An Introductory Guide for Participation in Southwest Power Pool Processes

Q.  What is the Southwest Power Pool and what does it do?

A. Southwest Power Pool, Inc. (SPP) operates the electric transmission system or “grid” for all or parts of fourteen states in the Midwest and West, including Arkansas, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, and Wyoming. SPP is the independent system operator (ISO) and regional transmission organization (RTO) for the grid in its territory. SPP is headquartered in Little Rock, Arkansas. 

Figure 1. Southwest Power Pool (SPP) area.

As an RTO, SPP coordinates the flow of electricity across the high-voltage, long-distance power lines in its territory. SPP develops market and reliability rules so that the grid operates reliably and safely. In the absence of such coordination, the flow of electricity could be limited on portions of the grid, which is known as “congestion.” Just as vehicle traffic can become congested due to weather or road repair, the electric grid can become congested due to heavy demand during times of system stress (e.g., hot or cold weather). Another example is when a transmission line is down for maintenance, which can result in less transmission available for electrons to travel across the system.

SPP manages the flow of electricity and has a control room to monitor congestion and emergencies on the grid at all times. You can think of this as being similar to an air traffic controller station at an airport, with SPP system operators maintaining awareness to evolving circumstances or new issues developing on the grid to maintain electric flow, reduce congestion, and prevent outages and emergencies.

SPP is one of six ISOs or RTOs (collectively referred to as “RTOs/ISOs”) that the Federal Energy Regulatory Commission (FERC) has overseen the development of since the late 1990s. RTOs/ISOs are non-profit entities designed to ensure non-discriminatory access to the grid. Such grid access not only promotes reliability, but also enables an SPP-run market platform for power resources to serve electric demand and compete. The SPP market platform coordinates the sale and purchase of electricity to ensure that supply always matches demand.  The overall goal is to achieve competitive, fair, market-based prices reflecting supply and demand in the SPP region.

Thus, in addition to operating the grid, a key part of SPP’s activities is the day-to-day business of running wholesale electricity markets in its territory.  Such markets are an intricate operation that rely on complex market rules. SPP develops these market rules based in part on input from stakeholders. Stakeholders are representatives from different groups with a key interest in the RTO’s operations, such as electric suppliers, consumer organizations, utilities, and others. The SPP Regional State Committee, comprised of state utility commissioners in states where SPP oversees the grid, also has key input on SPP market rules and other matters.  Ultimately, SPP rule changes must be approved by FERC, as FERC has regulatory oversight over SPP’s activities. 

Q.   What does it mean when you refer to the “wholesale electricity transmission system” or the “grid?”   

A.  SPP, under FERC jurisdiction, operates high-voltage transmission lines that move wholesale electricity throughout its territory, often across significant distances. By contrast, local power lines that deliver electricity to retail customers on utility poles are considered to be local “distribution,” and are generally subject to state or local regulation and jurisdiction.

One key distinction between transmission lines and distribution lines is voltage: in general, local distribution lines are lower voltage – typically 100 kilovolts or less – and high-voltage transmission lines are typically everything above that. SPP operates (and FERC regulates) the high-voltage transmission lines and approves the rates for the electricity that flows on those lines. This is called the “wholesale electricity transmission system” or the “grid” in SPP’s territory. 

The following diagram illustrates how electricity travels, including SPP’s operation of transmission lines subject to FERC’s jurisdiction:

Figure 2. Electricity supply and demand process.

You have probably seen tall poles carrying electricity along a strip of land that look like the tall metallic pole above (second from the left); this is an example of high voltage electricity transmission managed by SPP in its territory. 

Q.  Does SPP own the electric transmission infrastructure that it operates?

A.  No – SPP operates those lines but does not own them. Utilities that choose to join SPP continue to own the transmission infrastructure (lines and poles and other equipment) but hand over operational control to SPP. SPP is called an “independent system operator” or “ISO” because it has independent authority, overseen by FERC, to operate the transmission lines owned by the utilities. FERC has also designated SPP as the “regional transmission organization” or “RTO” for its territory.

Utilities that join and turn over functional control of their transmission assets to SPP are referred to as “transmission owners.” In return, such utilities receive just and reasonable rates through SPP when those transmission facilities are used, with the payments allocated in accordance with SPP rules.

Q.  What does “wholesale electricity” mean, and why does SPP operate a market for it?

A.  To understand wholesale sales of electricity, consider the graphic below. In the graphic, the electric generation plant (Generator) sells electricity to a utility or other company (Reseller) who in turn intends to resell that electricity to homes and businesses (Retail Customer). The sale from Generator to Reseller is a wholesale sale of electricity and FERC almost always has jurisdiction over the rates charged for that sale. Wholesale sales in SPP’s territory are in interstate commerce because of the interconnected grid across numerous state lines. 

