Nicholas Institute for Environmental Policy Solutions
March 2023

Western Electricity Emerging Markets: State-Level Regulatory Analysis

Western Electricity Emerging Markets: State-Level Regulatory Analysis report cover

After decades of failed proposals, the Western United States stands on the precipice of a regionalized electricity market. Current momentum exists in large part because of the success of extant real-time energy imbalance markets, stood up first by the California Independent System Operator in the mid-2010s and more recently by the Southwest Power Pool. State legislative efforts, most notably in Colorado and Nevada, also have created mandates that utilities in the West join organized wholesale markets, and recent studies have made clear the West’s growing need for resource adequacy planning and sharing, particularly as the region’s population and economy grow and as climate change alters the region’s environment and water supply.

The primary discussions around new electricity markets focus on: (1) day-ahead markets and (2) fully integrated regional transmission organizations, or RTOs, which would operate markets, regionally dispatch the system, and facilitate transmission and resource planning. In the background, stakeholders are in the process of forming the Western Resource Adequacy Program (WRAP), which could operate in conjunction with either a day-ahead market or a fully integrated RTO, or could evolve with emerging, organized wholesale markets.

A core question as the West regionalizes is what role exists for state regulators. State public utility commissions, long charged with protecting consumers, advancing the public interest, and overseeing electric utilities, have significant experience and expertise that should play a vital role as these markets develop. Across the United States, RTOs utilize different structures and forms of governance. Some of those will map more naturally into the West than others. In turn, states have longstanding regulatory authority and responsibilities that should be important in helping shape the contours and scope of these markets.

This report overviews the role of state regulators in the context of emerging regional electricity markets in the West. It highlights three key authorities of these bodies:

  • Retail ratemaking power, particularly prudency review;
  • Authority over the transfer of control of jurisdictional facilities; and
  • Integrated resource planning.

The report details how these powers may apply to utilities joining either a day-ahead market or a fully integrated RTO. The bottom line is that state regulators have played an essential role in governing the electricity industry historically, and they have the potential to adapt their jurisdictional levers to new and changing circumstances as the West transforms its markets.