As the Southwest Power Pool (SPP) accelerates its efforts to extend its footprint into the Western United States, energy experts in California are voicing concerns that the state could become isolated, potentially jeopardizing access to renewable energy resources and power imports that are vital to its electric grid.

The West remains one of the few regions in the country without a regional transmission organization (RTO), and discussions about creating one have persisted for over two decades. Currently, 22 entities in the region participate in the California Independent System Operator's (CAISO) real-time wholesale energy trading market—the Western Energy Imbalance Market (WEIM)—and the grid operator is also establishing a voluntary extended day-ahead market (EDAM). CAISO expects to begin onboarding EDAM participants in early 2025, with PacifiCorp as the first entity to transition to implementation.

Concurrently, SPP—an RTO based in Arkansas operating across 17 states—is advancing its own Western-focused energy market, called Markets+. In early March, SPP announced that several entities, including Arizona Public Service, NV Energy, and Puget Sound Energy, have entered into funding agreements to develop this market. That announcement has sparked unease among some in California's energy industry, who worry that SPP's expansion could complicate energy imports, which have historically accounted for an average of 18% to 20% of California's summer power supply.

These developments unfold amid broader stakeholder conversations about creating a West-wide RTO, which would go beyond operating real-time and day-ahead energy markets to include other aspects of energy planning, such as transmission and grid reliability. In addition to its Markets+ initiative, SPP is exploring expansion as a full RTO in the region; in mid-2021, its board of directors and strategic planning committee approved a framework of terms and conditions for this RTO West effort.

If SPP were to attract entities that are part of the WEIM or committed to the EDAM into its RTO footprint, "the concern I have is that California would be isolated from the rest of the West," said Amisha Rai, vice president of policy and advocacy at Advanced Energy United, a clean energy trade group. Over recent summers, California has relied heavily on energy imports during grid stress, and "that isolation will create a significant challenge for all of us in California… to really meet demand," she added.

Given this reliance, experts see substantial upside in California becoming more actively involved in regional discussions about Western grid expansion. "A [Western energy] market is going to happen one way or the other, and our inaction has prompted SPP to start trying to play catch up," said Michael Colvin, director of regulatory and legislative affairs at the Environmental Defense Fund. "So do we want California to become a virtual island, or do we want us to actually have a seat at the table and to help influence this market from the beginning?"

Competing Markets in the West

The Western Energy Imbalance Market, created nine years ago and operated by CAISO, spans parts of 11 states, including Arizona, Idaho, and Montana. Since its launch, the WEIM has produced cumulative benefits of $3.4 billion, according to the market operator. A West-wide day-ahead market could further amplify these benefits; an analysis by Energy Strategies late last year found that such a market could yield up to $1.2 billion in annual savings from operational and capacity efficiencies and boost renewable output by over 1,800 GWh. A West-wide RTO could create up to $79.2 billion in additional gross regional product per year across the 11 Western states, according to a report from Advanced Energy United.

This context frames SPP's creation of an alternative to CAISO markets, said Andrew Campbell, executive director of the Energy Institute at the Haas School of Business at the University of California, Berkeley, and a WEIM governing body member. SPP launched a real-time balancing market, the Western Energy Imbalance Service market, in the West in 2021 and is now developing Markets+ as a "conceptual bundle of services… that would centralize day-ahead and real-time unit commitment and dispatch."

"It's essentially a competing market and for any given utility, it's sort of either/or whether you join the SPP market or join the California ISO-run market."

Andrew Campbell, Executive Director, Energy Institute at the Haas School of Business

In early April, SPP said 31 entities have joined the effort to develop and launch Markets+, and that it has begun developing the market after receiving sufficient funding a month ahead of schedule. The first phase of development will conclude with a tariff filing with the Federal Energy Regulatory Commission (FERC) in January 2024, according to Meghan Sever, an SPP spokesperson. The next phase will involve acquiring necessary software and hardware and creating Markets+ systems and processes. Participants in the second phase will be integrated into the market upon its launch, expected in late 2025 or early 2026.