Wholesale sales of electricity can be contrasted with “retail” sales of electricity to customers. When your local utility sells you electricity for use in your home or business, that is a retail sale, not wholesale, and is not under the jurisdiction of FERC. In SPP and the other RTOs/ISOs, the local utility company provides retail electric service. The rates those retail utilities charge are typically regulated by a state utility regulatory commission (for privately owned utilities), by a city (for municipal utilities), or by a cooperative board (for rural electric cooperatives).

If you have concerns about your retail electric bill or service, the right place to address those concerns is with your utility provider, the applicable local regulatory authority, or your state public utility commission - not SPP or FERC.

Figure 3. Wholesale and retail process and relationships.

Q.   Why are SPP processes and markets important? 

A.  Although SPP is not directly involved with your electric bill or the electric service to your home or business (as noted above, those tasks are met by your utility), SPP actions and rules can have a major impact on the price and reliability of electricity in your area as well as on the implementation of key state and federal energy and environmental policies.

For example, it is SPP’s responsibility to balance demand for electricity with the available supply through operation of its wholesale electricity market. Electric grids must run in balance, i.e., the electricity coming onto the grid must equal the electricity being used on the grid at all times.  SPP, like all RTOs/ISOs, achieves this essential balancing function through the real-time energy market. In the real-time energy market, SPP procures energy from electricity sellers for immediate delivery, with prices calculated at five-minute intervals based on actual system operating conditions.

In addition to the real-time energy market, SPP also manages a day-ahead energy market. In the day-ahead energy market, prices are calculated for the next day based on the amount of energy that electricity suppliers offer to produce and the estimated amount needed by consumers. For reasons we will discuss below, most electric energy is bought and sold in the day-ahead energy market. SPP also has markets to procure reserves – electricity products that can turn on or provide additional power on short notice, or that can help maintain power quality on the grid. These reserves products are procured through what is called “ancillary services” markets. 

1. Day-Ahead Energy Market

The day-ahead energy market schedules generators (supply) to meet forecasted load (demand) one day in advance, with forecasts influenced by many factors, especially weather. The day-ahead market consists of a bidding process that utilizes supply and demand fundamentals. SPP uses a computerized market model that matches supply and demand throughout its footprint for each operating hour of the next day, with the system designed to select the lowest-cost bids that will meet the electricity needs. The day-ahead approach gives generation owners and other suppliers time to plan, schedule workers and shifts (as large plants need to be started up well in advance of production) and make any necessary fuel arrangements. The majority of energy transactions take place in the day-ahead market rather than the real-time market.

The day-ahead market further allows SPP to manage transmission congestion that may arise from prevailing conditions, especially weather. Transmission congestion occurs when a portion of the transmission grid becomes overloaded with electric power that can prevent efficient market transactions from taking place. Such overloading can cause a transmission line to retain heat, stretch and, in an extreme case, come in physical contact with other transmission lines, structures, or vegetation, which can create a hazard or outage. To avoid this, SPP forecasts demand and designs its market rules to choose the lowest-cost resources, subject to any anticipated congestion constraints on the transmission system. This might mean that a generator or other supply resource located close to an area of heavy demand (for example, a large town or city) could be scheduled to produce electricity on a certain day even if it is not the lowest-cost resource.

2. Real-Time Energy Market

Through the real-time energy market, SPP reconciles differences between forecasted and real-time load (demand), or other unforeseen system conditions, which may arise from issues such as unplanned outages of generators, unexpected levels of congestion on electric transmission lines, or increased demand for electricity due to more extreme weather than forecast. Where there is a shortfall of electric supply in real-time, SPP procures electricity for immediate delivery from power suppliers that are synchronized to the electric grid and can increase their supply (or, for a demand response resource, reduce demand) in real-time. The lowest-cost supply bids that can meet the updated demand will be selected first, to help ensure prices remain as low as possible. SPP, with the help of computer software, monitors and re-evaluates 24 hours a day to be prepared to add resources in real-time when needed for reliability.

3. Ancillary Services Markets

SPP has other specialized products and services that it procures through its “ancillary services” markets to preserve the critical balance of supply and demand as well as the power quality on the grid. For example, the grid needs resources in reserve to deal with unexpected and sudden events, like a generator outage. SPP has markets for supplemental reserve and spinning reserve products to meet this need. Supplemental reserves markets procure power from suppliers that are not currently operating but are “in reserve” and ready to produce within ten minutes if needed. Spinning reserve markets procure power from power plants that already are operating (that is, “spinning”) but can quickly ramp up to provide additional power when needed. Finally, SPP procures regulation reserves from power plants that are available to assist with power quality on the grid by quickly producing a technical product known as “regulation.” Regulation is necessary to balance generation and load on the grid and maintain the proper frequency.

