The Bonneville Power Administration on April 4 released a much anticipated staff report that tentatively recommends the agency choose SPP’s Markets+ over CAISO’s Extended Day-Ahead Market (EDAM).
“We stuck to our evaluation principles and are confident in the analysis and public process that led to the recommendation,” Russ Mantifel, BPA director of market initiatives, said in a statement. “Both markets we are considering honor those principles; however, ongoing concerns with governance and some superior features related to greenhouse gas accounting and resource adequacy, among others, led to staff’s preference for Markets+.”
The staff recommendation, the product of a public process the federal power agency kicked off last July, should come as little surprise to electricity sector stakeholders who have closely followed the growing competition between Markets+ and EDAM to bring a more organized electricity market to the West. BPA was an important contributor to the development of EDAM, but it has been a central participant in the intensive — and expedited — stakeholder process to design Markets+, including the market’s governance structure.
But the staff report, and an accompanying letter by BPA Administrator John Hairston, also made clear the recommendation is not etched in stone.
“This is not a final decision, nor is it an endorsement of one market option over another. Rather, it is intended to provide greater insight into the analysis of Bonneville staff and their recommendations based on information gathered to date,” Hairston said in the letter.
Along with the market recommendation, BPA also released a “preliminary legal assessment” describing the agency’s authority under federal law to join a day-ahead market. The assessment considered multiple factors, including the business case for participation, the agency’s obligations to preference customers, and its environmental responsibilities with respect to operation of its dams.
The legal assessment notes that the Energy Policy Act of 2005 grants federal utilities the right to join transmission organizations, including RTOs. The assessment points out that Markets+ and EDAM would be “less restrictive” than an RTO because BPA “would retain substantial control over its transmission assets, and its balancing authority area responsibilities would be preserved.”
“While the development of a day-ahead market is not an RTO, it is reasonable to conclude that Congress contemplated federal utilities would be authorized to participate in subcomponents of an RTO like a day-ahead market as part and parcel of that express authority,” the assessment found.
‘Important Differences’
In developing the market recommendation, BPA staff considered eight evaluation principles, including: statutory, regulatory and contractual obligations; service reliability for BPA customers; resource adequacy frameworks to maintain system reliability; business rationale; consistency with BPA’s 2024-2028 strategic plan; governance; commercial and operational impact of day-ahead market participation on customers; and handling of greenhouse gas emissions.
Governance has been a top concern for BPA as it contemplates joining a day-ahead market that could eventually evolve into an RTO. For the agency, CAISO’s governance, which is subject to oversight by California state officials, has been a significant hurdle for joining EDAM and a point that heavily favors Markets+.
“Paramount to Bonneville’s participation in any day-ahead market is the requirement for independent market governance that is not obligated to any single state, entity or trade association,” the staff recommendation said. “Bonneville staff believes that independent governance will ensure that decisions affecting the market are made with consideration of the interests of all market participants.”
Staff said it saw “important differences” between Markets+ and EDAM in this area, pointing to differing approaches to stakeholder processes as well as governance.
“Bonneville staff believes that Markets+ has developed a structure and process that is more likely to result in equitable market outcomes and fair consideration of Bonneville’s interest,” the report said. “The structure of the Markets+ Participants Executive Committee (MPEC), work groups and task forces that developed the market design and initial tariff provided all participants an equal opportunity to weigh in on decisions.”
The BPA report said the Markets+ governance and processes “supported collaboration and negotiation” to help achieve consensus on issues, allowing the agency “to propose and obtain consideration of its statutory and contractual obligations” during development of the tariff.
BPA staff complimented the Markets+ work group processes for being “publicly accessible” and for considering views of utilities, states and independent organizations.
They also noted that SPP’s staff have offered technical support and other facilitations “while respecting the decision-making roles of market participants.”
“As Markets+ transitions from phase 1 to phase 2 and ultimately to an operational market, Bonneville staff expects the MPEC, work groups and task forces to maintain the same level of decision-making and collaboration that crafted the tariff,” the BPA report said.
BPA staff contrasted SPP’s approach with what they called CAISO’s “staff-driven model.”
“Bonneville staff acknowledge the CAISO’s efforts to develop a more participatory stakeholder engagement process. Bonneville appreciates and respects the professionalism and expertise that CAISO staff routinely display in their stakeholder process, but Bonneville staff believes the process is still lacking in stakeholder leadership and engagement in policy and implementation development, evaluation and decision processes,” the report said.
