RTO offers more benefits than EIM

IREA and other Colorado utilities are again looking to the future of wholesale market development in the region. Movement toward a more structured wholesale energy market has been discussed or attempted over the years, with the most recent attempt ending in 2018, when Xcel Energy announced it would not participate in a plan for a group of utilities to join the Southwest Power Pool. The Colorado Public Utilities Commission recently opened a docket to examine the benefits and risks associated with Colorado utilities’ participation in any of several wholesale market structures.

Unlike the present system, in which generators are dispatched to meet load within a relatively limited geographic scope, an Energy Imbalance Market (EIM) dispatches the lowest cost-available generators to meet electricity demand across a much wider area. The Western EIM, for example, operated by the California Independent System Operator, includes participants across 10 Western states. This expansion beyond the local area lowers energy costs because low-cost generators have access to a wider market and higher-cost generators can shut down in many hours of the year without affecting reliability. The benefits of an EIM depend upon the willingness of utilities to commit generation and provide transmission capacity.

A Regional Transmission Organization (RTO) can provide additional benefits on top of the cost savings from more efficient dispatch of generators. An RTO provides better coordination for transmission planning, unit commitment (deciding which generators will be available to run) and transmission system use. To procure power from distant generators, a utility currently must separately arrange for transmission rights across each separate system used to transport power to its ultimate delivery point. The utility must pay the owner of each transmission system a fee to move power across its system.

This collection of multiple fees or rates is known as “rate pancaking.” An RTO would set zonal rates which reduces the cost to move power across multiple transmission systems, affording wholesale power purchasers a wider range of counterparties.

Colorado should move toward participation in an RTO as a means to access lower-cost energy and integrate higher levels of renewable generation while maintaining reliable service. This would allow IREA to integrate higher levels of renewable generation, potentially market energy from Comanche Unit 3 and likely reduce wholesale power purchase costs.