Governors' Wind Energy Coalition

Rocky Mountain utilities could soon make a move that would reshape much of the West’s electricity sector.

Utilities in the Rockies are considering joining a regional transmission organization, or RTO, that now encompasses the Great Plains. Such a move would pave the way for a growing amount of wind power to be brought online.

Southwest Power Pool CEO Nick Brown was quoted in The Denver Post saying he thinks expansion of the existing 14-state RTO to the Rockies is “highly likely.”

His comments gave fresh momentum to an idea that power companies in the region have long debated. The West, with the exception of California, is one of America’s few regions not served by an RTO, which is charged with balancing electricity flows and ensuring reliability. The Southeast is another.

Brown’s statement thrust long-simmering discussions about the future of the region’s power sector into the public sphere and underscored the dramatic evolution of America’s grid. As utilities have brought increasing amounts of wind and solar online, they have turned their attention to bolstering collaboration across their service areas.

The Rockies utilities are not the first to consider a merger. The California Independent System Operator (CAISO) formed an Energy Imbalance Market in 2014 to help manage its surplus solar power. That market today includes four Western utilities and will grow to 11 by 2020.

“When utilities pool their generation assets and dispatch them together, you get greater efficiency and flexibility. Those two things combine to help renewable integration,” said Stephen Beuning, director of market operations at Xcel Energy Inc., one of the utilities involved in discussions.

The Minnesota-based power company has been aggressive in bringing wind power on across its eight-state service territory, which encompasses parts of the Southwest Power Pool (SPP) and Colorado. The company is planning to add more than 3 gigawatts of wind power to its existing wind fleet of 6.7 GW.

Talk of linking utilities in parts of Colorado, Wyoming, South Dakota and New Mexico with SPP, which runs from North Dakota to Texas, would have been unthinkable even a few years ago, observers said. Most of the Rockies utilities operate in the Western Interconnection, while SPP is part of the Eastern Interconnection.

While that would have been viewed as an insurmountable barrier in the past, “now people are saying we do need to shift this power around,” said Robert Godby, an economist who studies power markets at the University of Wyoming.

Ten power providers belonging to a voluntary group known as the Mountain West Transmission Group have been talking quietly for several years about increasing cooperation across their service territories. The group includes the Basin Electric Power Cooperative, Black Hills Energy, the Tri-State Generation and Transmission Association and Public Service Company of Colorado, an Xcel subsidiary.

Their initial discussions centered around how to avoid a phenomenon known as “pancaking,” with each utility charging its own rate for transmission, and creating a single rate across the region. Those early conversations focused in part on forming a new RTO, but that idea was ultimately dropped when it became clear that establishing a new RTO would be cost-prohibitive, said officials involved in the negotiation.

In January, the group issued a press release saying it intended to explore a partnership with existing RTOs and would begin conversations with SPP.

Still ‘a lot of work to do’

SPP and utility officials sought to walk back Brown’s comments last week, saying talks are progressing but significant issues remain. The utilities in the Mountain West Transmission Group must first agree to a joint transmission rate among themselves before submitting a merger proposal to SPP. There are also questions about what their entry to SPP would mean for the Western Interconnection’s reliability coordinator, Peak Reliability, which monitors power flows across Western utilities. SPP already performs that service for its members.

Another potential hurdle is the connection between utilities in the Rockies and those on the Plains, observers said. While several connections exist today, they are relatively limited.

Even if all those issues are resolved, the merger would then have to pass muster with SPP’s members and state and federal regulators.

“We still have a lot of work to do,” said SPP Chief Operating Officer Carl Monroe. “There are a lot of issues that they have to either reconcile the way SPP does it or whether it makes sense to propose a change to the way we do things.”

Still, SPP looks unlikely to encounter the complications that have muddled other Western mergers. CAISO has long considered joining with PacifiCorp, a Portland, Ore.-based utility that serves parts of California, Idaho, Oregon, Utah, Washington and Wyoming. Those talks have been hampered by regional differences, with Utah and Wyoming lawmakers loath to cede control to California’s green-tinged regulators. Golden State lawmakers, for their part, have expressed wariness about joining PacifiCorp’s coal-heavy fleet (Energywire, March 28).

Further complicating those talks are the differing makeups of those systems. Where PacifiCorp is a vertically integrated utility, owning power plants, transmission lines and distribution systems, CAISO is a deregulated market, where power plant owners compete to sell electricity in a wholesale market managed by the grid operator. In the past, utilities that moved to deregulated markets have been forced to sell off their power plants and move into the transmission and distribution business.

That figures to be less of an issue with SPP and the Rockies utilities. SPP utilities, like their counterparts from the Rockies, are vertically integrated. Coal remains important to both regions’ fuel mix. And state regulators maintain control over the makeup of their utilities’ generation fleet. PacifiCorp, notably, is not a member of the Mountain West Transmission Group.

SPP expansion nevertheless could align with Colorado Gov. John Hickenlooper’s (D) plans to slash greenhouse gas emissions 26 percent by 2025, in part by encouraging renewable energy production (Climatewire, July 12).

“Anytime we start talking climate goals, cleaning up our air, adding more renewables, we can’t have those conversations in isolation,” said Jennifer Gardner, a staff attorney at Western Resource Advocates, an environmental group. “Under today’s status quo, Xcel could add more renewables. They can’t do it as cost-effectively and reliably as they could if they were in a regional market. … Really, it perfectly aligns with Gov. Hickenlooper’s goals, in my opinion.”

The parties, for their part, also appear committed to finding their way to a solution. Utilities have seen the benefits of regional collaboration, said SPP’s Monroe, who pointed to the savings witnessed by power companies in SPP.

Beuning, the Xcel official, said much work remains. But he expressed optimism about the Mountain West Transmission Group’s desire to reach an agreement.

“I think we’re pretty well-aligned in that there is a concerted and sincere effort to work with SPP,” he said.