ENERGYWIRE | As two electricity markets take shape across the West, state regulators are weighing the potential costs of bifurcating the region’s electric grid.

The two market options — one from California’s main grid operator, the other from Southwest Power Pool — both seek to better organize utilities west of the Rockies, allowing for better sharing of resources as the grid faces increasing challenges.

Some environmental groups are warning that the current bifurcated market that is developing may not offer consumers the maximum benefits. And as both markets press ahead with planned launches in the next two years, those concerns are growing louder.

“To be clear, any market is better than no market,” said Brian Turner, a director for the clean energy group Advanced Energy United. But, he added, having utilities join different markets has “limited potential upside” and threatens to isolate some in a less expansive market.

The California ISO’s Extended Day Ahead Market (EDAM) would expand an existing real-time market that spans the West, but needs state legislation to move forward.

SPP’s alternative, known as Markets+, has commitments from utilities in Colorado, Arizona and the Northwest to create a new day-ahead market and recently announced that it had secured funding to move ahead with the next phase of market formation. The grid operator is also expanding its transmission oversight to the West.

SPP’s work would give the operator a footprint across several time zones, insulating members against extreme weather and drawing more diverse generation. But opponents have said that utilities that join Markets+ are paying a higher cost for a lesser product — and are hoping regulators agree.

The Colorado test

An early show of the debate is playing out in Colorado, where Xcel Energy and Tri-State Generation and Transmission have both applied to join SPP.

Xcel applied to join Markets+, but not SPP’s full regional transmission operator service. A flurry of comments, however, charge that the utility is missing out on the best chance for emissions and cost reductions.

A June study by Aurora Energy Research conducted for the Environmental Defense Fund found that the utility could save an average of $13.2 million per year by joining that California market instead, in part due to replacing more expensive thermal generation with wind power and by using a wider transmission network. The report did find that Xcel would face higher trading costs under EDAM because it imports energy from other Colorado entities that are joining SPP.

“We believe that Colorado should be looking to and prioritizing participation in a market that meets the goals of cleaner, cheaper and more reliable power,” said Alex DeGolia, director of state legislative and regulatory affairs for EDF. “Fundamentally, that’s in large part about the size of the market and the nature of the participants and what kind of access to clean energy resources they offer.”

DeGolia and other opponents say that Xcel’s own filings with state regulators don’t show sufficient cost or emissions reductions. Given the up-front cost of joining SPP, even Xcel’s own models predict that it could be at least five years before the move breaks even.

A filing by the governor’s energy office says that the commission could reject Xcel’s bid because the company “has not shown sufficient evidence demonstrating customer benefits” and that the rate impact for customers “is a matter of cents.”

Xcel spokesperson Tyler Bryant said in an email that Markets+ best meets the company’s priorities to “increase reliability and affordability while meeting our clean energy goals.”

“We found Markets+ provides for coordinated dispatch and regional resource adequacy which will lower costs and improve reliability," Bryant said. "It will not sacrifice our need to maintain control over our generation and transmission planning, which is critical as we redesign our generation fleet and respond to increased energy demand."

Bryant added that being in an SPP market would make it easier to coordinate with other state utilities under the grid operator.

SPP spokesperson Meghan Sever said in an email that the operator is still reviewing the Colorado studies, but added that “it is important to note production cost modeling is only one element to consider when pursuing a market choice.”

Tri-State, on the other hand, has applied to join SPP’s expanded regional transmission operator, which would keep it aligned with neighboring entities that share transmission infrastructure. Comments for that application are due this week.

Colorado regulators could reject the applications or ask Xcel to wait until more information about California’s EDAM market is clear. But even if they accept it, the question is what the decision means for the West.

United's Turner warned that based on the current split, Markets+ could end up with an “archipelago of isolated regions” with utilities in Arizona and the Northwest joining those in Colorado, but others aligning with California. Of particular concern is the proliferation of transmission “seams,” which makes the transfer of electricity more expensive and less efficient.

“If this continues, I think the value proposition of Markets+ goes down even further,” Turner said. “Those utilities are hoping they get a larger market, and if that doesn’t happen, the prospects may diminish even for the utilities that are expressing their interest to join.”

SPP’s Sever said that the SPP has organized a working group to handle any issues related to seams. “SPP will use our experience working with our neighbors to manage seams once those seams become more defined,” Sever said.