The Bottom Line: The Western Power Pool’s proposal to improve grid reliability with a new regional program awaits approval from the Federal Energy Regulatory Commission. EPSA filed comments supporting the Western Resource Adequacy Program (WRAP) but says further increasing regional competition by establishing a regional competitive energy market would do even more to mitigate increasing stress on the Western U.S. power grid as extreme weather events such as heat and drought continue to assail the region.
Electric transmission lines bring power from where it is generated to homes and businesses. Credit: iStock/lovelyday12
As the Western U.S. faces mounting power grid stress posed by record drought, heatwaves, and other pressures, EPSA continues to weigh in on the best way to bring the reliability, cost, and many other benefits of electric competition and a regional power market to the region – and help ensure that enough power generation capacity is available to meet demand. While establishing an organized regional energy market, such as a Regional Transmission Organization (RTO) or Independent System Operator (ISO), would ultimately bring the greatest benefits to consumers and reliability, the Western Power Pool (WPP)’s proposed Western Resource Adequacy Program (WRAP) is a big step in the right direction if appropriately implemented.
That was the message of EPSA’s comments on the WPP’s Submission of Tariff September filing at the Federal Energy Regulatory Commission (FERC), which proposes implementing the WRAP. If approved, the WRAP, which is a voluntary program, would create a planning and compliance framework that seeks to take advantage of and maximize regional diversity in resources and load to enhance electric reliability for western electric customers.
EPSA urges FERC to approve the WPP’s proposal, noting that implementing the WRAP would help address reliability challenges raised by the Commission at its 2021 Technical Conference to address resource adequacy issues in the Western Interconnection. EPSA’s guidance to FERC notes that establishing broad regional electricity market constructs in the Western Interconnection is the best path forward to address those challenges and maintain reliability.
What is the WRAP and how would it enhance reliability?
The WRAP would boost reliability by allowing power providers and utilities across multiple states to pool and share a diverse array of electricity resources. In its proposed form, the WRAP comprises a combined 26 participants, including utilities and power providers. Collectively, they total an estimated peak winter load of approximately 65,000 MW and an estimated peak summer load of approximately 72,000 MW across ten states and one Canadian province. Thus, when one state or region is experiencing higher demand or stress, it can draw on available power generation from another participant.
Instead of creating a new market, the WRAP would leverage the existing bilateral market structure in the West to develop a resource adequacy construct. The WPP proposes setting a “reliability metric” and requiring participants to demonstrate seven months in advance that they’ve secured their fair share of generation capacity for the upcoming winter or summer. While the WRAP is a voluntary program, any participant that executes the WRAP Agreement is subject to financial penalties if it does not meet program compliance requirements.
The WRAP appropriately moves the Western Interconnection closer to a regional wholesale market, but the West should go further.
As EPSA, its members, and the operators and participants in other centrally organized regional markets can attest, leveraging regional diverse resources has helped secure cost-effective power system reliability. By utilizing a broader base of diverse assets to benefit individual utility systems across the western states, the WRAP moves the region toward a more efficient wholesale market system, and thus should be approved by the Commission.
That noted, more can be done to bring the benefits of regional competition to western states. There are aspects of the WRAP proposal which may be tenable for this limited program but would require modification in the next iteration of the western market.
- Importantly, the western states should continue their progress by taking those next steps to expand and enhance their reliability construct once the benefits and operation of the current proposal have been realized.
- While the WPP is quick to stress that the WRAP would not establish a Regional Transmission Organization (RTO) or an Independent System Operator (ISO), or otherwise implement a centralized capacity market, the Western Interconnection would ultimately benefit from the establishment of any – or all – of these market constructs, properly constructed.
Regional competition is needed to address mounting Western power grid pressure and advance the energy transition.
Over the past two decades, competitive wholesale markets have proven to be the most effective way to provide the necessary investment signals to secure cost effective and reliable electricity while also incenting innovation and efficiency. This market structure can best support a transition toward a cleaner grid while placing the investment risk of doing so in the hands of power generators rather than customers. A state-led study funded by the U.S. Department of Energy showed the development of a single RTO covering the entire U.S. portion of the Western Interconnection could save customers in the region $2 billion a year in energy costs by 2030.
The regional market benefits offered by a centrally organized system are needed now more than ever in the Western Interconnection to address imminent resource adequacy concerns by expanding access to the diverse resources across this broad area of the country. An array of factors – changing weather patterns and extreme events, shifting power demand patterns, diminished access to hydro resources, loss of resource abundancy, and an emerging patchwork of climate policies – are all impacting reliability and the ways it has historically been secured in areas across the West – as identified by the North American Electric Reliability Corporation and FERC. By approving and allowing the implementation of the WRAP, FERC can take a critical first step toward greater power system reliability in the face of these concerns.
It’s time for an organized regional energy market in the West.
But more is needed. As the next step, developing an organized regional energy market would best meet these challenges while promoting competition, ensuring open access, and providing critical signals for proper exit and entry of resources as the grid evolves. Other benefits include coordinated efforts that more efficiently and cost-effectively utilize the existing transmission network while integrating new generation technologies and assets. As regional energy market proposals are advanced, coordination and consistency with the WRAP will be critically important.
Ultimately, EPSA agrees with FERC Chairman Rich Glick that “[T]he time has finally come for the West to establish one or more Regional [Transmission] Organizations – enabling the region’s utilities to work together to ensure resources meet demand, integrate intermittent generation into the grid, [and] produce significant consumer savings.” Other areas of the U.S. have seen significant benefits from RTOs and ISOs – western states should have access to the cost savings, reliability, and innovation that organized regional energy markets provide.