Just as you wouldn’t set off on a great American road trip using a 50-year-old paper map, Colorado shouldn’t be making decisions about regional electricity markets using 20-year-old assumptions about the western grid. Choosing the wrong market could lead to some very expensive mistakes, burdening ratepayers with higher costs and lower reliability and steering Colorado’s clean energy ambitions into a dead end.

A regional electricity market is among the most powerful tools in the toolbox for lowering electricity costs, improving reliability and resiliency to extreme weather events, and integrating Colorado’s abundant renewable resources into a 100% clean grid. In the next few months, Colorado utilities like Xcel Energy and Tri-State will have the opportunity to join with neighboring states and utilities in a regional market, and the benefits have the potential to be great. Colorado’s participation in a regional market could allow the state to trade electricity across the West, tapping into resources like hydro from the Northwest or geothermal from Nevada. In return, it could sell excess clean energy produced by local wind and solar.

But which market the state joins is important. The two options on the table are to either go East to the Southwest Power Pool (SPP), based out of Arkansas, or to go West to the Extended Day-Ahead Market (EDAM) operated by the California Independent System Operator (CAISO).

Colorado utilities appear to be steering East, guided by an old conceptual map of Colorado’s place in the western grid. For example, one old assumption, that Colorado is an “electrical island,” is no longer valid. While Colorado, historically, was relatively electrically isolated at the eastern edge of the Western Interconnection, both Colorado and its neighboring states have become more connected in recent years. Colorado’s neighbors have built powerful new transmission lines closer to the state’s borders, making the opportunity for strengthening connections more feasible, affordable, and beneficial than ever before. For example, one neighboring utility, PacifiCorp, is actively building out its Energy Gateway project — an extensive series of high-power transmission projects that link their core territory in Wyoming, Utah, and Idaho with the resource- and market-rich areas of the Northwest, Southwest and California. The Energy Gateway traverses northwest Colorado and offers a modern superhighway for energy trading with the rest of the West. But PacifiCorp is joining EDAM.

Similarly, New Mexico utilities and renewable energy developers are investing in substantial new transmission linkages to the rest of the West, which are not far from new Colorado lines. And both New Mexico and Colorado have stood up state transmission infrastructure authorities that promise to leverage low-cost financing for interstate linkages. But New Mexico’s largest utility, PNM, will also be joining EDAM.

The truth is that the outlook for transmission development to support enhanced trading to the West is strong and getting stronger. In contrast, Colorado’s border in the East with SPP consists of a handful of small and inflexible “DC interties” that connect to a relatively weak area of the Eastern Interconnection that SPP has historically been unwilling to expand.

Energy mix matters too. Unlike the West, SPP’s territory doesn’t have the same abundance of diverse clean resources. While there is a surplus of wind generation, it produces energy at similar times as wind generators in Colorado, meaning that Colorado would be forced to curtail its own wind production in favor of imports from Kansas and Oklahoma. Even worse, a third of SPP’s market is dominated by coal, higher than Colorado’s current mix, and three times the coal percentage in the rest of the West. A market dominated by coal will not help Colorado in meeting its goals to reach a cleaner, more affordable energy future.

So why is Colorado hesitant to join EDAM, which offers access to a more diverse set of clean energy resources and a market structure designed to drive down costs and increase reliability? Old, and similarly outdated, concerns over governance.

For decades, concerns over CAISO’s governance — where board members are appointed by California decision-makers — have been a sticking point for a West-wide energy market.

However, in 2023, Western state regulators proposed a groundbreaking solution: an independent, regional governance organization that would oversee market rules independent of California. The regional organization (RO) will provide fully independent governance for CAISO's existing real-time energy market and soon-to-be-launched day-ahead energy market (EDAM), while CAISO will remain the market operator. The RO will also be structured to allow for adding more market services in the future.

Unlike SPP’s traditional utility-dominated governance structure that has struggled to accommodate cleaner generation and build a 21st century grid, the new RO governance over EDAM is structured from the ground up to integrate and facilitate state policies like Colorado’s clean energy goals. And under the governance of the RO, the actual grid operators would be the CAISO, a recognized global leader in planning and running an electricity grid on clean energy.