4. Western Energy Imbalance Service (WEIS), a geographic extension of a real-time energy market

In 2021, SPP established the Western Energy Imbalance Service (WEIS) with approval from FERC. A goal of WEIS is to extend the cost savings and reliability benefits of real-time market access to additional utilities in the Western U.S. who are not members of the SPP RTO. SPP’s WEIS centrally dispatches generation to balance supply and demand in real-time while allowing parties to trade bilaterally. The WEIS also seeks to reduce congestion on the grid through such central dispatch, which tends to have cost and reliability benefits. In addition to WEIS, SPP offers energy services to most states in the West, including large areas outside of its RTO territory, plus the Canadian province of British Columbia.

For further information on SPP’s WEIS and its development and activities, as well as other developments in Western markets, please see OPP’s Western Markets Explainer.[1]

Q.  Who participates in SPP’s matters?

A. Active participants are frequently those companies and organizations who pay an annual fee to become SPP members. Members have voting and other rights of participation in SPP stakeholder processes, committees, and working groups. SPP has 110 members as of September 2023, including power producers, investor-owned and municipal utilities, cooperatives, independent transmission companies, power marketers, state agencies, large customers, and public interest entities. As is next discussed, a subset of the members forms a key SPP Committee called the Members Committee, which reports directly to the SPP Board of Directors.

Q.  How is SPP governed?

A.  SPP has an executive team of officers and is overseen by an independent Board of Directors (Board) consisting of ten members.[2] Nine of the directors on the Board are elected and the President and CEO of SPP serves as the tenth director by virtue of the office. Board members serve for three-year terms and there are no term limits. All SPP Board meetings that are not in executive session are open to the public. All meeting materials, agendas, and minutes are publicly posted on the SPP website.[3]

The Corporate Governance Committee of the Board nominates potential directors when there is a vacancy.[4] To be eligible for the Board, a person must have recent and relevant senior management expertise and experience in one or more of the following disciplines: finance, accounting, electric transmission or generation planning or operation, law and regulation, commercial markets, and trading and associated risk management. The SPP members then vote on nominees at a duly called meeting.

The chair and vice chair of the SPP Board are then elected from among the directors and serve two-year terms. The President and CEO of SPP is not eligible to be the chair or vice chair. The SPP website contains information about the current members of the SPP Board and executives.[5]

The Board administers SPP through several Board committees, including the Corporate Governance Committee, Finance Committee, Human Resources Committee, Oversight Committee, and a Strategic Planning Committee. However, the key Board Committee and the one with the broadest responsibilities is the Members Committee. This is a unique Committee of up to 24 SPP members representing different interests (utilities, power producers, consumers, etc.) that advises the Board on SPP business matters.[6] Members Committee representatives are nominated by the Board’s Corporate Governance Committee, elected at an annual meeting of the members, and serve staggered, three-year terms. The Members Committee strictly advises the SPP Board and is not part of the SPP stakeholder process, which is discussed below. The SPP Board looks to straw votes taken by the Members Committee to determine whether there is a consensus among SPP members as to a proposed action.[7]

Q.  What is the SPP Regional State Committee?

A. The SPP Regional State Committee (RSC) provides an opportunity for States in SPP’s territory to weigh in on matters relating to the regional electric grid. The SPP RSC is comprised of state utility commissioners from Arkansas, Iowa, Kansas, Louisiana, Minnesota, Missouri, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota and Texas, with each representative having the same amount of voting power (one state, one vote).[8]

SPP’s RSC has arguably the most influence of any similar committee in any RTO/ISO, such that decision-making power is essentially shared between the SPP Board and RSC, depending on the issue. Under SPP’s Regional State Committee Bylaws,[9] the RSC has the primary responsibility for electric resource adequacy (ensuring that there are adequate electric power resources to meet demand) across the entire region. The RSC also has primary responsibility for:

• determining whether remote resources will be included in the regional transmission plan,
• cost allocation for transmission upgrades, and
• allocation of assets called “financial transmission rights,” among other responsibilities.

Thus, the states participating in SPP have, through the RSC, retained responsibility over some key issues in SPP that can impact electric reliability, cost, and policy.

Q.  What stakeholder processes does SPP have?

A. Like other RTOs/ISOs, SPP has a tiered committee structure.