Stateline reports that Western states are moving closer to creating a regional electricity market following the passage of California's AB 825. The article quotes United's Leah Rubin Shen talking about the benefits of joining such a market, including sharing resources more efficiently, lowering costs, and improving grid reliability across the West.
For years, Western leaders have debated the creation of a regional energy market: a coordinated grid to pool solar power in Arizona, wind in Wyoming, hydro in Washington and battery storage in California.
The shared resources would meet the demands of 11 different states, bolstering utilities’ local power plants with surplus energy from across the region.
With the passage of a landmark new law in California, that market is finally on its way to becoming a reality. Proponents say it has the potential to lower energy costs, make the grid more resilient and speed up the deployment of clean energy.
But the market’s success, experts agree, depends heavily on which states and utilities decide to opt in. As energy issues have become increasingly politicized, it’s uncertain whether Western leaders can buy into a common vision for meeting the region’s power needs.
The California measure earned bipartisan support, and leaders in conservative and liberal states alike have long touted the benefits of a region-wide market.
But some skeptics worry about merging the power systems of states with varying climate goals. And some fear the new market could give federal regulators appointed by President Donald Trump an opening to interfere and mandate more fossil fuel-powered plants that can be turned on regardless of the weather.
Across the 11 Western states that straddle or sit west of the Rocky Mountains, 37 separate private and public utilities operate portions of the grid.
This fragmented structure differs from the grid systems in Eastern and Midwestern states, where regional transmission organizations, or RTOs, coordinate and plan for energy needs across vast swaths of the country.
Backers of a Western market argue that a region-wide approach would be much more efficient.
Under the current system, each utility is required by state public utility commissions to build enough power to meet peak energy demands. That could mean building gas plants that only turn on a few times a year during extreme heat waves.
As part of a West-wide market, utilities could manage those high-demand events by importing power from other parts of the region that are generating surplus electricity. Such agreements could also prevent the periodic shutdowns of wind and solar farms when they produce more energy than local utilities can use.
Some industry leaders say such trading would allow states to pull in cheap electricity from elsewhere, rather than building expensive new power plants.
“When you have this bigger market, not everybody has to build to their peak in the same way,” said Leah Rubin Shen, managing director with Advanced Energy United, an industry group focused on energy and transportation. “Everybody’s able to share.”
Western states do trade electricity on a bilateral basis between individual utilities. Utilities spanning much of the West also transact through a real-time market that allows them to address pressing short-term demand issues. Some are poised to join a new day-ahead market that will conduct planning based on daily demand and production forecasts.
But some lawmakers and officials believe the region needs a larger vision that goes beyond moment-by-moment needs, a market that can plan interstate transmission lines and energy projects to serve the whole region in the decades to come.
The push for a West-wide market had always faced one major hurdle: Any market would likely include the massive geographical footprint and energy supply managed by the California Independent System Operator, or CAISO. As the West’s largest grid operator, CAISO manages the flow of electricity across most of the Golden State. It’s governed by a five-member board appointed by California’s governor, and other states were unlikely to sign up for a market in which they have no representation.
The law passed by California legislators last month allows for a new organization with independent governance from across the region to oversee Western energy markets.
Utah led a study in 2021, collaborating with other Western states, exploring the potential for energy markets in the region. State officials say the research has helped drive the current effort.
The study looked at a variety of market options and found that an RTO would have significant benefits, lowering costs for electricity customers and promoting clean energy. Based on the study’s projections, the market would produce roughly $2 billion in gross benefits per year, largely by saving utilities from building extra capacity.
Another study in 2022, conducted by a pair of consulting firms, found that an RTO would create as many as 657,000 permanent jobs and bolster the region’s economy.
While Western leaders say the potential benefits are massive, no states outside of Nevada and Colorado have committed to joining a regional RTO. State leaders say they’ll be watching carefully to see what emerges from the new California law. While the decision on joining the market will largely be left to individual utilities, state regulators can play a major role by directing them to conduct an economic analysis of such a move.
The push for a regional market has also faced opposition from skeptics who fear it undermines states’ power to set their own energy and climate goals. Some point to Eastern governors’ frustration with PJM Interconnection, the RTO that manages the grid across a swath of the Midwest and Mid-Atlantic.
Much depends on convincing states and utilities it’s in their best interests to join the market. The strength-in-numbers advantages of an RTO depend on widespread participation. While many Western leaders have long touted a region-wide market, the opportunity is arising at a time where energy has become a partisan issue.
Meanwhile, the long-awaited market emerging from California is facing new competition from the east. The Southwest Power Pool, an Arkansas-based RTO serving the middle of the country, is expanding its footprint in the West, with several utilities poised to join its day-ahead market.
“Anytime you have two neighboring utilities in different markets, you have seams that create a lot of friction and inefficiency,” said Rubin Shen, with the energy industry group. “Whether or not everybody can come together and be all-in on a full West-wide market, it’s too soon to tell.”
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