Southwest Power Pool participants could see $1.4 billion in net benefits.
Energy prices fell 1.4 percent in April, the biggest one-month decline since March 2009.
Utilities serving Colorado and most of Wyoming are inching closer to joining the Southwest Power Pool, an electricity transmission network stretching across 14 states from north Texas to North Dakota.
Some say it could bring more than $1 billion in benefits to regional utilities, although what that might mean to ratepayers is unknown.
“We see this as an opportunity to shape our future,” Mary Ann Zehr, senior manager of transmission contracts, rates and policy at Tri-State Generation & Transmission, said during an informational meeting organized by the Colorado Public Utilities Commission on Tuesday.
Tri-State is part of the Mountain West Transmission Group, which includes Xcel Energy’s Colorado operations, Black Hills, Colorado Springs Utilities, the Western Area Power Administration and others.
The informal coalition is studying ways to lower costs and improve reliability by smoothing the movement of electricity across transmission grids controlled by a host of utilities in the region, which includes northern New Mexico and small areas of Arizona, Montana, Utah, Nebraska and South Dakota.
Initially, one option the group studied was forming its own unified transmission network, known in the utility world as an Independent System Operator, or ISO, or a Regional Transmission Organization, or RTO.
But starting from scratch requires a steep learning curve and would cost much more than joining an existing network with systems and tariffs in place.
Enter the Southwest Power Pool, or SPP, an RTO with 185 participants, 726 power plants generating 50.6 gigawatts of peak capacity, and 60,944 miles of transmission lines serving 18 million people.
“If you are smart about how you plan transmission, you can improve reliability and lower the wholesale cost of electricity,” Carl Monroe, chief operating officer of the SPP, said at the informational meeting.
Utilities in an RTO hand off operational control over their individual transmission grids to an independent operator that is responsible for getting power where it’s needed and balancing supply and demand across the entire system.
In return, utilities can move power across the network at a lower cost versus paying the multiple tariffs required to move electrons across different grids.
RTOs also run marketplaces that make it easier for utilities to buy and sell electricity with others in the network, either in real-time or in day-ahead contracts. That can make power generation more efficient.
“Transmission congestion is accommodated differently, economically instead of physically,” said Suedeen Kelly, a partner in Akin Gump Strauss Hauer & Feld, of the benefits that come with joining a larger network.
For example, if a power plant in an isolated system unexpectedly finds itself with too much electricity given demand, it can’t easily unload that excess, apart from shutting down generation. But if it is part of a large transmission network, that plant could sell surplus power on the open market and move it more affordably to a buyer.
Even if that sale is at a discount, it may end up costing less than shutting down power generation and later starting it back up again.
Likewise, if a plant goes down in a given area, belonging to a larger network makes it easier to bring in replacement power to keep the lights on. The SPP has about four times the peak generating capacity of the Mountain West Transmission Group.
Steve Beuning, director of market operations at Xcel Energy, said the reason for joining the Southwest Power Pool or any RTO comes down to one word — efficiency.
Transmission costs, the small bucket, could go up 1 to 5 percent, but the much larger bucket of power generation could drop 1 to 2 percent, Beuning estimated.
Mountain West Transmission Group members could save between $50 million and $70 million a year by joining a larger network, according to an initial study done last year. A more in-depth study on the costs and benefits that come specifically with joining the SPP and what that might mean for ratepayers is in the works.
Dan Kline, director of transmission and engineering services at Black Hills Corp., said one of the most common concerns he hears about is what regulatory protections will exist for consumers.
States like Colorado can mandate that certain percentages of production come from renewable sources. The Colorado Public Utilities Commission will have a say on rate increases and the resource plans that investor-owned utilities like Xcel Energy and Black Hills provide.
“You need resources in place to serve peak load and to have reserve capacity,” Kline said.
Utilities must keep a certain percentage of generation as “spinning reserves,” or power that can come onto the grid on very short notice — in less than 15 minutes — if demand surges or a generation source goes down.
Keeping reserve capacity at the ready is critical for reliability, but it can be costly, especially for a small utility. But what if a coal plant in Nebraska or a gas turbine in Oklahoma could help cover reserve requirements?
“We can reduce the amount of reserves that utilities have to carry at a given time,” Kline said of participation in an RTO.
An organized power exchange also makes it easier for utilities to buy power from other providers. Right now, buyers and sellers of power in the region must find willing counter-parties and hammer out bi-lateral deals, a less efficient process, said Jeff Heit, managing director of Guzman Energy, an energy trading firm with offices in Denver.
“Organized markets can greatly increase market efficiencies and lower wholesale power costs by creating and introducing competition for independent generation ownership, such as solar, wind and natural gas generation plants, and by increasing liquidity in the market for trading,” he said.
Although natural gas and coal account for about 70 percent of the energy-generating capacity within the SPP network, where it really stands out is in its ability to handle wind power.
A few times this year, more than half of the electricity surging through the SPP system came from wind turbines. Granted, those records were set in the early-morning hours when winds blew strong and demand was low, but they highlight the ability of SPP to accommodate large amounts of renewable energy coming on and off the system.
Environmental groups are among the most ardent supporters of the mountain states joining a larger transmission network. Not only would joining the SPP provide more access to wind power, but it could help the region better balance supply and demand as more renewable power sources become part of the power generation mix.
“We see immense potential to get more renewable energy to market,” said Jennifer Gardner, a staff attorney for Western Resource Advocates, a renewable energy advocacy group. “The most bang for your buck can be achieved by forming or joining an existing RTO.”
So what is there not to like about RTOs? They are relatively new creations that the Federal Energy Regulatory Commission allowed in 1999. That may not sit well with those who want the federal government to stay as far away as possible from their power.
SPP, however, has a long track record going back to before World War II, when it formed to bring electricity to power-hungry aluminium plants in Arkansas
About two-thirds of the country falls under RTOs or ISOs, said Kelly.
Southeastern states, where large utilities cover vast territories, haven’t adopted the network approach. With the exception of California, neither have western states, where more fractured power markets and a strong spirit of self-reliance often reigns.
California’s initial steps in forming an ISO didn’t go smoothly. Widespread blackouts and rolling brownouts in 2000 and 2001 did little to inspire confidence in this part of the country.
There are also usual concerns that come with joining a larger group, such as cost-shifting and losing local control. And while RTOs operate in a way to benefit their utility members, providing the lowest cost power to end users isn’t a stated mandate.
“Ratepayers must have a seat at this table,” Abby Briggerman, an attorney at Holland & Hart in Denver, urged state utility commissioners. “There must be demonstrable net benefits to ratepayers.”
Any cost-benefit studies should be done on a utility-by-utility basis, she said. And those who join must have a clear path out if they decide the agreement isn’t working for them.
“I would be hesitant to vote on transferring without knowing what costs to ratepayers will be,” said Frances Koncilja, the Colorado commissioner who organized the meeting.
Monroe said between lower transmission costs, access to wholesale power markets and reliability enhancements, participants in the SPP get a 10-to-1 ratio in benefits versus costs. In dollar terms, that works out to $1.4 billion in net benefits, he said.
Beuning said the Mountain West Transmission Group is still trying to decide if it wants to join the SPP. If it moves forward, it will drill down to issues like impacts on ratepayers and host multiple meetings. If everything falls into place, the region could join the Southwest Power Pool in 2019.
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