Guest Blog: Let Customers Be Part of Energy Market Decision Making

Few would doubt that the high-voltage electrical transmission grid is essential to transmitting power to residential and business consumers. However, having a complete understanding of the grid can be challenging.

Decisions on what resources to build, when to build and what future transmission systems should look like are largely made by utilities on behalf of their customers. Utilities in Arizona are responsible for planning, creating and maintaining the infrastructure that provides reliable electric service essential to our state. Major providers are Arizona Public Service Company, Tucson Electric Power and Arizona Electric Power Cooperative, which are regulated by the Arizona Corporation Commission; and Salt River Project, which is governed by an elected board.

In contrast, determining how to share these resources across a broader footprint in a region and which regional energy market to join should not be made solely by utilities. Instead, customers need to help make those calls.

Changes in the electricity industry in Arizona and beyond are creating new challenges for utilities, requiring modifications to the historic way resources and transmission have been built and used. For example, Arizona has entered a period of extremely high growth in electrical demand from increasing industrial and data center loads rather than residential customers alone.

Add to that low-cost solar and wind power combined with cost-effective storage of these variable energy sources are changing the types of plants producing the electricity in our state and the West while transforming weather systems with prolonged “multi-state” heat events are straining systems and affecting regional energy sharing.

Utilities in the West are unique in another critical way. In most areas of the country, they are organized into regional energy markets known as regional transmission organizations and independent system operators, which provide important cost-saving and reliability services such as sharing generation and coordinating transmission planning and operation. But in the West, there are 37 different electrical “islands” that operate largely independently.

To increase system reliability and reduce system costs, all Arizona utilities during the past decade have joined a west-wide trading market that lets utilities sell excess or buy needed electricity every five minutes. In addition to allowing utilities to share resources, this market increased reliability for all participants as interconnected trading systems provide more real-time information on the electric systems to help spot and avoid conditions that could lead to problems and blackouts.

The Western Energy Imbalance Market (WEIM) managed by the California Independent System Operator (ISO) has been phenomenally successful, growing to encompass 82% of western energy load managed by utilities. Arizona utilities have collectively saved more than $800 million through participation in this small market product.

Changes in the electrical system, the need for continued reliability and growth in electricity demand are driving the development of additional western market sharing services beyond the WEIM. California ISO and another existing market operator, the Southwest Power Pool, are offering day-ahead market services to interested utilities so they can arrange to buy or sell electricity 24 hours in advance. Arizona utilities and others in the West are in the enviable position of having two day-ahead market options to choose from, which means they must carefully and thoroughly consider both options to ensure the best choice for Arizona’s future.

The decision on which market to join is consequential and will be long-lived. Current and future Arizona businesses and customer groups have a stake in the outcome and should be allowed opportunities for engagement. Arizona’s utilities owe it to their customers to conduct in-depth studies that can be shared publicly and create opportunities for meaningful deliberation and discussion, as has been done by nearly all other utilities in the West.

Sometimes the complicated nature of the transmission and electrical system make it best for utilities to make decisions on behalf of customers without their input. This certainly is not the case when determining the best regional market choice for Arizona users.

Amanda Ormond is a former state energy office director in Arizona and an energy consultant with a dozen years of experience in market development.