A new route to the western network

As hot summer approaches, network reliability is paramount. As the western United States experiences increasing impacts of climate change – such as heat waves, wildfires and drought – and increasing demand for electricity, the existing, fragmented power grid is increasingly found to be ill-equipped to efficiently, cost-effectively and reliably meet requirements of the region’s energy demand. Without change, the region faces more frequent power outages and blackouts.

Integrating the Western grid by interconnecting utilities within a broad electricity market will not only increase reliability, but will also provide the region with significant annual cost savings, increase opportunities to integrate more renewable energy sources, and enable more efficient use of currently available renewable energy sources.

Because the Western day-ahead electricity market was recently approved by FERC and could bring some of these benefits to the region, additional efforts are being made. This effort, called the West-Wide Governance Pathways Initiative, will both encourage broad participation in the Western day-ahead electricity market to capture the value of the region’s resources and geographic diversity, and create a path to a new governance structure with full independence that could offer the West more services beyond energy markets. This week, the Pathways Initiative takes a big step forward by voting to pass the straw proposal in its first phase.

How did we get here?

Let’s go back. Since 2014, the California Independent System Operator (CAISO) has operated a West-wide, real-time electricity market called the Western Energy Imbalance Market (WEIM). After a multi-year stakeholder process, CAISO has finalized its new, voluntary Expanded Day-Ahead Market (EDAM), which will offer Western utilities, clean energy producers and others services to more effectively manage their energy needs over the day-ahead horizon. EDAM was approved by the Federal Energy Regulatory Commission in December 2023 and is scheduled to go live in early 2026. Several utilities in the West have already announced their commitment to join EDAM.

WEIM and the new EDAM are governed jointly by the CAISO Board of Governors – appointed by the Governor of California – and the WEIM Governing Body – elected through the involvement of a broad spectrum of Western stakeholders. However, some potential EDAM participants from states outside of California have expressed hesitation in joining a market with so much California influence.

After identifying this obstacle to broad participation in EDAM, a group of state utility commissioners and other officials from across the Western region – including Washington, Oregon, Arizona, New Mexico and California – announced in July 2023 their commitment to achieving a broad-based market , including California, which could be managed by a more expansive representation from across the West.

In less than a year, the Pathways initiative has gone from a vision statement to a full proposed framework for the evolution of market governance, which includes design elements and a summarized approach to implementing proposed changes that have broad support in the West and across a variety of stakeholders. This is a potential path forward for the Western chain that leverages existing markets and expansion efforts while eliminating concerns and barriers to greater engagement.

What’s in the Phase One Straw Proposal?

The application involves a two-step process. The first step will be to transfer primary authority over EDAM and WEIM from CAISO to the WEIM Governing Board, providing Western market participants with greater autonomy by allowing the WEIM Governing Board to work directly with FERC to oversee Western market functions. The second step gets to the heart of the goal outlined in the original July letter and creates a new governance structure: creating a regional organization with a fully independent board of directors with sole authority over Western market functions. The two-step process is open, transparent, inclusive, prioritizes geographic and industry diversity, and balances the need to act quickly with time pressures on stakeholders. The proposal reflects the initiative’s commitment to developing a process and outcomes that are truly Western stakeholder-led.

In our comments on the straw proposal, submitted with partners on May 8, 2024, we wrote: “Step 1 also proposes strengthening public interest protections for market participants and consumers by modifying the WEIM Charter. (We support the additional language proposed in the Charter by regulators and public advocates that reads: “Respect the authority of the State to set public procurement, environmental, reliability and other public interest policies.”)

Importantly, there is also a long-term third step, not detailed in this straw proposal, which leaves the door open to the eventual development of more regional market services, including a full regional transmission organization (RTO) in the future. Integrating the Western network into a day-ahead market would bring significant benefits, but a pan-Western RTO would go further. It would optimize transmission planning and create hundreds of thousands of jobs, spur economic growth and save customers $2 billion a year on their electricity bills.

Full integration of the Western power grid would provide such significant benefits to customers in 11 Western region states, including Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington and Wyoming. Each state in the West has a different energy resource mix, population density, electricity demand levels, and many other unique characteristics. Leveraging geographic diversity and resources within an integrated market is key to achieving our decarbonization goals, load growth needs and reliability expectations.

Next steps

Today’s unanimous vote by the Pathways Initiative Launch Committee, comprised of geographically and industry-diverse stakeholders, represents a significant and practical step toward independent management of a pan-West marketplace and demonstrates that the initiative has significant support to move to the next stage and raise awareness. realities of regionalization.

The Launch Committee is committed to moving quickly and effectively to continue the progress and momentum of this initiative as part of the Phase Two plan. Over the next few months, they will work with Western nations, stakeholders across the West, and CAISO to develop and implement the necessary changes to make the proposal possible and to have a new Regional Organization board in place by January 2025. NRDC supports this initiative as a clear path to integration with the Western grid.