With increasing impacts from climate change, western states are in need of robust and reliable grid integration. To achieve this, however, unifying the West under one, large electricity market is key to maximizing the potential decarbonization, reliability, and affordability benefits. The California Independent System Operator’s (CAISO) day-ahead market was set up to bring that unification, but now another market threatens to divide the West, limiting the benefits of grid integration.
The Federal Energy Regulatory Commission (FERC) approved the Southwest Power Pool’s (SPP) Markets+ proposal, marking a significant milestone in SPP’s attempt to establish a day-ahead market for the Western U.S. However, this approval leaves unresolved notable concerns raised by environmental and public interest organizations that challenged the need for and readiness of this market for the region.
Last Spring, NRDC and several partner organizations protested SPP’s proposal to establish Markets+, a day-ahead market for the western interconnection, and asked FERC to reject it due to critical shortcomings in the proposal that would hinder the market’s ability to support decarbonization goals, ensure fair and transparent operations, and facilitate coordination with other markets. For example, the proposed GHG accounting process lacks clarity on how emissions will be accurately tracked and attributed across state lines, a significant concern given the region’s robust state clean energy and climate goals. Similarly, the proposal fails to define interoperability requirements to manage seams — the operational boundaries between Markets+ and other markets like the CAISO’s Extended Day-Ahead Market (EDAM), which was approved by FERC in 2023 — which will likely result in increased costs and operational inefficiencies.
Governance is another sticking point. SPP’s current Markets+ stakeholder participation rules impede participation by public interest groups and do not ensure sufficient representation for Western states. This is in stark contrast to EDAM’s governance framework, which includes mechanisms for stakeholder input and representation that better align with the needs of the West.
Beyond our concerns for the details of the proposal, Markets+ exacerbates the broader issue of fragmentation in the Western power grid. A dual-market structure, with both EDAM and Markets+ operating independently, risks creating costly and inefficient market seams. Experience from the Eastern U.S., where RTOs like MISO and PJM have spent years negotiating complex seams agreements, underscores the inefficiencies and challenges posed by such fragmentation. A single, unified market would avoid these pitfalls, amplifying cost savings, enhancing reliability, and accelerating decarbonization efforts through broader resource sharing and coordination. EDAM builds on the decade of success of CAISO’s real-time market, the Western Energy Imbalance Market (WEIM), and a series of studies conducted by the Brattle Group demonstrate over and over again the strong financial benefits of a broad-footprint EDAM, versus the costs to utilities for joining Markets+.
We’re not the only ones who are concerned with the unknowns in the proposal. FERC Commissioner Chang highlighted the many ways the Markets+ proposal “lacks specificity,” and is not “comprehensive, clear, or understandable,” despite agreeing to approve the proposal. Chang also warns, “when market rules are flawed, incomplete, or unclear, the market faces significant risks from opaque transactions with unexpected and volatile prices. Ultimately, consumers could end up paying higher prices for market flaws.” Noting that there are many key elements left to future proceedings, FERC’s approval of Markets+ came with conditions. In addition to requiring SPP submit a compliance filing to reflect several changes made to their final proposal, SPP must submit an informational report to FERC every six months throughout the implementation period and for the first three years of operation so FERC can assess the performance of Markets+.
Utilities across the region are making decisions about which day-ahead market to join, splitting the West between Markets+ and EDAM, even though there is still time before either market is up and running. Still, several utilities remain uncommitted to a day-ahead market. The Bonneville Power Administration (BPA), in particular, has not finalized its decision, yet intends to contribute $25 million to the next phase of Markets+ development, despite the potential annual loss of tens of millions of dollars if it were to join Markets+. Even though BPA says this massive financial buy-in to Markets+ is not indicative of its decision, BPA continues to say that it is leaning toward choosing Markets+ over EDAM because of CAISO’s involvement in EDAM. BPA is not the only potential market participant to raise the issue of CAISO’s governance as a hesitation to joining EDAM.
Fortunately, a diverse group of stakeholders across the West, known as the Pathways Initiative, created a pragmatic, near-term two-step proposal to integrate the grid under a uniquely western governance structure that includes protections for the public interest.
The first step will transfer primary authority over the EDAM and WEIM from CAISO to the Western Energy Markets (WEM) Governing Body, providing western market participants more autonomy by enabling the WEM Governing Body to engage directly with FERC to oversee the western market functions. The second step creates a new governance structure: creating a Regional Organization with a fully independent board with sole authority over the western market functions. The two-step process is open, transparent, inclusive, prioritizes geographic and industry diversity, and balances the need to move quickly with the time pressure on stakeholders.
Western grid integration requires a holistic approach that prioritizes regional collaboration, transparency, and inclusivity. While SPP’s proposal reflects a growing recognition of the need for organized markets in the West, Markets+ falls short of delivering the robust, reliable, and equitable market the region needs. It is therefore critical that the Pathways Initiative continue paving the way for uninhibited EDAM participation that can unite the West under a single, well-designed market framework — the best path forward for consumers, reliability, and the clean energy transition.