Xcel Energy’s plan to join a short-term, wholesale electric market is drawing fire from critics who, in hearings before state regulators this week, said that the price tag is too high and the benefits are minimal.
The market for purchasing day-ahead power Xcel Energy wants to join, Markets+, is run by the Southwest Power Pool, or SPP, whose grid stretches across all or parts of 14 states from Texas to North Dakota.
In hearings before the Colorado Public Utilities Commission, business and consumer groups are challenging the $30 million in upfront costs to join Markets+ and Xcel Energy executives are defending it as the best economic and operational choice.
A 2021 Colorado law requires utilities with transmission lines to join a wholesale electric market by 2030. A study done for the PUC estimated joining an integrated wholesale market could generate $230 million in annual savings for Colorado utilities.
Those savings, however, depend upon a range of variables including full participation in a regional grid run by either a regional transmission organization, like SPP, or an independent system operator, such as California’s CAISO.
Most Colorado utilities — including the Tri-State Generation and Transmission Association, Colorado Springs Utilities and the Platte River Power Authority — are set to join SPP as full members.
Xcel Energy is only joining the day-ahead market and Joe Taylor, Xcel Energy’s senior director of Western markets, said in testimony Tuesday that the company was reluctant to hand over transmission planning and operations to a regional transmission organization, or RTO
Taylor said that the company was concerned about the project queues building up in RTOs. There is a six-year wait for projects to connect with the SPP grid, according to Enverus Intelligence Research.
“It gives us pause to turn over those activities to an RTO,” Taylor said. “The ability to plan and build are important considerations.”
Just to join Markets+ Xcel Energy will have to pay administrative fees, entry fees, put up market collateral and need multimillion-dollar software and IT upgrades.
Xcel Energy estimated its share of SPP’s one-time market implementation costs to be approximately $20 million, and its allocation of ongoing administrative fees to be approximately $10 million per year.
But those administrative fees are based on how many utilities join Markets+. If fewer utilities are in the market the administrative fees for each will rise. “It’s arithmetic,” Taylor said.
SPP estimates the total cost of starting Markets+ at $150 million, with an additional $75 million per year to administer the market.
Xcel Energy customers would not see any benefits from the utility joining Markets+ for at least five years.
Steven Dahlke, a senior economist for the PUC, said in a filing that the “staff finds significant flaws” in Xcel Energy’s benefit assessment and that the commission “should not have confidence in the accuracy” of the benefits from joining Markets+.
“The commission could deny the company’s Markets+ application on this basis alone,” Dahlke said. If administrative costs exceeded $15 million that would also be a reason to block participation.
Climax Molybdenum’s mine operations in Summit County is one of Xcel Energy’s largest customers. Its owners worry the utility’s plan to join a short-term wholesale electric market will result in higher costs. (Hugh Carey, The Colorado Sun)In cross examination by Richard Fanyo, an attorney representing Climax Molybdenum, one of Xcel Energy’s largest customers, Taylor conceded that in the initial six years there were about $27 million more in costs with Markets+ than without it.
One of the big issues with joining a larger grid is the limited transmission lines connecting Colorado and SPP. The U.S. is basically divided in two grids — the Eastern Interconnection and the Western Interconnection.
Colorado is part of the Western Interconnection and SPP is part of the Eastern Interconnection and there are only four small transmission lines connecting the two, which creates a barrier or “seam” in transmission.
Xcel Energy in its filing said the seam issue was an important one to address and additional transmission would have to be built.
“When asked in discovery if the company had an estimate of these investments, the company indicated it had no estimate at that time,” Leslie J. Henry-Sermos, a rate and financial analyst with the Colorado Office of the Utility Consumer Advocate, said in a filing.
Henry-Sermos said Xcel Energy is already projecting between $1.9 billion and $2.5 billion in transmission investments and that investments associated with Markets+ transmission would come on top of these transmission projects.
Michelle King, an attorney for Colorado Energy Consumers, a group made up of major industrial and commercial customers, said customers would be asked to pay for billions of dollars in transmission and in Xcel Energy’s projections 17 years out, customers were getting a $17 million benefit.
Bridging the gap between the western and eastern grid is seen as one of the most cost-effective steps to strengthen the reliability of the grid. A study by the National Renewable Energy Laboratory found that every dollar of east-west transmission investment would yield $1.50 in benefits.
“We’re pushing hard on what we think is the low hanging fruit, which is the east-west seam,” said Debra Lew, director of Energy Systems Integration Group, a nonprofit forum on clean energy for engineers and technologists. “You know, it’s been ignored for years.”
Other intervenors in Xcel Energy’s Markets+ docket are calling for the company to look west instead of east to the Extend Day-Ahead Market, or EDAM, that will be operated by the CAISO.
“All the scenarios it was more cost-effective for (Xcel Energy) to participate in a larger market with more participants in the West,” Brian Turner, director of Advanced Energy United, a clean energy trade group, which is supporting the idea of a western RTO.
An analysis by the Environmental Defense Fund calculated that Xcel Energy would save $4.2 million a year more by joining EDAM.
“Markets+ is the most cost-effective day-ahead market,” Taylor said. “My understanding is the annual administrative cost in EDAM is two to three times higher than Markets+.”
While Markets+ requires more upfront collateral to join, “but on an ongoing basis it is going to be more cost-effective,” he said.
“We haven’t put in an application to join either EDAM or Markets+. We put in an application to join Markets+.”
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