Modernizing the Western Grid: An Analysis of the Implementation of Regional Transmission Organizations in the Western United States.

• Author: Hansen, Chris

Introduction

Most of the United States currently benefits from regional markets; however, the Western United States (West) still operates on thirty-seven uncoordinated grids, excluding the California Independent System Operator (CAISO). (1) There are seven regional transmission organizations (RTOs) and independent system operators (ISOs) in the United States, including Southwest Power Pool (SPP), Midcontinent ISO (MISO), PJM Interconnection, New York ISO (NYISO), New Brunswick System Operator (ISO-NE), CAISO, and Electric Reliability Council of Texas (ERCOT). (2) RTOs are non-profit organizations that operate, control and monitor multi-state electric grid systems; because electricity transference is considered interstate commerce, the Federal Energy Regulatory Commission (FERC) regulates the majority of the U.S. electric grids. An ISO is an independent organization that also monitors the electric grid and are regulated under FERC, but RTOs have jurisdiction over larger geographic areas. (3)

While an RTO or ISO does not own any of the generation or transmission assets, it serves their footprint by providing transmission management and planning, maintaining reliable operation of the interconnected grid, and managing the market and cash flows. (4) The value of these organizations lies in their ability to connect dispersed markets and create centrally optimized dispatch at least cost, typically through an auction process. (5) As the West continues to look towards a carbon-free future with more renewable electricity generation, interconnection of existing grid systems is going to be vital. As solar and wind technologies grow in their share of the market generation, it is important to recognize that their best resource areas often overlap with the grid's weakest locations. (6)

Currently, 80% of the people in the West live in jurisdictions that have legally binding goals for 50-80% renewable generation or 100% zero-carbon futures. (7) However, the current disconnect between highest renewable resource areas and existing transmission infrastructure will make it difficult to achieve these goals at a reasonable cost to rate-payers without improved grid interconnections. The existing Energy Imbalance Market (EIM) and the proposal for an Extended Day-Ahead Market (EDAM) are steps in the right direction, but they fall short of the necessary regional coordination needed to bring the estimated 150+ Gigawatts of new wind and solar power online. (8) An RTO or ISO would provide significantly enhanced benefits for the West compared to an EIM or EDAM. Table 1, below, compares the beneficial features of the three models.

The added benefits of an organized wholesale market (OWM) lead to both capacity and operational cost savings. (10) A West-wide OWM would lower production costs, put downward pressure on reserve margins, and increase the value of avoided capacity investments over time. It is estimated that, when compared to the current EIM scenario, the West could save $3.5+ billion annually. (11) The following sections describe how the West can learn from existing RTO structures and what practices will work best for the implementation of a West-wide OWM.

Governance Issues in the West

Despite the alignment of Western states in clean energy production and transmission targets, there are important differences between states that complicate the introduction of RTOs in the West. The vast variety of clean energy opportunities are disproportionately concentrated in a subset of the states. (12) When paired with the complex geography of navigating mountains, deserts, wetlands, indigenous lands, and more, an interconnected grid would require broad governance that would need to complement and be compatible with current state authority.

Several attributes for the governance model in the West should be considered: a significant role for individual states, inclusiveness and transparency, an independent board and market monitor, an evolutionary governance review, and a level-playing field. The governance model must prioritize leadership, collaboration, adaptability, accountability, and harmonization with state policy goals. A productive, reliable RTO would reflect the institutions and people of each region that it represents. Conversations surrounding an interconnected grid have circulated for over eight years now and have produced consensus that it is time for leaders across Western states to work together and make decisions that drive a cohesive set up for the introduction of an OWM. (13) A 2021 Consensus Study Report performed by The National Academies of Sciences, Engineering, and Medicine concluded that "Congress and the states should support the evolution of planning for and siting of regional transmission facilities in the United States," which will support both urban and rural economic and industrial development. (14) State policy and federal support are crucial to the planning and operations of a successful regional market in the West.

State Policy Needs and Fidelity

As outlined in the previous section, there is concern among states and utilities of losing both authority and autonomy. There are several key barriers that have been identified that must be addressed by states' policies to ensure the successful introduction of RTOs. As a result of the disconnect among the grid systems, there is a form of isolationism among states and utilities in both policy and in perception of electricity generation and transmission. (15) This leads to a lack of alignment in regulations and goals that each state or utility has set. In addition to policy disparity, there is a more limited appreciation of the operational complexities and benefits of a more integrated electric grid among decision-makers and stakeholders. (16) Without a common...