Governance should be a “key consideration” for the West in the competition between day-ahead electricity markets because the outcome potentially affects $25 billion a year in energy transactions, according to an “issue alert” issued Aug. 7 by 10 entities that helped develop the SPP Markets+ tariff.

The “governance” alert, addressed to the Markets+ States Committee, is intended to be the first of seven such notices published in coming months by the “Markets+ Phase 1 Funding Parties.”

The contributing parties include Arizona Public Service, Chelan County Public Utility District (PUD), Grant County PUD, Powerex, Public Service Co. of Colorado, Salt River Project, Snohomish PUD, Tacoma Power, Tri-State Generation and Transmission Association, and Tucson Electric Power.

Those entities, along with the Bonneville Power Administration, which did not sign on to the alert, represent some of the strongest supporters of Markets+ in its competition for participants with CAISO’s Extended Day-Ahead Market (EDAM), designed to extend the capabilities of the Western Energy Imbalance Market (WEIM).

In April, BPA staff issued a “leaning” that cited CAISO’s state-run governance as one of the top reasons the agency should choose Markets+ over EDAM. (See BPA Staff Recommends Markets+ over EDAM.)

In their Aug. 7 alert, the Funding Parties noted the “considerable industry dialogue focused on the market seams that will exist between EDAM/EIM and Markets+, as well as the EDAM/EIM governance enhancements being pursued through” the West-Wide Governance Pathways Initiative, a multistate effort launched last year to create the framework for an independent organization to oversee those markets.

“While both topics are important, the Markets+ Phase 1 Funding Parties believe this dialogue is incomplete without also considering the numerous governance and market design differences between Markets+ and EDAM/EIM that are driving continued support for Markets+,” they said.

The parties derived their $25 billion annual impact estimate from the assumption that transitioning to a full day-ahead and real-time market likely will replace much of the region’s bilateral transactions still occurring “while also impacting forward transactions and the utilization of the Western transmission grid.”

“Sound governance is a foundational requirement for a day-ahead organized market to provide the benefits of increased efficiency and enhanced reliability while also ensuring equitable outcomes for all participants and all Western subregions,” they said.

That entails having a “durable, effective and independent governance structure” that fairly represents all market stakeholders, who would “initiate, develop and own outcomes,” they said.

According to the alert, the Markets+ governance framework “fully achieves” those requirements by having:

• • a “geographically diverse” board that is independent of market participants and has authority over “all aspects” of the market;
  • a “transparent and consensus-based market development process” that is led by stakeholders, who have voting rights to determine whether market design proposals advance;
  • a “fully independent and impartial market operator that does not also act as one of the participating balancing authorities with its own interests”; and
  • a stakeholder framework in which “all generators, load and BAAs are participating in the same manner with equivalent rules, rights and responsibilities.”

The alert additionally notes that the Markets+ governance framework already is up and running, having underpinned the decision-making in developing the market’s tariff, which last week received a deficiency notice from FERC. (See FERC Finds SPP Markets+ Tariff ‘Deficient’ in Several Areas.)

‘Uncertain Outcome’

In contrast, the parties said, the Pathways Initiative “remains in development, with an evolving scope and an uncertain outcome. Changes to the CAISO governance structure require action at the California legislature.” (See No Clear Blueprint for Western ‘RO’ Stakeholder Process and California Labor Groups Affirm Support for Pathways Proposal.)

They expressed additional skepticism that Pathways would create a governance framework “comparable to” Markets+, saying the initiative’s starting point is an EDAM/WEIM tariff designed under CAISO’s existing governance model, and that Pathways has not proposed to replace it with a “stakeholder-driven design.”

The parties also contended that Pathways has not addressed the fact that “EDAM and EIM were built as extensions of a legacy institutional framework with embedded dependencies on, and obligations to, California state agencies” and has not ensured that CAISO, as the operator of the markets, “will balance the interests of all stakeholders and avoid undue influence from California interests.”

They also argued the stakeholder-driven Markets+ process has produced a market design “substantially different” from EDAM in “several key respects,” which will be the subject of future alerts. Design differences can influence the level of participation in a market, “while also encouraging or discouraging generation and transmission investments,” they said.

“For example, a market that inaccurately suppresses peak prices will discourage flexible generation and storage solutions. Similarly, a market that misallocates congestion costs will generally lead to less economically efficient transmission investments,” the parties said, touching on two issues particularly important to entities in the Northwest, the latter sparking especially sharp controversy after a January 2024 cold snap left the region severely short of energy. (See NW Cold Snap Dispute Reflects Divisions over Western Markets.)

The parties concluded by touting the benefit of competition — in this case between markets.

“Experience in the East demonstrates that the ongoing existence of two or more competing organized markets provides the opportunity for participants to continuously evaluate which organized market provides the best value for its customers. This places ongoing competitive pressure on each organized market to continuously evolve to deliver value to all of its participants and all of its subregions, driving immeasurable value for consumers while also reducing risk.”