State utility commissioners who launched the West-Wide Governance Pathways Initiative in July 2023 have praised the initiative’s “Step 2” proposal to create a “regional organization” (RO) to oversee a Western electricity market and gradually take on more functions of an RTO.  

“I’m really, really struck by the power of what has been proposed,” Oregon Public Utility Commissioner Letha Tawney said during an Oct. 4 Pathways Initiative meeting to discuss the plan. 

The Pathways Initiative’s Launch Committee released the proposal Sept. 26 after a year of discussions and a summer of intensive stakeholder workshops. (See Pathways Initiative Releases ‘Step 2’ Proposal for Western ‘RO’.) 

The plan, which calls for the RO to launch under the “Option 2.0” refined over the past year, would see the new organization initially serve as a “policy-setting” body for CAISO’s Western Energy Imbalance Market (WEIM) and Extended Day-Ahead Market (EDAM), operating under a tariff shared with the ISO. 

The proposal defers the adoption of an “Option 2.5” in which the RO takes on more of the ISO’s responsibilities and liabilities, leaving that decision to the RO and its board in the future.    

Tawney was one of nine Western state energy commissioners to sign the July 2023 letter that kicked off Pathways by proposing “creation of an entity that could serve as a means for delivering a market that includes all states in the Western Interconnection, including California, with independent governance.” 

The commissioners sent the letter to the chairs of the Committee on Regional Electric Power Cooperation and Western Interstate Energy Board just as SPP’s Markets+ day-ahead offer emerged as a serious challenger to the EDAM and WEIM, raising the prospect that the West could become divided into two markets separated by a complex seam, depending on the footprints of each. (See West Entered Pivotal Period for RTO Development in 2023.) 

“At its core,” Tawney said, the new Pathways proposal intends to “set up real parity between the [CAISO] BA and all of the other BAs in the West” and puts “everybody on the same footing, making decisions at the timing that works for them, for their community, for their regulatory agencies or bodies.”  

“It is really creating an opportunity for customer value that we had hoped would be there when we put the letter out, and it’s exciting to see it really emerge in the framework that is encapsulated in this proposal” she said. 

New Mexico Commissioner Pat O’Connell said he took a “leap of faith” when he helped write the letter. 

“One thing that I just wanted to acknowledge in this moment is congratulations to the Launch Committee for getting to this point — and then thank you very much to the stakeholders for helping build it up to this point,” O’Connell said. 

“So just in a moment where we went from leap of faith to now, I can see it: that this idea that the largest possible footprint is [viable] and that we could maximize consumer benefits that way,” he said. 

O’Connell said much of the analysis that utilities and other entities have performed has “put the math behind the concept” that consumer benefits increase “if we can get to the widest possible footprint.”  

A recent study by The Brattle Group found New Mexico’s utilities would see greater financial benefits from joining EDAM rather than Markets+, even if Arizona utilities were to join the latter. (See Brattle New Mexico Study Shows EDAM Benefits Outpacing Markets+.) 

“I don’t want to sugarcoat it — there’s still a lot of work to do — but this is an important milestone, and the fact that there are so many folks on this [Pathways] call this morning is another affirmation that the idea was sound,” O’Connell said. 

“This has just been a tremendous process with so many different stakeholders from across the West looking to create something that’s going to work for the entire West,” said Darcie Houck, a member of the California Public Utilities Commission, whose president, Alice Reynolds, signed the letter. “I’ve just have been very, impressed with the process, the engagement by all of the different states and stakeholders, and [am] really looking forward to seeing the comments that are coming back and moving forward on the next step.” 

‘Unreasonable Ask’

Tawney said the failure of previous attempts to transform CAISO into an RTO couldn’t be attributed to “a lack of trying by a lot of really thoughtful folks over many years.” 

Tawney said she understood why California lawmakers had been reluctant to pass a bill that would relax state oversight over the ISO and place it under independent governance. 

Requiring one balancing authority to “regionalize” itself ahead of other BAs is “unreasonable,” she said. 

“Because if somebody had come to me and said, ‘I want to take [Portland General Electric’s] balancing area and put it under regional governance, and maybe some folks will join me later,’ I’d have immediately said, ‘What about PGE’s customers?’ … And I might have had a big reaction [and said], ‘No, I think we will be keeping those decisions to protect PGE customers a little closer to home,” Tawney said. 

Tawney said Pathways showed that stakeholders across the West are “deeply aligned on protecting our customers, on protecting affordability, on thinking through reliability and how we can all work together,” put participants on “equal footing” and allowed each state to move at its own pace in deepening the relationship with the RO. 

Launch Committee Co-Chair Pam Sporborg, PGE’s director of transmission and markets, said the Step 2 proposal differs from past regionalization efforts because it focuses narrowly on governance of the energy market, rather than taking on all the functions of an RTO at once. 

The plan also establishes a “parity relationship” between CAISO and other EDAM/WEIM participants by allowing the ISO to maintain its balancing authority reliability functions — just like other BAs — while handing oversight of the joint market to a “fully independent governance structure,” Sporborg said. 

Committee member Scott Miller, executive director of the Western Power Trading Forum, said the committee “wrestled with” the question establishing the RO under the “lighter touch” of Option 2.0 or the “more robust” 2.5.  

“There was good, healthy debate, and I think where we ended up reflected the good nature and well-intentioned efforts of the Launch Committee to try to reach compromise that met everybody’s needs,” Miller said.