On governance, BPA staff said CAISO’s model “has presented challenges in resolving contentious regional issues” and that the agency has observed “that EDAM governance presents real problems for Bonneville’s participation in a day-ahead market and could result in unbalanced outcomes, as it continues to operate under provision of California law.
The report notes that CAISO’s Board of Governors is appointed by California’s governor “with obligations to California ratepayers embedded in California laws and policies.” The ISO’s “dual responsibilities” of serving California load and operating day-ahead and real-time markets “has resulted in Bonneville, and consequently its customers in the Pacific Northwest Region, being at a competitive and governance disadvantage,” the report contends.
BPA staff acknowledged the efforts of the West-Wide Governance Pathways Initiative to create a more independent governance structure for a single Western market that would expressly include California and rest on the platform of EDAM and CAISO’s Western Energy Imbalance Market.
“Bonneville’s view is that achieving the objective of Pathways likely requires modification of California legislation, which has not gained traction in the past,” the report said. “Bonneville is tracking the effort’s legal analysis for indicators regarding the viability and potential timeline for governance updates. Throughout its decision-making process, Bonneville will continue to consider the progress of Pathways.”
“I don’t anticipate, at this point in time, that we’ll get more involved [in Pathways] than we are right now,” BPA’s Mantifel said during an April 4 press briefing. “We will be evaluating anything that comes out of the Pathways Initiative as part of our ultimate decision, so when we do make the decision later this year, we will take into account any governance changes that have either been realized or proposed as a result of the Pathways Initiative.”
SPP Wins on RA, GHGs
Markets+ also won favor with BPA staff on the issue of resource adequacy based on the market’s requirement that eligible participants also join the Western Power Pool’s Western Resource Adequacy Program (WRAP), which is operated by SPP.
“WRAP has become the dominant resource adequacy program outside of California,” the BPA report said. “The EDAM proposal does not propose a uniform adequacy metric or require EDAM entities to participate in a resource adequacy program. Bonneville staff supports and prefers the clear and consistent requirement that all Markets+ [load-responsible entities] must participate in WRAP, which better supports regional reliability.”
While California utilities are subject to a state-mandated RA requirement, other EDAM participants outside California can participate in the WRAP but are not required to join an RA program, BPA staff noted.
“The EDAM proposal’s lack of a common resource adequacy metric makes it difficult to assess whether the footprint as a whole will be resource adequate in the planning horizon. Further, failure to adequately plan in advance to meet demand by the day-ahead time frame could undermine the ability of the market to find adequate supply to serve load in the short day-ahead time frame,” the report said.
BPA staff also favor the way Markets+ will handle the tracking and accounting of greenhouse gas emissions, an issue of specific concern for agency customers in Washington state, which last year adopted a cap-and-trade system to price carbon. While both Markets+ and EDAM are designed to attribute specific resources to states with GHG pricing, BPA staff said SPP’s design offers more assurance that energy from the federal hydro system will be attributed to BPA’s Washington customers who have contracted for that power.
“In contrast, CAISO’s design would attribute the federal system to Washington only when it is the most economical solution for the entire market footprint,” BPA staff said. “This outcome of CAISO’s design would adversely impact Bonneville because, at times when the system is not attributed to Washington, Bonneville may not be able to recover the difference between the price it receives for system resources and the cost it pays for load in the GHG area.”
BPA staff also preferred the Markets+ approach to transmission congestion rent, saying it “better models physical congestion in Bonneville’s transmission system, allocates congestion rents according to constraint-level congestion and allocates congestion rents directly to long-term transmission right holders, which provides consistency for transmission customers across the entire footprint.”
BPA plans to issue a draft decision on its market choice in August, followed by a final decision late in the year, likely in November. In the meantime, it will hold additional workshops on the issue this summer.
Reactions
Stakeholder reactions to the BPA recommendation were mixed, if predictable.
“SPP is very pleased to hear of BPA’s staff recommendation to join Markets+,” RTO spokesperson Meghan Sever said in an email to RTO Insider. “BPA has been an active participant in Markets+ development, and we look forward to continued collaboration as we work to build a Western energy market that provides environmental and financial benefits and enhances electric reliability in the Western Interconnection.”
“We respect BPA’s public process and appreciate our continuing collaborative relationship on the broad set of Western electricity issues, as well as BPA’s partnership and successful participation in the Western Energy Imbalance Market,” CAISO said.
