lays ahead," cautioned NV Energy President and CEO Doug Cannon.
The potential to resolve "tough topics" like governance and cost allocation was demonstrated by design principles developed and agreed on by EDAM stakeholders in 2021 consultations, CAISO Senior VP and COO Mark Rothleder told the forum. They show "more alignment than misalignment" among potential EDAM participants, he said.
The design principles "will help move the EDAM proposal forward," but "it is still too early to forecast how and if a full RTO will develop in the West and what authority will manage it," said Amanda Ormond, director of the transmission advocacy-based Western Grid Group.
An RTO "is still the path we're on," Holden said. The timetable and specific solutions "are not yet clear," but the state must not move too fast or hesitate to "be as nimble as we need to be."
"It is time for California's RTO 2.0," said former FERC Commissioner Nora Brownell, who voted to approve CAISO governance in 1997 in response to Order 888. "FERC approved the CAISO governance structure because we wanted something in place in California, but its time has come and gone."
The EIM success shows an EDAM "could grow into a regional market," but "California cannot have full control of it," she said. It is also possible other Western states could create a market with independent governance and bring CAISO in, she added.
SPP and NWPP may make that more viable.
SPP West emerging
The CAISO experience, the newer work by SPP and NWPP, and the WMEG initiative all show a growing demand for a Western power market that can capture the benefits described by Energy Strategies.
SPP's Western Energy Imbalance Service (WEIS) and its announced Markets+ "would centralize day-ahead and real-time unit commitment and dispatch," SPP, which serves 17 Midwest states from Montana to Texas, said.
The WMEG utilities, which include powerhouse WRAP members/EDAM forum participants like Arizona Public Service, NV Energy and PacifiCorp, are "exploring" such opportunities, according to a joint October announcement .
With doubts about CAISO governance's fairness, Western regulators have been holding "serious conversations" with SPP and taking an interest in NWPP's plan, Idaho Commissioner Kristine Raper said. "Governance matters."
SPP's WEIS launched Feb.1 to bolster reliability for the cooperatives, municipalities and other electricity consumers across the West served by its eight members, SPP reported. A 2020 Brattle Group study estimated annual savings could be $49 million, and significantly more "reach and value" is possible from an RTO, SPP said.
But "policy-level terms and conditions" for eight "prospective RTO West members" have been approved, SPP reported July 27. Discussions "migrated" to fully joining SPP, Advanced Power Alliance VP for Marketing and Infrastructure Steve Gaw, a former Missouri utilities commissioner, said. "There is an ongoing effort to finalize an agreement over the next six months and establish SPP's RTO West."
SPP "has the capability and can expand the RTO in this way," said Gaw, who has worked in the SPP stakeholder process for over a decade. "They know how to run a market and they are familiar with the West's reliability issues." In addition, SPP governance allows authority for state participants and a 2019 FERC ruling reduced barriers for other stakeholders, he added.
In addition, providing services like modeling, system analytics and real-time operations for NWPP's WRAP will make SPP's regional proposals readily compatible and increase reliability for both, SPP said.
The obstacle in California's regionalization efforts has been "trust between all the parties," said Munro Advisors Principal Carl Monroe, a former SPP executive. Even with changes for EDAM, stakeholders "might doubt California would give up political control, and it is not clear what can change that."
But the new shared EIM authority indicates CAISO leaders see the need to alter the stakeholder process, Commissioner Letha Tawney of the Oregon Public Utilities Commission said in CAISO's October forum. And, though things could change, California's abundant low-priced renewables make its market the better "economic proposition" for Oregon, she added.
The Xcel-led WMEG utilities' choice could be decisive for SPP or CAISO, many stakeholders acknowledged. But their focus on "long-term solutions" will not impact short-term "participation in or evaluation of" either market, the WMEG statement said.
The NWPP variation
NWPP's WRAP is the least formed and most different of current Western market proposals.
The changing climate and power mix have created "a capacity deficit" in the West, and its power providers want reliability addressed "immediately," NWPP COO Gregg Carrington said. The WRAP October 2021 market design provides "capacity sharing during reliability emergencies likely to occur 10 times to 20 times a year," he said.
WRAP's governance will be through "a completely independent board with independent authorities" that offers member, state and public interest group involvement, Carrington said. It "could be the foundation for a market or an RTO, though we are not promoting that now," he added. The non-binding startup phase is being beta tested and could become fully operational in the summer of 2024.
NWPP's WRAP is "a key development to watch", according to the Western Power Trading Platform October Quarterly. There is "broad interest" in its "significant progress" on developing an inclusive governance structure, and the non-binding test could soon include "nearly the entire Western Interconnection," it added.
Areas of concern remain, but the West's utilities "see this as one more incremental step towards greater regional coordination, potentially culminating in an RTO," the quarterly said.
No best guess
There is no certainty yet about regionalization, Western voices agreed.
The recent history of trying to build an RTO in the "Wild West" has left only "tombstones," Portland General Electric Director of Transmission and Market Services Sarah Edmonds told an October 12 Energy Bar Association webinar.
But "things have changed" and CAISO's EIM shows new reliability needs make regional coordination feasible, she said. The "incremental approach" demonstrated by the CAISO, NWPP and SPP plans, as well as the WMEG exploration, suggest "putting these pieces together" may soon "seem like the natural next step."
The process is moving now, stakeholders "are engaged," and there could be "real progress over the next few years," Sen. Hansen said. Past failures may allow the West to now "choose the best of the current models."
"The first question is whether California will change its governance structure," and "there are many other possible disruptions," he said. "There are hard yards ahead," but "it is a matter of when, not if, we figure out how to make it happen."
It could play out like it did in the East, with different paths to separate markets in the New England, Mid-Atlantic and Midwest states, Munro Advisors' Monroe said. Or some utilities in a region might choose to work together and "obtain specific services from different system operators," he speculated.
But there is a "growing penetration of variable renewables and the need for regional diversity for cost-effective balancing" in the West now, Monroe said. "That is what drove SPP expansions, and it is driving a lot of utilities and states in the West to solve the governance issues."