The Northwest’s electric utilities rely on bilateral trading and the Western Energy Imbalance Market (WEIM) to make up for differences between electricity supply and demand. As discussed in our first blog on markets, the WEIM has offered the Northwest a taste of the reliability, cost, and environmental benefits that come with a more centralized market.  

As utilities look to meet higher electricity demand driven by increased electrification and data center growth, a day-ahead market could be a key tool to maintaining low-cost, reliable power. In the Northwest, utilities are considering two day-ahead market options— the Extended Day-Ahead Market (EDAM) and Markets+. Some utilities have already committed or announced their intent to join one or the other, and many are participating in processes to design and launch these markets

In this blog post, we look at the two options and outline considerations for the Northwest as utilities make their decisions about whether and which to join.

California Builds on the Success of the WEIM

The California Independent System Operator (CAISO), which operates the WEIM, developed EDAM, which is well-positioned to build on the success of the WEIM and the history of bilateral trading between California and Northwest utilities.

The Northwest benefits from California’s plentiful summer solar in times when hydropower runs low, and California benefits from peak hydropower production in spring, when the Northwest climate is still mild and runoff from snowpack is strong. A day-ahead market connecting the two regions would amplify these benefits.

While some weather events impact both regions, many events—like summer heatwaves and winter cold snaps—will only impact one of the two regions, reducing the odds of simultaneous peak loads and increasing the benefit of an increasingly coordinated market.

EDAM is also looking to include utilities in the Southwest, which would expand the market’s geographic diversity and available resources. Northwest utilities committed to joining EDAM  include Portland General Electric, Idaho Power, and PacifiCorp. The Federal Energy Regulatory Commission (FERC) has approved the EDAM market design and utilities are beginning to execute implementation agreements for their participation. 

A sticking point for EDAM is that CAISO runs the market and is governed by a Board of Governors appointed by the California governor. CAISO has statutory responsibilities to the legislature and people of California, which raises concerns that non-California entities could be at a disadvantage in the market.

The West-Wide Governance Pathways Initiative, or simply Pathways, is looking to resolve this issue through a multi-step plan that would create independent governance for EDAM. Pathways consists of representatives from western states, investor and publicly owned utilities, independent power producers, new energy technology providers, consumer advocates, and public interest groups who have proposed three steps towards an independent western energy market:

• ‍Pathways Step 1: Give primary decision-making authority over the WEIM and EDAM to the Western Energy Markets (WEM) Governing Body, an existing group that previously shared joint decision-making authority with the CAISO Board of Governors. Unlike the CAISO Board of Governors who are appointed by California’s governor and confirmed by the California senate, the WEM Governing Body members are nominated by a west-wide committee.‍
• Pathways Step 2: Create a new, nonprofit regional organization through which the WEM Governing Body would oversee EDAM and WEIM governance. This organization would not be tied to California’s state government, and governance would instead be shared across the region. CAISO could then join the independent organization as a participant in the WEIM and EDAM, although this will require legislative approval in California.
• Pathways Step 3: Expand the scope of the regional organization created in Step 2.

CAISO’s Board recently voted to approve Pathways Step 1. A proposal is in progress for Pathways Step 2. While Step 1 is an essential starting point and has built momentum around the Pathways effort, Step 2 is the critical turning point in addressing the governance concerns around EDAM.

The Southwest Alternative

Northwest electricity market participants are also considering a second market initiative. The Southwest Power Pool (SPP), a member-based trade association based in Arkansas and operating a regional transmission organization (RTO), is developing Markets+ as a day-ahead market option for the West.

Like CAISO, SPP already runs an imbalance market in the West, although it is centered in Colorado, Wyoming, and small portions of Arizona and Utah, and no Northwest utilities participate. SPP is also the operator of the Western Resource Adequacy Program, which is not a market but a program that aims to improve reliability across the West by facilitating resource planning and sharing and does have participation from some Northwest utilities.

So far, Markets+ has a commitment from Powerex, the agency responsible for selling the power generated by BC Hydro. Powerex cites the Markets+ independent governance framework as a key aspect of its decision. In April 2024, Bonneville Power Administration (BPA) staff also announced a preference for Markets+. While others have not announced any preference, many Northwest utilities have participated in the committees and workgroups developing Markets+.

An issue for Markets+ is that participants would need to leave the WEIM because of the difficulty of participating in markets with two distinct operators. This reduces the benefit of the WEIM for remaining participants. Joining Markets+ would also sever Northwest utilities from easy trading with California.

However, SPP is an independent RTO that is not tied to any state. It has developed Markets+ through engagement with utilities, power producers, states, and public interest organizations across the West, leading to a governance structure that appeals to entities concerned about EDAM’s ties to California.

A remaining step for Markets+ is to secure approval from FERC. Markets+ filed for approval in March 2024 and received a “deficiency letter” asking for more details on several aspects of the proposal. SPP will need to address FERC’s issues and re-submit its Markets+ proposal before launching.

Considerations for Utilities

A significant consideration for the region is the issue of market footprint, or the geographic area in the market. A market’s footprint determines the scale and diversity of resources available within the market, and the scale and diversity of resources are the main drivers of market benefits such as lower costs, increased reliability, and additional integration of clean energy.

A divided footprint limits resources and results in market seams, which are when neighboring utilities participate in different markets. Markets may have different pricing rules or transmission tariff structures that complicate the transfer of electrons from one market’s grid to the next. Several studies have shown that a divided footprint between Markets+ and EDAM in the Northwest would reduce the benefits of a day-ahead market, as explained in Renewable Northwest and GridStrategies’ report Market Configuration Matters. 

A key factor in future day-ahead market footprints in the Northwest will be BPA’s decision on whether to join one of these two market options. As the federal agency that sells the power from the federal dams on the Columbia River, BPA accounts for 65% of the Northwest’s generating capacity and 75% of its transmission system. It provides power to many of the Northwest’s public utilities.

For some smaller public utilities, BPA is the sole provider of the electricity that they sell to customers. Even for some larger public and investor-owned utilities with other resources, BPA provides critical transmission and connections between areas. Because of BPA’s scale, control of generation and transmission, and interconnectedness, its decision has the potential to significantly impact a day-ahead market footprint, and therefore the benefits provided by that market.

BPA’s April 2024 announcement expressing a preference for Markets+ cited concerns over the governance of EDAM, stating that independent governance – meaning that the market is not obligated to any single state, entity, or trade association – is paramount to its participation in a day-ahead market. Other BPA priorities as it evaluates day-ahead market participation include meeting its statutory and contractual obligations and maintaining reliability.

BPA’s announcement raised alarm bells for regional utilities and advocates concerned about losing the benefits of the WEIM and the permanent impacts of a major market seam. Many entities in the Northwest viewed BPA’s process as rushed, leading to a sign-on letter by clean energy advocates addressed to the four Washington and Oregon United States Senators and a response from the Senators asking BPA to slow its decision-making down.

Since that response, BPA has announced that it will delay its final decision from September 2024 to May 2025. Until then, BPA will continue to analyze options, participate in the ongoing development of both markets, and host public workshops for feedback.

In the meantime, both Markets+ and EDAM have work to do to prove themselves as the best option for Northwest utilities. SPP will respond to FERC’s deficiency letter, which would give it a second chance at approval for Markets+. The Pathways Initiative will proceed with work on Step 2 to establish independent governance for EDAM.  At CETI, we will continue to track developments on day-ahead markets as a key piece of the Northwest’s clean energy transition.