Portland General Electric, PacifiCorp, BPA and other electricity providers throughout the West are weighing two new “day-ahead” energy market proposals. It’s important because the choice could cost electricity consumers billions over the next decade. Pete Danko wrote about this for the Portland Business Journal and joins us to explain.
Note: The following transcript was transcribed digitally and validated for accuracy, readability and formatting by an OPB volunteer.
Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. A debate is happening right now between Oregon’s biggest electrical utilities on one side and the Bonneville Power Administration (BPA) on the other. The two sides are interested in joining two different energy markets. It might sound arcane, but as Pete Danko wrote recently in the Portland Business Journal, billions of dollars could be at stake. Pete joins us now to talk about it. Welcome back. It’s good to see you
Pete Danko: Thanks. Great to be here.
Miller: So we’re going to get into specifics in just a second, but just to start, what is at stake here? Why should your readers, our listeners, care about backend electricity markets?
Danko: Well, we’re at a key point in the future of electricity in the region, around the world. Demand forecasts are growing dramatically with AI. And climate ambitions are great here in the Pacific Northwest. So there’s a general feeling that we need to do everything right to tackle these challenges; and an energy market could be one piece of doing everything right to make it work.
Miller: What is the relationship between the Bonneville Power Administration and either investor-owned or public utilities in the Northwest?
Danko: The investor-owned utilities, like Portland General Electric (PGE) and PacifiCorp with its Pacific Power unit here, use BPA transmission to a great degree. BPA owns 75% of the high voltage transmission in the region. So, almost everything that PGE delivers to us here in Portland comes through BPA lines at some point. So that’s a really major part of it. The IOUs, the investor-owned utilities, also do get power from Bonneville. They’re not the preference customers, the consumer-owned utilities that are first in line for BPA power, but they have some shorter term contracts and they also buy power on the market from BPA.
Miller: You wrote that utilities in the West have traditionally relied on bilateral trading to balance their shifting energy needs. What does that mean? What is the traditional model?
Danko: Yes, so in the West, we have like 33 different, what they call balancing authorities. These are folks who are responsible for matching supply and demand in a defined area constantly. So Portland General Electric is one. And as they typically have lots of contracts with lots of different parties, long-term contracts, they also have lots of their own generating resources. But throughout time, whether it’s on a monthly or daily basis, as supply and demand are shifting, they’re looking for power. So the way they’ve done that traditionally in the West is by buying power directly from somebody. They go and look for power and somebody provides it to them.
Miller: What is the new model that started emerging about a decade ago?
Danko: Yeah, so this model exists elsewhere around the country. Wholesale energy markets do exist around the country. We haven’t had one in the West, but about 10 years ago, out of California, came what’s called the Western Energy Imbalance Market. And it’s a real time market, so sort of on the margins, right? Just at the last minute before supply and demand are coming together, a utility that’s in the Western Energy Imbalance Market can signal that it needs it could use some energy or that has some energy, and the market will then find the most economical way for a home for that energy.
Miller: But the question now is which markets – BPA and the utilities – are going to actually tie into? So what are the competing versions?
Danko: What we’re talking about now is moving beyond this, this real-time market to a deeper market that would involve a lot more of the energy, called a Day-Ahead Market. There are two Day-Ahead Markets that are out there kind of competing for utilities in the West. One is called the Extended Day-Ahead Market (EDAM) by the company out of California and the other is called Markets+ from an outfit called the Southwest Power Pool.
Miller: And BPA likes, it seems, the Markets+. PGE and other big utilities want to join the EDAM one. What are their respective arguments?
Danko: So PGE and PacifiCorp have done studies, and they have determined that it would be best for them. They would save the most money being in EDAM, being in the one coming out of California. BPA’s position is a little less tangible. They are leaning heavily on the idea of governance. They say they’re worried that EDAM, the California market, would be too controlled by California. Whereas, it is pretty clear that Markets+ is not tied to any specific state. They feel they would have a greater weight in determining its structure. The structure of these markets is likely to evolve over time, so they want to be sure, they say, that they have a strong voice in that market.
Miller: For those investor-owned utilities, PacifiCorp or PGE … when you say that they’ve done these studies and show that they could save a fair amount of money potentially if they’re in the California-based market, how much money are we talking about?
Danko: For the individual utility, they’re not talking about a ton of money at this time. I think with PGE we’re talking about … I mean, maybe it is a lot, in the tens of millions in a year. The numbers that are really kind of eye-popping are when you look at the region as a whole, you’re talking about hundreds of millions of dollars a year, adding up to perhaps $4 billion or more in the next 10 years.
Miller: And is the argument that those savings could be passed on to ratepayers?
Danko: Oh yeah, I think that under the regulatory structure we have, they would have to be a cost-based system, yeah.
Miller: What would the problem be of having BPA tie themselves to one of these markets and the utilities to another one?
Danko: I think there’s a couple of issues with it. One is that it would degrade the efficiency of the market that’s developing in the West. It would be more complicated and more costly for everybody involved. You wouldn’t be able to move energy around as efficiently, having to go through a couple of different markets.
The other thing is that … and this is a big part of why climate groups, other energy groups are really interested in BPA not forcing two markets. There is a hope that we can form one big Western market, and that through that big footprint, we’d be able to realize the greatest efficiency benefits.
Miller: You know that some proponents of having BPA eventually join the California-based market [are] saying that the BPA doing nothing right now, joining no market in the short-term is actually a good option. What are they saying?
Danko: Yeah, so BPA right now is part of this Western Energy Imbalance Market. They were kind of slow to move into it. They were very careful because they came out of California also. PacifiCorp was the first utility in it. PGE came in pretty early and now there are dozens of utilities in the Pacific Northwest in it. And they realize savings from it. I think that that market has cumulatively accounted for like $6 billion in savings, it says, in the last 10 years – not for BPA but for everybody.
Miller: In total.
Danko: Right. So the feeling among many people is … they’re just saying, look, if you’re going to do anything, just stay in that market right now because you’re doing OK and you won’t upset this market that’s trying to blossom.
Miller: Pete, thanks very much.
Danko: You’re welcome.
Miller: Pete Danko is a staff reporter for the Portland Business Journal.
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