The Threat of Isolation

Some California stakeholders are concerned about the implications of SPP's Western expansion. If SPP establishes its market, it could diminish the value of CAISO-run real-time and day-ahead markets, said Colvin, "because people are not going to want to have to participate by two different sets of rules and be in two different markets."

"Certainly if a lot of other entities were to join into the SPP Markets+ or beyond, we face the potential of losing participants in the Western Energy Imbalance Market, which could have significant reliability and financial implications for California. We also lose the potential for the upside of having a truly broad group of entities join EDAM – so, it is a risk."

Elliot Mainzer, President and CEO, CAISO

The existence of two day-ahead energy markets in the West would complicate California's ability to import energy during grid strain, agreed Fred Heutte, senior policy associate with the NW Energy Coalition. This would create a "hard" seam between the two markets, requiring a more formal approach to issues like congestion management. These barriers could also affect grid reliability. For instance, during last September's record-breaking heatwave, electricity imports from neighboring balancing authorities helped CAISO avoid outages, according to an analysis released by the grid operator in November. California imported around 6,500 MW during that period, with an additional 1,000 MW of WEIM transfers during the tightest supply times.

"Creating these regional markets really lowers the barriers to trading across state boundaries and across utility boundaries, and also greatly enhances just visibility and coordination between these different areas," Campbell said. But if entities in neighboring states join SPP's markets, "I think it'll make it more difficult for Californians to trade with other states. And those other states will have a much easier time coordinating with each other."

SPP's Sever countered that seams between balancing authorities, transmission service providers, bilateral markets, and organized markets will persist regardless of SPP's expansion. "Importantly, transfers between the West and California will continue and Markets+ provides an opportunity to more effectively manage seams to support and enhance reliability for all participants," she said. The Markets+ design proactively supports existing bilateral transactions, and SPP will work with transmission service providers and other market operators to coordinate transfers and systems.

Beyond the immediate concern of entities switching from WEIM/EDAM to Markets+, there is the broader question of a full Western RTO. Nine entities in the West are currently evaluating membership in SPP's RTO West. Prospective members will execute a membership commitment agreement this year, and SPP will file a modified tariff with FERC next year. SPP plans to welcome new members by April 2026, becoming the first RTO to operate in two interconnections.

Many clean energy advocates prefer a single Western RTO footprint, said Vijay Satyal, deputy director of regional energy markets at Western Resource Advocates. Having two RTOs in the West "would be an undesirable situation," requiring stakeholders to participate in two different markets and follow different reporting forms. While two RTOs are better than the status quo, "it still is not the ideal solution… because the West is unique and the footprint is so diverse that the maximum benefits can be harnessed by having the complete diversity of time zone and resource mix changes under one large market."

Kickstarting the RTO Conversation

Given these concerns, some stakeholders see upside in California advancing the regional conversation. In a policy brief issued in March, the Union of Concerned Scientists noted that some Western states and utilities have started to organize into markets without California, including through SPP. "All of this indicates that, with other offerings available, California may see some of its collaborators peel off to join other organizations, especially if the state chooses not to enable the expansion of the CAISO into a western RTO. As time goes on and these various forms of western grid collaboration mature, California may lose its ability to influence the design and governance of these systems," the brief stated.

"[T]here are other entities who are taking a serious look at the SPP market and seeing if that might be an alternative path under a different governance structure, if California can't get its long-term governance evolution in place."

Elliot Mainzer, President and CEO, CAISO

The central question for expanding CAISO into a West-wide RTO is its governance structure. CAISO's board of governors is appointed by California's governor and confirmed by the state senate, noted Vivian Yang, Western states energy analyst at the Union of Concerned Scientists. If CAISO were to become a full Western RTO, this structure would need to change, as other Western entities are unlikely to join under the current model. CAISO's Mainzer agreed that governance is a primary issue to resolve for RTO momentum. SPP's expansion "definitely adds an element of urgency," he said, allowing CAISO and its partners to recognize the value of regional partnerships and the importance of developing infrastructure inside California to ensure a robust resource adequacy stack.