Colorado OKs Xcel Energy’s plan to join new power marketplace

Colorado Public Utilities Commission Approves Xcel Energy’s Plan to Join Regional Wholesale Electricity Marketplace

Despite opposition from various groups, including staff members, consumers, and conservation organizations, the Colorado Public Utilities Commission has given the green light to Xcel Energy’s proposal to participate in a new regional marketplace for wholesale electricity.

During a hearing on Wednesday, two out of three PUC members expressed their support for Xcel’s application to join Markets+, a day-ahead market established by the Southwest Power Pool and around 30 other entities.

The commission will soon issue a formal written order approving the decision.

The introduction of this new marketplace will enable Xcel and other utility companies to purchase electricity a day in advance, with the aim of enhancing the efficiency and cost-effectiveness of electricity transmission. This move by Xcel towards a day-ahead market is seen as a precursor to transitioning to an organized wholesale market, as mandated by a state law for Colorado transmission utilities to achieve by 2030. The primary objective is to coordinate resources regionally, increase the integration of renewable energy sources into the grid to reduce greenhouse gas emissions, and meet the rising demand for electricity.

However, Commissioner Megan Gilman, who dissented from the majority decision, argued that Xcel had not adequately demonstrated, as required by PUC regulations, that the benefits of joining Markets+ outweigh the associated costs. She expressed concerns that the expense of participating in the day-ahead market, considered a temporary measure, could potentially hinder or postpone Xcel’s transition to an organized wholesale market.

An organized wholesale market functions as a centralized entity facilitating the buying and selling of electricity and related services across a specific region. According to a 2021 PUC report, full participation by utilities in such a market or a regional transmission organization could result in annual savings of $230 million.

Currently, about 60% of the nation’s electricity supply is managed by regional organizations, as reported by the U.S. Energy Information Administration, with a significant portion concentrated in the Eastern United States.

PUC Chairman Eric Blank emphasized the potential for substantial cost savings annually as power purchase and transmission activities become more coordinated across the region.

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

On the contrary, Gilman highlighted that the law mandating transmission utilities to eventually transition to a more centralized market allows for waivers. She suggested that Xcel could leverage the costs associated with joining the day-ahead market as grounds for requesting a waiver.

Xcel Energy, the largest electricity provider in Colorado, disclosed in documents submitted to the PUC that the costs of participating in Markets+ would include $2 million for the initial phase of setting up the organization, $14 million annually for operational expenses over the first five years, followed by $10 million per year, and an estimated $13 million to $15 million for integrating Xcel’s systems with the marketplace.

Western Resource Advocates, a conservation group, expressed concerns in a statement filed in the case, citing testimony indicating that Xcel’s costs would surpass net benefits by $30 million until 2032, with cumulative benefits not outweighing cumulative costs until 2039. The group emphasized that for customers to realize any benefits, Xcel would need to remain in Markets+ until 2038.

“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 stated.

The PUC staff also raised doubts about Xcel’s application, noting that the company failed to demonstrate that joining the marketplace was in the public interest, as the expected benefits might not offset the costs. The staff underlined that Xcel witnesses admitted during a hearing that participating in Markets+ and recovering costs for technology upgrades would lead to increased production costs at least until 2038.

Given the financial implications, the staff recommended that the commission consider denying the application. Should the application be approved, they suggested monitoring costs, market reliability, and greenhouse gas emission reductions to evaluate the justification for Xcel’s continued participation in the marketplace.

Challenging the Decision

Reacting to the decision, Brian Turner, regulatory director at Advanced Energy United, expressed disappointment, stating, “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.”

The industry group proposed that Xcel Energy should consider joining the Extended Day-Ahead Market (EDAM) operated by the California Independent System Operator, highlighting potential cost savings and greater access to renewable energy sources. However, PUC Chairman Blank cautioned against steering Xcel towards EDAM, citing potential integration challenges across Colorado’s systems.

Tri-State Generation and Transmission Association, Colorado’s second-largest electricity provider, is in the process of joining the Southwest Power Pool’s regional transmission organization.

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