CAISO FERC Markets West

Major Milestone for Western Grid Integration

December 21, 2023

Federal regulators have largely approved a new electricity market that will help enhance system reliability, lower costs to consumers, and speed the transition to a clean energy economy by allowing utilities to share resources more efficiently.

Under the Extended Day-Ahead Market (EDAM), utilities, clean energy producers, and other entities have a strong tool to help manage their energy needs more efficiently than they can today. They will be able to identify the resources they will need for the following day and can buy and sell electricity to meet these needs, helping grid operators balance supply and demand.

The Western U.S. is experiencing increasing impacts from climate change as demand for electricity rises. The combination of more frequent extreme weather events – like heat waves, wildfires, and drought –  and higher demand, has exposed the existing, fragmented power grid to be ill-equipped to efficiently, cost-effectively, and reliably meet the power needs of the region. Absent changes, the region faces the prospect of more frequent power curtailments and blackouts.

EDAM will fortify the power grid against the impacts of climate change and help keep the lights on by providing the opportunity to more effectively harness the geographic and resource diversity of the region. Its day-ahead market services will lead to increased and more efficient sharing of resources and reduce total electricity needs due to better utilization of all resources in the footprint. This will provide the region with significant annual cost savings up to $1.2 billion, increased opportunities to integrate more renewable energy resources, more efficient use of the renewables currently available, and enhanced reliability of the electricity system both on an average day and in circumstances of extreme weather. EDAM, a voluntary market, was approved by the Federal Energy Regulatory Commission (FERC) December 20, 2023 and will be operated by the California Independent System Operator (CAISO).

“CAISO’s proposal […] will create significant savings for consumers in Western states.  I believe such efforts will enhance reliability, expand the savings and efficiencies that wholesale markets provide, and contribute to consumers’ bottom line.” 

FERC Chairman Phillips on EDAM

EDAM will build on the success of CAISO’s currently operated real-time market that allows utilities to buy and sell power in real time, just before electricity is generated. The real-time market, called the Western Energy Imbalance Market (WEIM), since its launch in 2014, has achieved over $4.6 billion in cost-saving benefits for its participants and is anticipated to exceed $5 billion in benefits by the end of 2023. Despite operating in a limited time-frame, the WEIM has also aided in decarbonization across the region – reducing greenhouse gas emissions by more than 900,000 metric tons due to regional coordination that helps identify and deliver clean energy that may have otherwise been curtailed, or gone to waste.

The breadth of the WEIM footprint, representing nearly 80% of load in the West, has allowed for this success and demonstrates the value of collaboration between neighbors across a broad footprint. With 22 entities from all or part of 11 western states participating in the WEIM, and a new entity announcing their path to participation just last month, the EDAM stands to build on the established cost-saving, reliability, and decarbonization benefits of the WEIM by planning supply to meet forecasted demand ahead of time. Among other benefits, this will help smooth out the cost of electricity compared to the  fluctuations that occur in the real-time market.

PacifiCorp and the Balancing Authority of Northern California have already announced their intent to join the EDAM and  are likely the start to a long list of participants. The benefits of the EDAM will be most impactful under a larger footprint due to the larger pool of resources that can be shared among participants across the region. In other words, the more the merrier.

While federal approval of the EDAM is a significant step forward toward western grid integration, conversations about further coordination are occurring in tandem. The next step beyond a day-ahead market would be to link together the West into one Regional Transmission Organization (RTO), a wholesale electricity market that would spur additional cost savings, improve reliability for the region, and incentivize more clean energy across the West. RTOs operate real-time and day-ahead markets but also plan for future energy needs and coordinate transmission planning. RTOs currently cover roughly two-thirds of the load in the country except the West and the Southeast.

ISO RTO Operating Regions Credit:Sustainable FERC Project

A West-wide RTO that includes California could provide $2 billion in annual cost-savings, among other benefits, as it builds another layer of coordination beyond the WEIM and the EDAM. Western utilities, state regulators, and other stakeholders are exploring potential pathways to a West-wide RTO and NRDC looks forward to continuing to work with partners to bring western grid integration to fruition.

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