Pathways Initiative addresses the key challenge to a West-wide electricity market
This blog post discusses the latest developments in creating a single, unified West-wide market – essential for keeping rates affordable, improving reliability, and meeting our clean energy and decarbonization goals. For an introduction to energy markets, we highly recommend checking out our Markets Month series (Part 1, Part 2, and Part 3).
Pathways Initiative addresses the key challenge to a West-wide electricity market
The West boasts an expansive and interdependent energy system linking a diverse set of energy resources from state to state. From the robust Northwest hydropower resources to the sun-drenched Southwest and the windy plateaus of the Intermountain West, a key feature of our region is the diversity of geography and its abundant clean energy resource potential.
However, the West lacks the coordinated energy market mechanism needed to fully benefit from this resource diversity. A new proposal from the West-Wide Governance Pathways Initiative (aka Pathways Initiative) charts a course to develop these regional market mechanisms. Developed by a group of western energy interested parties, the Pathways proposal is a three-step process to create an independent entity to govern regional energy markets that will enable us to fully harness our clean energy future.
A bit of background helps tell this story. Today, a patchwork of 39 different entities across the West, mostly local utilities, balance energy supply and demand in their own territories or rely on bilateral trading – slow and uncoordinated contracts that utilities use to meet their energy needs (see figure below). As utilities grapple with meeting both demand growth and state clean energy goals in a cost-effective way, regional market mechanisms can streamline much of this coordination.
A single, unified energy market with the widest footprint possible is an essential tool in this effort, and will enable more efficient use of our infrastructure, leverage our region’s resource diversity, and provide new tools to help utilities and states maintain reliable and affordable energy services.
The West has gotten a taste of a regional organized market’s benefits with the Western Energy Imbalance Market (WEIM), a real-time market operated by California Independent System Operator (CAISO) that optimizes demand every 5 minutes. WEIM covers about 80% of loads across the West. This wide footprint has enabled delivery of low-cost energy to meet demand – keeping the lights on during the Northwest freeze in mid-January 2024 and the sweltering September heatwave of 2022. Since its inception 10 years ago, WEIM has generated $5 billion in benefits to customers and utilities.
The success of WEIM creates a solid foundation to build a regional, organized energy market. The Extended Day-Ahead Market (EDAM), approved by the Federal Energy Regulatory Commission (FERC) in December 2023, would expand on WEIM’s benefits with the ability to optimize resources and transmission ahead of each day.
Pathways Initiative can unlock the next evolution of an organized market
Ultimately, a unified, West-wide day-ahead market can deliver substantial customer benefits: improving grid reliability to withstand extreme weather events, maintaining affordability, and connecting clean energy across the West. To achieve these goals, however, it is essential to have independent governance and connect the widest possible market footprint.
The Pathways Initiative is a voluntary collaboration of a broad range of interested parties from eleven western states working to develop an independent governance structure for a regional market mechanism. The Pathways Initiative sees a regional governance structure to oversee EDAM and the WEIM as essential to protect each state’s interests and policies. On April 10, 2024, the launch committee released a governance proposal and legal analysis to build out this framework.
The proposal encompasses three steps. The first step will transfer primary authority over the EDAM and WEIM to an entity within the CAISO structure called the WEIM Governing Body. This step enables the Governing Body, chosen by a region-wide process, to engage directly with FERC to oversee western energy market functions. The second step towards further independence is to move the Governing Body out from the CAISO structure and into a newly created regional organization. These two steps provide the foundation for step three – development of more expansive regional market mechanisms including a Regional Transmission Organization (RTO). Like most other areas in the country, an RTO provides a comprehensive way to coordinate energy generation and transmission across the west to further integrate clean energy, enhance local reliability, and ensure affordable energy for all.
A strength of this effort is the diversity of groups represented: investor-owned utilities, public power, utility regulators, customers, independent energy producers, a federal power marketing agency, public interest and labor organizations, and others. This set of interested parties shows that people across the West are committed to achieving the potential benefits to a future West-wide market. A unified market increases reliability for participating states and utilities, who can import clean energy from elsewhere when local clean energy isn’t enough to meet a peak-demand event. This resource sharing allows utilities to collaborate and find the lowest-cost solution, delivering the maximum benefits to customers and avoiding duplicative overbuilding of their infrastructure.
Two day-ahead markets could fragment the West
The Pathways Initiative has made headway in addressing the governance question to realize the benefits of a single, unified market. However, there remains more work ahead to align all western interests to the idea.
An alternative day-ahead market proposal known as Markets+ was recently submitted to FERC for approval by Southwest Power Pool, an existing RTO based in Little Rock, Arkansas that serves the central US. However, utilities that join Markets+ would have to leave the WEIM, which would ultimately fracture the West into two separate imbalance and day-ahead markets. Studies have consistently shown this resulting market seam would increase costs for customers, hamper transmission connectivity and reduce the load and resource diversity, limiting the ability to send clean energy where it’s needed most.
Proponents of Markets+ are concerned that EDAM, like the WEIM, would be governed by CAISO. However, the Pathways Initiative is working from a fresh foundation with a collaborative group from across the West to build a fully independent governance structure capable of handling the oversight of a full range of regional energy market mechanisms.
A West-wide day-ahead market benefits from the widest possible footprint
This market decision will permanently shape our energy system in the West. A single, unified market is necessary to maximize both the market’s efficiency and the benefits to customers and utilities. Fortunately, there is more support than ever for a regional market to unite the states and utilities across the Western Interconnection. The Pathways Initiative is a sign that much of the West is ready to work through the remaining governance challenges to realize the immense economic and environmental benefits of a West-wide market. Now is the time to come together to unite the West to maintain affordability for customers, increase reliability to withstand extreme weather and rising load growth, and maintain progress towards our region’s clean energy and decarbonization goals.
How to get involved
The Pathways Initiative Launch Committee is seeking feedback on its latest straw proposal by May 8. You can submit comments to comments@WestWidePathwaysInitiative.org.
For questions or how to get more involved in the Pathways Initiative, please reach out to our markets team: Ben Otto at ben@nwenergy.org, Diego Rivas at diego@nwenergy.org, Lauren McCloy at lauren@nwenergy.org, and Fred Heutte at fred@nwenergy.org