By: Rebekah de la Mora, Senior Policy Analyst
Since the start of deregulation in the 1990s, electricity markets in the United States have only continued to grow. Wholesale electricity markets serve around two-thirds of Americans, and cover a majority of the contiguous 48 states. That number is only going to increase as wholesale markets grow their footprint, with new utilities joining every year.
DEFINING WHOLESALE MARKETS: Talking about wholesale markets brings up two types of entities: Independent System Operators (ISO) and Regional Transmission Organizations (RTO). While the original 1990s mandates by the Federal Energy Regulatory Commission (FERC) included slight differences between the two, at this point in time the two terms are often used interchangeably. Technically, an organization requires formal approval from FERC to be considered an RTO, based on requirements in FERC Order 2000, while an organization that does not go through this process is considered an ISO. Throughout this blog, we will be using “wholesale markets” to refer to both ISOs and RTOs.
There are seven wholesale markets across the United States. Three of these markets – California ISO (CAISO), New York ISO (NYISO), and Electric Reliability Council of Texas (ERCOT) – govern single states, while four – ISO New England (ISO-NE), Midcontinent ISO (MISO), Pennsylvania-New Jersey-Maryland Interconnection (PJM), and Southwest Power Pool (SPP) – cover multiple states.
These markets cover most of the Central and Northeastern United States, along with California. Most of the Southeast, Southwest, and Northwest do not (currently!) participate in wholesale markets, instead utilizing a more traditional vertically integrated market structure, where utilities own and operate generation facilities along with transmission and distribution.
(currently!) being the operative word here. More and more states and utilities in these regions are investigating or even mandating participation in wholesale markets. Within the past few years, multiple utilities have joined or announced their intention to join associated day-ahead markets, and some utilities even formed a new wholesale market.
Wholesale market participation, as of May 16, 2023. Courtesy of the Federal Energy Regulatory Commission.
CAISO VS SPP: A MODERN DUEL FOR THE WILD WEST
Between CAISO on the coast and SPP in the center, the in-between Western states have two options to choose from if they want to join a wholesale market. Both markets are gaining participants, and it is not yet clear who will win the duel for the West.
Twenty-five of these potential participants formed an unofficial coalition called the Western Markets Exploratory Group that aims to research regional market services, including regional transmission organizations and day-ahead markets. In September 2023, the group released its Western Day Ahead Market Production Cost Impact Study, performed by a consulting firm on behalf of the group. The study looked at the economic impacts of participation in CAISO's Extended Day-Ahead Market (EDAM) and SPP's Markets+ day-ahead market on the 25 members, in aggregate and at the utility level. The study looked at both the impacts based on which utilities join which market and the impacts based on the currently proposed features of each market. The study found that, across three different scenarios -- all utilities (including non-Group members) joining EDAM, an equal split between EDAM and Markets+, and a split favoring Markets+ -- only the all-EDAM scenario cost less than business-as-usual at the aggregate level. At the utility level, the 25 members save under both of the split scenarios, while spending more under EDAM; however, for non-member utilities, it would be the reverse.
The three possible scenarios for wholesale market participation, according to the Western Day Ahead Market Production Cost Impact Study. Courtesy of the Western Markets Exploratory Group.
More formally, three states – Arizona, Nevada, and New Mexico – are currently investigating participation in wholesale markets, while Colorado was previously investigating this. Colorado passed a bill in 2021 requiring electric utilities (except for municipal utilities) to join a wholesale market by 2030. Since then, four major utilities, including both investor-owned utilities, have officially joined SPP’s Western Energy Imbalance Service; Colorado Spring Utilities joined in August 2022, while Black Hills Colorado Electric, Platte River Power Authority, and Xcel Energy Colorado joined in April 2023.
The utility regulatory commissions in Arizona and Nevada have open proceedings related to wholesale market participation. Both states have considered mandating market participation, but have not formally adopted the requirement like Colorado did. None of the three investor-owned utilities in Arizona have announced intentions to join CAISO or SPP. In Nevada, NV Energy already participates in CAISO’s Western Energy Imbalance Market and announced in June that it will join EDAM, too. Back in California, the Sierra Nevada region of the Western Area Power Administration will also participate in EDAM.
Unlike the strong preferences shown in Colorado and Nevada, New Mexico is splitting its participation. El Paso Electric, which serves eastern New Mexico and western Texas, is already a member of SPP; however, Public Service Company of New Mexico announced just last month that it will join CAISO’s EDAM. Southwestern Public Service is not a member of SPP and is not formally joining, but it is requesting permission in New Mexico and Texas to utilize SPP demand response participation to counteract an expected capacity shortfall in 2027. There are plenty of states split between multiple wholesale markets, like Kentucky, Missouri, and Texas, so the participation split will likely not cause issues.
Wholesale Market Participation and Investigation (December 2024)
THE SOUTHEAST SEEMS TO HOP ON BOARD
On the other side of the country, the Southeast is in a duel of its own, this time with FERC. Utilities in Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, and Tennessee have a new wholesale market under review at FERC called the Southeast Energy Exchange Market (SEEM). SEEM is not technically an ISO or RTO; instead, it is more like a clearinghouse for bilateral markets. Bilateral markets only have two participants – the buyer and the seller – and are more discrete than the any-buyer any-seller open markets of an ISO or RTO. In addition, unlike standard wholesale markets, most of the participating states are vertically integrated, with limited provisions for third party generation.
SEEM participants in the Southeast. Courtesy of the Southeastern Energy Exchange Market.
The market launched in 2022, but there are regulatory concerns about compliance with FERC rules. SEEM participation is limited to generation or load entities that can participate in wholesale bilateral markets; generally speaking, only utilities participate in wholesale bilateral markets. FERC mandates, however, require wholesale markets to allow non-discriminatory and open-access participation for independent power producers, i.e. non-utility entities. Multiple entities are objecting to the limited pathways for third-party participation in the market, and have brought SEEM to court.
In July 2023, the U.S. Court of Appeals ruled that FERC’s original 2021 approval of SEEM violated anti-monopoly rules from a 1996 FERC order. The Court ordered FERC to re-review the application and either explain more clearly how its 2021 approval does not violate anti-monopoly rules or fix the deficiencies so that SEEM complies with FERC rules. The review is still under consideration at FERC, but in the meantime SEEM is still operating. It is not clear how FERC will implement the Court’s order, and how SEEM will evolve afterwards. Until then, it will be interesting to see how this whole-yet-bilateral market functions in a vertically integrated, regulated environment.
From EDAM to SEEM, and all the acronyms in-between, wholesale market participation is growing across the United States. With new participants across the Southeast and Southwest, over 40 states have some form of a wholesale market, and ongoing investigations and considerations will only cause that number to increase. Looking forward, we can expect a decision on possible changes to SEEM in the Southeast. Southwestern states will continue their investigations into wholesale markets, and there is a not-insignificant chance that these investigations will result in new participants. There hasn’t been much movement in the Northwest as of yet, but with the Southwest carving itself up, there’s a chance the northern utilities will be persuaded to join as well; a timeline for that, if any, is yet to be seen.