Opponents of BPA’s “leaning” in favor of Markets+ offered stronger words.
The Northwest Energy Coalition (NWEC), which has strongly advocated for a single Western market, once again advised BPA to ease up on its timeline for selecting a market.
“NW Energy Coalition and our allies urge BPA to keep an open mind and continue to do comprehensive analysis before making a decision,” NWEC said in a statement, noting that EDAM, which has already been approved by FERC, builds on the WEIM, a market in which BPA already participates.
“The WEIM already covers more than 80% of the Western region and has provided more than $5 billion in customer benefits. It is no exaggeration to say the WEIM has provided a crucial contribution to keeping the lights on during extreme weather events, including the mid-January freeze in the Northwest,” NWEC said.
“This decision makes clear that the Bonneville Power Administration cares more about political control than its customers, residents of the Northwest, or endangered salmon and steelhead,” Mitch Cutter, salmon and energy strategist at the Idaho Conservation League, said in a statement. “A single regional market could help save ratepayers money, decarbonize the grid and reduce the Northwest’s dependence on salmon-killing hydropower. Instead of heeding its mission and statutory obligations, BPA seems hellbent on joining Markets+ and fragmenting the West when unity is most needed.”
Advanced Energy United Executive Director Leah Rubin Shen said it was “exciting” that BPA staff determined it would be legal and beneficial for the agency to join a day-ahead market, but she said joined “energy industry and policy leaders throughout the region — including the governors of Washington and Oregon — in finding the recommendation about which market to join premature.”
“This is a very dynamic landscape that is rapidly changing. BPA’s own modeling shows their customers and partners will benefit most from being in the same market as California, and there is a robust effort underway — the West-Wide Governance Pathways Initiative — to resolve BPA’s primary objection regarding independent governance,” she said.
‘Absolutely Critical’
BPA’s final decision will carry significant weight in the Northwest, where it operates 15,000 circuit miles of transmission — or 70% of the regional system — and is the largest power provider, controlling 17,500 MW of generating capacity.
But a final decision in favor of Markets+ could leave the agency at risk of hemming itself into a relatively small market with limited links to other potential participants, depending on the choices of neighboring balancing authorities.
On that front, EDAM has already won commitments from significant players in the Northwest, including PacifiCorp, whose six-state territory extends into the Intermountain region, and Portland General Electric, Oregon’s largest utility by customer base. Publicly owned Seattle City Light, which has been deeply involved in the Pathways Initiative and is listed among its top funders, is expected to follow suit. (See CAISO’s EDAM Scores Key Wins in Contested Northwest.)
Sources have told RTO Insider that decisions by Idaho Power and NV Energy will be vital for determining how markets take shape in West but especially important for the functioning of Markets+, which has its strongest support in the Pacific Northwest and Arizona — areas separated by more than a thousand miles and a lack of transmission links.
Signs point to both joining EDAM, although that’s still uncertain.
Idaho Power offered the clearest signal last month in a letter to CAISO saying it is leaning toward joining EDAM after determining that the market offers the greatest value for its customers. The Boise-based utility has also recently partnered with the ISO to fund a Nevada transmission line designed to increase transfers of renewable energy between Idaho and points to the south, opening up the potential for more energy sales into the Southwest.
And while NV Energy has been more guarded about its direction, a recent Brattle Group study found the utility would realize significantly greater financial benefit from participating in EDAM than Markets+. The Nevada utility’s choice will be pivotal for either market, given the central location of its transmission network and its role in facilitating transfers among WEIM participants. (See NV Energy to Reap More from EDAM than Markets+, Report Shows.)
“Where it looks like we’re going to go right now — if Markets+ succeeds in moving forward with a lot of support across the West — is a Northwest zone and a Southwest zone with no direct connection from transmission,” Fred Heutte, senior policy associate at NWEC, said in an interview in February. “It’ll have to transfer power across the grid of other entities that are not in Markets+.”
Asked during BPA’s press briefing about the weight of such geographical factors in its final decision, Mantifel called them a “major factor,” but he also noted that while the agency’s financial benefits would be “sensitive” to the market footprint, it has not identified any “bright line at this point in time that would automatically shift our decision.”
Asked whether the governance issue would outweigh financial benefits, Mantifel said: “I would say governance occupies a pretty equal spot in our evaluation. Yeah, governance is an absolutely critical issue for Bonneville in making this decision.”
