On the 10th floor of Xcel Energy’s downtown Denver office building, energy traders sit before banks of screens filled with flickering, colored digits, as they buy and sell electricity for the utility’s sprawling service areas. In one corner, a trader monitors the Midwest wholesale market, and in another, the Southwest Power Pool—an odd name, given that it actually covers the Great Plains, not the Southwest.
On a recent day, an electronic map showed North Dakota in blue; the price of the state’s wind power was near zero. On the other hand, southern Indiana was burnt orange, with the price of a kilowatt-hour near 8 cents. Five minutes later, Ohio turned pale green as the price dropped to 5 cents.
Meanwhile, on the other side of the room, the trader handling Colorado had no fancy, color-coded price map. When he needed to buy or sell, he had to get on the phone and call around to other utilities to find out what they had, at what prices. Then he had to fix the price, coordinate the dispatch of the electricity, and file the paperwork—all things being done automatically across the room by the Midcontinent Independent System Operator, or MISO, and the Southwest Power Pool, which covers all or parts of seven states.
There, in a nutshell, is the state of affairs when it comes to Western electricity markets. While 60 percent of the nation’s electricity is handled through computerized regional markets, the West is stuck in the 1980s.
Electricity sales in the West are Balkanized among 38 “balancing authorities,” or local markets.
All provisions for necessary plants and power, including backup reserves, must be made by the utilities in each local market, while the companies in the neighboring market do the same. Electrons don’t flow between them.
But in a bigger market, electricity—a perishable commodity that moves at the speed of light—can travel wherever there is demand. There is less need for redundant backup systems, as someone is always making electricity, and someone is always buying.
“If Iowa wants to go to 80 percent (wind), they can, because they belong to the Midwest ISO,” says Steve Berberich, chief executive officer of the California Independent System Operator (CAISO), an in-state wholesale market.
But the day of a Western electricity market, also known as a regional transmission organization (RTO), may be at hand. CAISO and Portland, Ore.-based PacifiCorp, which operates power plants in six Western states, are looking to form a regional market. Berberich says he hopes that market can be extended across the entire West.
On the eastern end of the region, seven utilities, including Xcel, have formed the Mountain West Transmission Group, which extends from Wyoming into New Mexico and Arizona. The group—a precursor to an RTO—is trying to develop a uniform transmission charge, or tariff, for the region. Currently, each utility has its own charge for moving electricity through its wires. Once it has developed a uniform tariff, it may join one of the nearby regional transmission organizations or create its own market.
Regional markets have a lot of moving parts. MISO operates a day-ahead market where wholesale power is sold from utility to utility for the coming day, as well as a real-time market to fill in for unexpected demand or outages. Electricity suppliers submit bids to MISO, which then fills orders for that power starting with the lowest price. The price at which all orders are filled is called the clearing price, calculated by algorithms and computers for the spot, or real-time market every five minutes.
In this bidding system, wind and solar, with their steadily declining prices, are becoming more attractive to utilities.
“Any time you can avoid a fuel burn, you’ve got an opportunity for savings,” says Stephen Beuning, Xcel’s director of market operations.
At the moment, however, wind power from Wyoming or solar electricity from California can’t easily move around the West. On one day, CAISO had to dump 485 megawatts of wind and 657 megawatts of solar, because there was no way to sell it to utilities outside its grid.
“We can’t get to the goal of 50 to 60 percent renewable energy by 2050 without an RTO,” says Zichella.
In theory, a West-wide RTO would have allowed California to sell that excess wind and solar to, say, Utah or Colorado, thus avoiding the need to burn natural gas there. Similarly, Colorado utilities could ship excess wind power to California to back up solar during times of peak demand.
Setting up an RTO isn’t easy, though.
“The software is a huge expense—and California has created it and is willing to share with the West,” says Nancy Kelly, a senior energy policy adviser with Western Resource Advocates, an environmental group.
California’s offer to share, however, is being met warily around the West by those who are concerned that while a Golden State-dominated system might be good for California, it may be less so for others.
CAISO is controlled by the California governor and Legislature. “That is going to have to change to be acceptable to the PacifiCorp states,” says Bryce Freeman, administrator of the Wyoming Office of Consumer Advocate. “Unless that is resolved, it’s a fool’s errand.” PacifiCorp operates in Oregon, Washington, California, Utah, Wyoming and Idaho.
In Utah, lawmakers are drafting a bill to give them veto power over joining the CAISO market. “We aren’t opposed,” says Jeffrey Barrett, deputy director of the Utah Governor’s Office of Energy Development. “We just want to make sure it is a good deal for Utah.”
The state has among the lowest electricity rates in the West—a competitive advantage it doesn’t want to lose, Barrett says.
Though they concede that a regional grid could help renewables, the Sierra Club is opposed to the current CAISO expansion plan, because it would bring 24 coal-fired PacifiCorp units into the regional system.
“In bumping up the productivity of these coal plants, it will throw a lifeline to some, allowing them to operate for another 16 years,” said Travis Ritchie, an attorney with Sierra Club’s Beyond Coal campaign.
Still, economic forces and renewable-energy policies look to be pushing the West toward a regional market. A CAISO study released in July found the proposed RTO would lead to up to $1.5 billion in savings annually in California by 2030—equal to a 3 percent cut in electricity rates.
It would also lead to a reduction in toxic and greenhouse gas emissions across the West, according to the study, although there would be a slight bump up in the early years from the PacifiCorp coal-fired plants.
The analysis, however, didn’t look at benefits outside California. “A big question is: Will costs and benefits be equal across the system,” says Elta Kolo, an analyst with GTM Research, an energy consulting firm. “It will be crucial to get consumers on board.”
The West presents some unique challenges. The New England ISO covers six states, but is an area one-thirteenth the size of the size of the West, a region with a mix of sparsely populated states and heavily urban ones, states with ambitious renewable energy standards, and those heavily tied to coal.
“They are different, but still similar in that they need electrons, they need reserve capacity, and they need to make money,” says Amanda Ormond, managing director of the Western Grid Group, which advocates for a more efficient grid to promote renewable energy.
“A Western market is almost certainly inevitable,” Ormond says. “Most of the utilities in this country and the rest of the world operate in organized markets, because it is more efficient. It is going to happen.”