If history is any guide, any attempt to form a West-wide RTO would seem doomed to failure. But now the creation of such a market appears almost inevitable.

In the two and a half decades since the first try at creating an organized market in the Western Interconnection, multiple initiatives have faltered as utilities and their state regulators resisted the idea of turning over control of the grid to a central operator.

Now CAISO, SPP and the Western Power Pool (formerly the Northwest Power Pool) simultaneously maneuver to organize the Western electricity sector, and conditions finally seem ripe for change.

That was the view shared by the four industry insiders speaking during the first panel of a virtual conference hosted by the Western chapter of the Energy Bar Association on Thursday.

“The West has had plenty of fits and starts in this area over the last two decades or so, but there are several things that are happening today that I think are likely to make this time different,” panel moderator Brian Cole, general manager of resource management at Arizona Public Service, said in opening the panel. “These include the need for clean energy integration, reliability and affordability, not to mention some state mandates that require [adoption of organized] markets in those particular states by the end of the decade.”

Providing a rundown of the West’s failed efforts was former Bonneville Power Administration (BPA) executive Steve Kerns, now senior technical adviser for the Public Generating Pool, an association of 11 publicly owned utilities in the Pacific Northwest. He tallied off IndeGo (1995-1998), RTO West (2000-2004), Grid West (2004-2006) and NWPP’s MC initiative (2012-2016), which sputtered in the face of growing interest in CAISO’s lower-cost Western Energy Imbalance Market (WEIM).

CAISO’s three-year attempt to regionalize its own market stalled in 2018 after stakeholders and California legislators failed to resolve concerns over the ISO’s governance, which is subject to oversight by California officials. (See CAISO Expansion Bill Dies in Committee.)

Kerns pointed out that organized electricity market design is fundamentally rooted in NERC’s Reliability Functional Model, which envisions market structures that employ shared transmission planning, a single tariff and transmission service provider (TSP), a single balancing authority and a central market operator.

But implementing those has proved challenging in the West, Kerns said. For instance, shared transmission planning introduces the problem of how to allocate costs for new projects that may provide uneven benefits. Similarly, a single tariff will likely result in cost shifts for existing transmission, forcing some entities to fund transmission from which they derive no benefit.

Additionally, one of the region’s largest transmission owners, BPA, faces statutory restrictions on transmission cost sharing, as well as on its ability to cede control of its lines to another TSP.

Furthermore, the NERC model’s call for a single BA has long cut across the desire for local control in a region with dozens of BAs of varying size. Finally, as Kerns noted, the estimated cost of standing up a central operator has caused “sticker shock” among stakeholders, as in the case of the NWPP MC effort.

‘Dramatic Shift’

But the changing energy landscape in the West could erode much of the resistance to an RTO, Kerns said.

Like Cole, Kerns pointed to the favorable impact of state clean energy policies, which simultaneously drive deployment of variable renewable resources and retirement of fossil fuel plants but also increase stress on the grid and raise concerns about regional resource adequacy.

“There’s also been an increase in independent power producers that are developing renewable generation at locations distant from load centers that require substantial investments in transmission,” along with a growth in large power users that seek to be served by renewables, Kerns said.

In the Northwest, the power industry confronts a trend of decreased flexibility from the region’s massive hydroelectric network, which is subject to greater operational restrictions to protect endangered species while at the same undergoing changes in streamflow patterns because of climate change.

Lastly there’s the “missing money” problem, Kerns said. “This is the perception that there are inadequate incentives for market participants to develop capacity resources that will provide sufficient capacity and energy to meet demand. And the belief is that if you create an organized market with the correct price signals, that could help resolve that issue.”

Phil Pettingill, director of regional integration at CAISO, agreed with his fellow panelists that a “dramatic shift” to renewables in the Western Interconnection has sparked renewed interest in a Western RTO.

“What we’ve already seen is wholesale electric markets can really, really help in terms of the integration of these renewables,” Pettingill said. “In this footprint, we have now about [38] balancing areas, and so they’re all operating basically independently, and one of the benefits we have with wholesale market is [to] actually start to integrate that operation and look at being able to facilitate a much more efficient dispatch in the system.”

And while a real-time market such as the WEIM provides a foothold, Pettingill noted that real-time transactions represent less than 5% of the energy delivered in CAISO, indicating the “value” of adding day-ahead trading to the market, as the ISO is planning to do with its extended day-ahead market (EDAM) initiative.

“It is in the day-ahead where we actually decide which generation resources will be put online, in order to match or work with the renewable fleet that’s now expanding,” he said. “It also gives us an opportunity then to optimize the transmission that’s being used across that larger footprint, because multiple balancing areas across multiple states are now working together.”

Because they often operate at zero marginal cost, renewables are typically dispatched ahead of other, greenhouse gas-emitting resources.

“So it’s not only the economic benefit, but also the environmental benefits that come from the success of the Western Energy Imbalance Market,” Pettingill said.

The West will ultimately “land” with an RTO, Pettingill thinks, “but that’s down the road. If there’s one thing we’ve seen in the Western Interconnection, things go incrementally.”

That incrementalism will entail “layering” new services onto the WEIM, such as EDAM, eventually leading up to inclusion of transmission planning in a full RTO, he said.

Competitive Field

A layered approach is what SPP envisions for the Markets+ program it plans to offer on top of other services it’s already providing in the West.

SPP is currently reliability coordinator for 11 entities in the Western Interconnection, and its Western Energy Imbalance Service (WEIS) has seven participants, many of whom plan to join the full RTO. In addition, the Western Power Pool last year selected SPP to operate the Western Resource Adequacy Program (WRAP), whose reach will extend across much of the West when it launches its nonbinding RA program later this year. (See NWPP Rebrands as Western Power Pool.)

Like CAISO’s EDAM, SPP’s Markets+ will add a voluntary day-ahead option to the RTO’s WEIS, Kara Fornstrom, SPP director of state regulatory policy, explained. Markets+ will also be made available to participants in the WRAP, putting it in direct competition with the WEIM.

“If you’re in the EIM and want to join Markets+, you’ll have to leave the EIM to do so,” Fornstrom said.

In developing Markets+, Fornstrom said, SPP identified three “buckets” that it thinks rekindled the West’s interest in “market evolution”: economics, reliability and the need to integrate clean energy resources. She touted SPP’s experience in the third category.

“SPP was the first RTO to have wind as our primary fuel resource. … Last year it was 36% of our total,” she said. “We’ve got all of that energy into our system — a lot of it — because of our transmission availability, data transmission planning and our investment in transmission, along with our established cost allocation principles.”

All three panelists agreed that governance remains a key impediment to forming a full RTO in the West, but Fornstrom, a Wyoming Public Service Commissioner before joining SPP, sees a positive development on that front.

“I think it’s hard to overstate the positive impacts that the WRAP governance structure has made for the West,” Fornstrom said, referring to the progress WPP and its stakeholders have made in developing the program’s oversight bodies. “It’s helped us come to the first time [of] being able to do something on a wide regional basis. And that really should not be overlooked.”