Colorado regulators OK Xcel Energy’s plan to join power marketplace, despite cost concerns

Despite concerns from its staff, consumer and conservation groups, the Colorado Public Utilities Commission has endorsed a plan by Xcel Energy to join a new regional marketplace for wholesale electricity.

Two of the three PUC members voiced support in a hearing Wednesday for Xcel’s application to join the Southwest Power Pool’s Markets+, a so-called day-ahead market being formed by the Arkansas-based transmission organization and about 30 organizations.

The commission will issue a written order.

The new marketplace will allow Xcel and other utilities to buy power a day ahead, aimed at keeping electricity flowing more efficiently and cost-effectively. Xcel’s joining a day-ahead market is considered a step toward moving to an organized wholesale market, which a state law requires Colorado transmission utilities to do by 2030. The motivation is to coordinate resources across the region, get more renewable energy on the grid to cut greenhouse gas emissions and meet growing demands for electricity.

However, Megan Gilman, the commissioner who opposed Xcel’s application, contended the utility failed to show, as required by PUC rules, that the benefits of joining Markets+ outweighed the costs. She voiced concerns that the cost of joining the day-ahead market, seen as a temporary step, could delay or derail Xcel’s move to an organized wholesale market.

An organized wholesale market is a centrally managed organization that facilitates the buying and selling of electricity and other services across a region. A 2021 PUC report said utilities’ full participation in that kind of market or a regional transmission organization could produce savings of $230 million annually.

About 60% of the nation’s electric power supply is managed by regional organizations, according to the U.S. Energy Information Administration. However, most of that is in the East.

PUC Chairman Eric Blank said he is focused on the potential of saving millions of dollars per year as the purchase and transmission of power become more coordinated across the region.

“For me, incurring these small losses in the near term potentially creates an opportunity to save orders of magnitude more per year,” Blank said. “Although we’re a long, long way from realizing this level of savings, it seems worth trying to me.”

But Gilman noted the law requiring transmission utilities to eventually join a more centralized market allows for waivers. She said Xcel could cite the costs of joining the day-ahead market as a reason for seeking a waiver.

“The company expressed intent to hold that against the economics of joining a (regional transmission organization),” Gilman said.

Xcel, Colorado’s largest electricity provider, said in documents filed with the PUC that the costs of participating in Markets+ will include $2 million for the first phase of starting the organization; $14 million annually for operations for the first five years, then $10 million per year; and an estimated $13 million to $15 million for Xcel to integrate its systems with the marketplace.

The conservation group Western Resource Advocates said in a statement filed in the case that testimony showed Xcel’s costs would exceed net benefits by $30 million through 2032 and cumulative benefits wouldn’t surpass cumulative costs until 2039. For the company’s customers to reap any benefits, Xcel would have to stay in Markets+ through 2038, the group said.

“This means the company would also presumably have to delay the 2030 requirement to join an (organized wholesale market) by nine years,” Western Resource Advocates said.

The PUC staff said Xcel’s application didn’t meet the requirement that joining the marketplace is in the public interest because the company couldn’t show that the expected benefits would outweigh the costs. The staff noted that Xcel witnesses conceded during a hearing that joining Markets+ and recovering the costs for technology upgrades “will result in increased production costs through at least 2038.”

Considering the costs, staffers said it would be reasonable for the commission to deny the application. If the application is approved, the staff recommended monitoring the costs, reliability of the market and the reduction of greenhouse gas emissions to determine whether Xcel’s continued participation in the marketplace would be warranted.

In the public interest?

“We believe this decision was not in the best interests of ratepayers, grid reliability, or the state’s clean energy goals. And legally, the decision does not appear to be based on the law or the Commission’s own rules, and we will be asking the Commission to reconsider,” Brian Turner, regulatory director at Advanced Energy United, said in an email.

The industry group believes a better path for Xcel Energy would be to join Extended Day-Ahead Market, or EDAM, which is operated by the California Independent System Operator. The organization manages the operation of the electricity transmission grid across California and is also involved in a marketplace across 11 Western states.