Finally, Colorado utilities’ other outdated assumption may be about who else is along for the ride. In 2022, 26 western utilities shared the concerns about governance and connectivity and commissioned a study to examine the benefits of joining SPP versus EDAM. Since then, utilities across the West, including the primary utilities in Wyoming, Utah, New Mexico, Idaho, Nevada, and Oregon, have decided to join EDAM. The handful of utilities still looking to join SPP-run markets would form an archipelago of territories pock-marked across the West, from Colorado to Arizona to the areas of the Northwest served by Bonneville Power Administration. These islands would form a relatively small pool for resource trading, separated by “seams” between markets that increase costs and decrease reliability. Instead of cruising along the interstate, Colorado power trading would be like traveling in old Eastern Europe, paying customs duties at every border crossing.

Given all this, Colorado must carefully consider its options: joining SPP’s markets or CAISO’s EDAM under RO governance. If Colorado chooses the wrong market, the risks and missed opportunities for Coloradans could be significant. For example, choosing the wrong market could: 

1. Increase costs for Coloradans: Regional markets facilitate the trading of resources, allowing access to the cheapest, cleanest, and most efficient energy sources. If Colorado were to opt for a smaller, less interconnected market, it would limit the number of trading partners, making it harder to buy and sell affordable options and forcing the state to rely more on dirtier local generation or throwing away its excess renewable energy.
   
   
2. Create more seams than necessary: Seams are known as the boundaries between electricity markets. Seams can cause problems and inefficiencies due to different rules and procedures in the two markets on either side of the seam. The more seams there are, the more costs will increase due to a decrease in efficiency. Seams also decrease visibility and flexibility in times of grid stress like extreme weather, raising reliability risks. A recent study found that the tools and lessons learned in the East are not sufficient to address Western day-ahead market seams, making it crucial to minimize new seams in Colorado’s decision. The fewer seams there are across the West, the fewer barriers there are to transferring electricity.
   
   
3. Limit resource sharing during natural disasters or public safety power shutoffs: Emergency sharing becomes significantly harder in a smaller market as there are fewer participants, which reduces the ability to share resources to power the grid during extreme weather events.
   
   
4. Lead to misaligned interests: The governance structure of a regional market must ensure that state policies and public interests are protected. SPP operates under a model that is made up of investor-owned utilities whose interests and priorities align more with the utilities in the Eastern United States, which could cause issues in Colorado’s efforts to reach its clean energy goals. In contrast, the Pathways RO is designed to operate under a public interest model, with an independent, Western Board, representation from state and public power entities, and an open and accessible stakeholder process. 
   
   
5. Make it harder to reach clean energy goals: A smaller market would make reaching Colorado’s 100% clean by 2040 goals more difficult. With less resource diversity and fewer trading partners, Colorado would have a greater challenge to transition away from fossil resources, and a smaller opportunity to sell its excess renewable energy, such as its abundance in wind and solar resources. 

Taking the Right Road

As Colorado moves closer to delivering on its mandate for utilities to join a fully operational RTO by 2030, energy market decisions are the first step.

Every economic study that has examined the issue has determined that a single, unified Western regional energy market will deliver greater affordability, reliability, and economic benefits and allow the state to reach its clean energy goals more quickly and reliably. But to date, Colorado utilities have not examined the specific value to their customers of joining SPP markets versus joining EDAM alongside the majority of western utilities. Colorado policymakers should not allow old and unexamined assumptions about Colorado’s place in the West to guide such an important decision.

Colorado should update its conceptual map. Colorado can be an afterthought in an Eastern-utility-dominated grid, or a leader and lynchpin in a modern and clean western grid.

In order to make the best choice for Colorado consumers, the state must carefully decide which market to join, as it will greatly impact the state’s energy costs and affordability, economic development opportunities, and ability to meet clean energy goals.