The landscape of electricity markets in the Western United States is undergoing a significant transformation as two regional operators, the Southwest Power Pool (SPP) and the California Independent System Operator (CAISO), race to establish new markets.
This change is especially critical for a region that has long been marked by a lack of a centralized wholesale electricity market and regional grid operator, distinguishing it from other parts of the country.
Historically, most of the United States has benefited from wholesale electricity markets and regional transmission organizations, known as RTOs, and independent system operators, called ISOs.
These entities have been managing markets since the 1990s, with California serving as an exception in the West by implementing a market through CAISO.
Other states in the region have operated independently, leading to inefficiencies in power distribution.
The introduction of comprehensive wholesale power markets has brought numerous benefits, including the ability to match buyers and sellers in real time based on pricing and power needs.
For example, SPP, covering a broad swath of states from Texas to North Dakota, has recently approved a record $7.7 billion for 89 transmission projects as part of its operational plans.
Chris Pink, the senior vice president of the Tri-State Generation and Transmission Association, highlighted the operational advantages of RTO planning:
If utilities within an RTO identify overlapping transmission problems, like issues between different points on their grids, the RTO can propose a more cost-effective solution that addresses both issues simultaneously.
This collaborative approach can lead to significant cost savings and optimized transmission solutions.
Acknowledging the potential for savings, a study conducted for the Colorado Public Utilities Commission estimated joining an RTO could yield annual savings of around $230 million for electric utilities in Colorado.
As a result, utilities are mandated to integrate into a wholesale market by 2030.
The emerging frameworks of SPP and CAISO illustrate the competitive strategies at play, with both regional operators vying for membership from utilities in Colorado and beyond.
Since 2014, energy imbalance markets have also been in operation in the West, facilitating real-time power swapping to prevent grid overloads and outages.
While CAISO and SPP manage separate imbalance markets, the next logical phase involves establishing day-ahead markets for short-term power purchasing and selling.
The next step could see Colorado utilities transitioning towards full membership in SPP by 2026, particularly since major players like Colorado Springs Utilities and Platte River Power Authority are poised to make this move.
In contrast, Xcel Energy has expressed an interest in joining CAISO’s Markets+, although it remains hesitant regarding full membership in SPP.
Concerns over the costs associated with transitioning to Markets+ have been raised by stakeholders, including the Colorado Public Utilities Commission and the Office of the Utility Consumer Advocate, citing insufficient demonstration of benefits when weighed against upfront costs.
Currently, the interplay between the SPP and the existing limitations in transmission capacity presents challenges for Colorado utilities.
Networking with SPP would rely on the use of only three existing ties between the Eastern and Western grids.
While there remains underutilized capacity in these ties, analysts urge that the gap in connectivity could prove problematic.
The price disparities caused by limited interactions between the markets necessitate strategic consideration for new transmission projects to optimize operations over a larger area.
However, critics argue that aligning with SPP may prove more expensive than adopting the California-based model.
An analysis by the Environmental Defense Fund indicated that Xcel Energy could save an estimated $4.2 million annually by joining the California imbalance market instead of pursuing SPP.
Despite these findings, Xcel Energy contends that its geographic proximity to the SPP and the limitations of existing infrastructure render it a more viable choice.
Meanwhile, utilities such as United Power have expressed clear intent to join SPP, supporting the rationale of needing immediate market access for operational efficacy.
United Power’s CEO, Mark Gabriel, emphasized the need for market integration, deeming SPP the logical choice due to its proximity and relative stability.
Another layer of complexity arises from California’s political environment, with the state’s high electricity rates and governance structure influencing perceptions of CAISO’s operations.
The contrasting political climate between states like Wyoming and California amplifies concerns for electric cooperatives considering market entry.
Experts such as Johannes Pfeifenberger from The Brattle Group caution against unrealistic expectations of forming a singular organized electricity market in the West due to logistical challenges, including fragmented transmission coverage and varied utility interests.
Additionally, the West-Wide Governance Pathways Initiative is an ongoing effort aiming to create an RTO ungoverned by CAISO.
Yet skeptics point to historical stagnation in these initiatives, suggesting substantial challenges remain before any cohesive structure can be realized.
As Colorado gravitates toward SPP and New Mexico moves toward CAISO, critiques regarding the implications of two separate markets have emerged, noting the barriers known as ‘seams’ that these disparities could create.
Antoine Lucas from SPP highlighted the need for addressing these seams, particularly as the operator expands into the West.
Previously held assumptions that nearby utilities would naturally gravitate to their local market have been challenged, indicating that the bifurcated landscape could exacerbate inefficiencies and complicate management within the grid.
Debra Lew from the Energy System Integration Group recognized the challenges posed by having two competitive markets with seams, forecasting operational complexities in the West.
In conclusion, while the current state of Western electricity markets is marked by growing competition between SPP and CAISO, many stakeholders acknowledge that two markets are preferred over a lack of structure.
However, the emergence of seams could still pose significant hurdles, impacting grid efficiency and energy resource management across the region.
As utilities navigate these developments, collaboration, communication, and strategic planning will be essential for harnessing the full benefits of a more integrated Western electricity landscape.
image source from：https://coloradosun.com/2025/06/09/wholesale-markets-colorado-electricity-power/?utm_source=newsshowcase&utm_medium=gnews&utm_campaign=CDAqKggAIhDJnssVXdG08fRFyjdK0RA8KhQICiIQyZ7LFV3RtPH0Rco3StEQPDDfh-UD&utm_content=rundown
