Why this electric market matters for Colorado decarbonization - Mountain Town News

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A sales pitch for the Southwest Power Pool

by Allen Best

At the stroke of midnight on Feb. 1, a small, even tiny, but still important step was taken along the path toward deep decarbonization in Colorado. The Southwest Power Pool launched Western energy imbalance services, or WEIS, a market-based system that allows electrical utilities to share electricity, allowing deeper penetration of renewables and saving money.

If of immediate benefit to a significant minority of electrical customers in Colorado, the new imbalance market is best understood as the prelude to an even more powerful and productive regional sharing of electricity. Utility managers universally agree that this regional sharing of electricity across far broader areas will be crucial to even deeper decarbonization of electricity.

The question remains whether Colorado and other utilities in the Rocky Mountains will look east or west in this to-be-decided regional alignment. Think Arkansas or California. More on that duality later.

This is from Big Pivots, an e-magazine tracking the energy and water transitions in Colorado and beyond. Subscribe at bigpivots.com

Western utilities have been, to a great extent, islands unto themselves. That has started to diminish, but more so on the West Coast and on the Great Plains than in the Rocky Mountain states. The arrival of low-cost renewables in the last 15 years and government mandates to decarbonize electricity several years ago began driving conversations about the need for an energy imbalance market, or EIM, in Colorado. But the far greater prize would be creation of a RTO, or regional transmission organization.

Hang on. The world of electricity is an alphabet soup. But don’t let the acronyms get in the way of understanding what is at stake here. Duane Highley, the chief executive of Tri-State, explained it well during a Feb. 3 press conference.

Greening up Tri-State

Tri-State, he reported, is constructing 1,000 megawatts of new wind and solar and, after 2024, plans to construct another 2,000 megawatts of renewables even as it continues closing coal plants. Last year, it closed Escalante, in New Mexico, and plans to close three units in Colorado, at Craig, between 2024 and 2030.

If still coal-heavy now, Tri-State has committed to decarbonizing its electrical supply 80% by 2030 as compared to 2005 levels. It delivered 18.5% of all electricity consumed in Colorado in 2018, second only to Xcel Energy’s 51%. Tri-State also delivers electricity to cooperatives in New Mexico, Wyoming, and Nebraska.

“As we try to achieve our green energy goals, we don’t believe it’s possible to get there without integrating these massive amounts of renewables across a much larger footprint,” said Highley at the Feb. 3 press conference. “Hence our desire to see a full RTO in the West.”

Tri-State was joined by the Western Area Power Administration, or WAPA, two major players serving Colorado in committing in September 2019 to participating in the EIM created by the Arkansas-based Southwest Power Pool, or SPP.

Also participating in the new energy imbalance market is the Municipal Energy Agency of Nebraska, or MEAN. MEAN delivers electricity to Aspen, Gunnison, Lyons, and Oak Creek but also Fort Morgan, Holyoke, and 7 other municipal utilities in Colorado.

A major shift

“The fact that we are talking about markets in the West is, I think, a major change and a major shift,” said Mark Gabriel, administrator of WAPA. The West not long ago was described as a “great open wasteland” when it came to energy markets,” he said. Now, “markets are coming to the West hard and fast.”

In the Missouri Valley, where WAPA also operates, markets have delivered $145 million in direct benefits since 2015, he pointed out.

Gabriel suggested the Rocky Mountains will get an RTO in two or three years.

Highley described the new imbalance market as having “very low cost of entry, with immediate benefits for us.” Tri-State spent $3.5 million as its share for software and other costs, but expects to see savings of $2 million in the first year of operation and rising benefits in years beyond.

“It’s not the end point,” Highley said. “Our ultimate goal is to see a full RTO in the West.”

He ticked off the benefits of a full RTO:

elimination of pancaking of transmission rates (like having to pay a toll every time you pass through a new town).
ability for renewable energy to flow across multiple regions;
a more diverse footprint for renewables, which makes them more reliable for everyone.
broader geographic and resource diversity also allows utilities to operate with fewer reserves, meaning a reduction of capital expense on projects. It might, for example, mean one less wind farm, or one less natural gas-fired power plant.

An RTO, said Highley, would deliver at least 10 times the financial benefits of an energy imbalance market. And, he said, it will be imperative for Tri-State as it moves past 50% renewables, because “we can’t do that just within our (operating) area.”

For those who have studied the future of electrical transmission, these were familiar talking points. But the press conference was an orchestrated effort to persuade whoever was listening that Colorado utilities will best align with Southwest Power Pool.

SPP operates an RTO that is almost entirely in the Central Time Zone. It’s drenched with wind, with up to 27 megawatts of electrical generation by the end of last year. It was the dominant resource in the SPP last year, and Barbara Sugg, the chief executive, reports developers want to get in.

Selling SPP into Colorado

Governance was the selling point. The word was used probably 15 times during 25 minutes of talking.

Highley, who came to Colorado from Arkansas, said there’s no need to create an entirely new RTO when Colorado utilities can join SPP. “I am very familiar with the PP governance model. It’s one of the things we really admire about SPP.” SPP is member-driven and its governance transparent, he said—similar to the cooperative model, he added.

“Sometimes that has been described as painfully collaborative, but it gets the results. Everyone gets heard, and at the end of the day we come to solutions that work for everybody.”

Supp, the CEO of SPP, asked directly why Rocky Mountain utilities should align with SPP, replied: “It’s the governance and the track record.”

This includes state regulatory commissions—presumably including the Colorado PUC.

At least two studies were completed in 2020 on the question of the best alignments. A Brattle study found RTO membership could produce an annual savings of $49 million for both SPP and the Western entities.

A different study, conducted by Vibrant Clean Energy, found that alignments with both the Arkansas-based SPP and with the California-based CAISO would benefit utilities, but with somewhat greater benefits resulting from the sun-soaked CAISO.

Nervous about CAISO

CAISO, however, makes some in Colorado nervous, because California legislators have so far been unwilling to let loose of oversight of CAISO. There have been other questions as well. That said, Tri-State already operates in CAISO territory in New Mexico.

Xcel Energy and three partners—Platte River Power Authority, Colorado Springs Utilities, and Black Hills Energy—cut a deal with CAISO in late 2019 to create an energy imbalance market for them. That EIM is expected to begin operations in early 2022.

Meanwhile, the Colorado Public Utilities Commission has commissioned a study due this summer to evaluate potential RTO alignments.

And, in the coming Colorado legislative session, State Sen. Chris Hansen has a transmission bill that will, in part, try to give the PUC guidance about how to sort out alignments. Separate RTOs have operated in the state previously, he says, sometimes with success and sometimes not.