➤ This is the third installment in a three-part feature series examining plans by the Southwest Power Pool to form a regional transmission organization in the Western Interconnection.

The Southwest Power Pool's continued push to build new power markets in the U.S. West faces numerous physical and economic challenges, but its more straightforward opponent is already in the game: the California ISO.

CAISO has been serving as an independent system operator for utilities in California since the late 1990s. Both CAISO and SPP, which runs a regional transmission organization in the Eastern Interconnection, have indicated that their long-range goals are to establish an RTO in the Western Interconnection. Unlike much of the nation, the Western Interconnection remains mostly the domain of smaller balancing authorities and utilities.

Yet neither is a shoo-in for the job: SPP must cross the transmission "no-man's-land" that is the Continental Divide to fully tie the West into its services, while CAISO must cross a different type of divide: its own border. As a single-state ISO with California lawmakers in ultimate control, CAISO must resolve certain governance issues if it wishes to persuade out-of-state transmission owners to surrender control of their assets.

So, CAISO and SPP are presenting their respective business models to utilities and other customers in an effort to show that they are best situated to provide reliability and cost savings to the region.

Stepping stones

To that end, CAISO has been focusing on advancing its Western Energy Imbalance Market, or WEIM, a regional collaboration in balancing generation and load in real-time. On May 21, CAISO said its WEIM participants have saved more than $919 million since that market was launched five years earlier.

WEIM currently has 11 participants: CAISO, six large investor-owned utilities, two major publicly owned urban utilities, a balancing authority and a power trading corporation. WEIM participants now represent 61% of the energy load in the Western Interconnection, which encompasses the region from the High Plains, east of the Rocky Mountains, to the Pacific Coast, including parts of Canada and Mexico. An agreement CAISO recently signed with Xcel Energy Inc. means the WEIM will cover 82% of the Western Interconnection's total load by 2022.

CAISO also has been working with WEIM participants on a proposal to introduce a day-ahead imbalance reserve product, which is intended to lay the foundation for a future initiative that would give them the option of participating in CAISO's day-ahead market.

For its part, SPP plans to begin offering its Western Energy Imbalance Service, or WEIS, on a contract basis beginning in February 2021. Like CAISO's WEIM, SPP's service will involve the central dispatch of energy from participating resources every five minutes. Three multistate public power entities straddling the Eastern and Western Interconnections — the Western Area Power Administration, Tri-State Generation and Transmission Association Inc. and Basin Electric Power Cooperative — in September 2019 announced that they would join SPP's WEIS. Altogether, SPP said, eight entities are set to participate in the WEIS market when it launches.

CAISO also provides reliability coordination services and has finalized agreements to act as the reliability coordinator for 42 balancing authorities and transmission operators across the West. Although SPP also began offering reliability coordination services to western customers in late 2019, CAISO said its RC West now oversees reliability for 87% of the load in that region.

Both CAISO and SPP appear to be looking at their actions in offering imbalance and reliability services to utilities in the Western U.S. as stepping stones toward their ultimate goal. But the path on which those stones are being laid is not free from hurdles for either grid operator.

Governance issues may help SPP, impede CAISO

The governance of CAISO is California-centric, as members of the organization's board are appointed by the governor, subject to confirmation by the California Senate.

CAISO in the past has been frustrated in its attempts to transition into a full-fledged RTO by its inability to garner enough support in the California Legislature to pass a measure that would open its governance to representatives from other western states. A bill that would have allowed the grid operator to become a multistate RTO never made it to a floor vote before the state's legislative session ended in 2018, marking the second consecutive year the undertaking failed. To date, no further legislative effort has been made in that regard.

Other states are unlikely to cede control of their transmission facilities to an RTO in which they have no influence. Still, CAISO remains hopeful that the roadblock eventually will be overcome or removed and is positioning itself to be ready when that happens.

Noting the "significant economic and environmental benefits" of a regional grid, CAISO spokeswoman Vonette Fontaine said, "We have been working to unlock those benefits by offering and expanding our real-time [WEIM] to other western balancing authorities, and we're pursuing the possibility of extending our day-ahead market."

"If the [California] state legislature wants to reconsider a regional market in the future, we will be ready to help inform policymakers on the benefits of a fully integrated regional market," Fontaine continued.

In contrast, SPP is a nonprofit, membership-driven organization with an elected board of directors responsible for ensuring equity to all members. SPP's bylaws state that membership is voluntary and open to any electric utility or other entity engaged in the business of producing, selling or purchasing electric energy for resale, provided they are willing to meet certain membership requirements.

"SPP is very stakeholder-driven in a very meaningful way," Nick Brown, SPP's former president and CEO, said in a 2019 interview.

SPP has a physical challenge that CAISO does not

The Eastern Interconnection where SPP's existing RTO footprint lies is electrically connected to the Western Interconnection via only seven aging direct current, or DC, converter stations located along SPP's western boundary with a total of about 1,300 MW of transfer capacity. Meanwhile, CAISO enjoys seamless access to major transmission lines that run between California and other western states and therefore can easily complete large physical exchanges of power across the region.

But SPP's leadership believes the needed transmission links across the seam will be built once utilities and other developers realize the economic advantages of regional coordination between the Eastern and Western Interconnections. Brown, who handed SPP's reins to current President and CEO Barbara Sugg in April, said the grid operator previously made that case when negotiating with a group of Intermountain West utilities for power exchanges across the East-West DC ties.

SPP's efforts to recruit that group of eight Rocky Mountain region utilities fizzled in April 2018 when Xcel Energy subsidiary Public Service Co. of Colorado dropped out of the initiative after concluding that joining the RTO would provide limited benefits and few market expansion opportunities.

While Brown still insists "there are certainly economic benefits for the Mountain West Transmission Group to become part of SPP," Xcel Energy spokeswoman Julie Borgen said the company has no plans to build, or participate in building, transmission projects across the East-West seam at this time.

"In our view, the biggest challenge to interconnection is institutional. ... Cost allocation and benefits assignment of interconnection, along with coordination between stakeholders, would also require a level of cooperation and agreement beyond what we see in RTOs like ... SPP today," Borgen said.

Some members of Congress are trying to address those concerns. Democrats in the U.S. House of Representatives are expected to pass a $1.5 trillion measure called the Moving Forward Act that would require the Federal Energy Regulatory Commission to increase the effectiveness of interregional transmission planning "to ensure that efficient, cost-effective, and broadly beneficial transmission solutions are selected for construction."

That bill, H.R. 2, also would require the Secretary of Energy to provide financial assistance to projects related to transmission system planning and operation. House Democrats on June 22 announced that the bill would mandate the investment of more than $70 billion to transform the electric grid so it can accommodate more renewable energy and support other clean energy aims.

For the foreseeable future, some experts doubt that SPP can extend its reach into the West unless utilities and merchant transmission developers build extensive links across the seam. Natural Resources Defense Council's Director of Western Transmission Carl Zichella said CAISO accordingly has a distinct advantage over SPP with respect to RTO expansion.

"Running a western energy market from Little Rock, Arkansas, is a tall order. I don't see that happening in a realistic way," said Zichella, who served on CAISO's WEIM transitional committee.

Nevertheless, representatives of SPP and the CAISO agreed at a recent conference in Scottsdale, Ariz., that the marketplace ultimately will determine the future of wholesale markets across the West, including whether one, two or more RTOs someday will serve the region.