Adapted from by Allen Best in Mountain News Why Colorado needs an RTO
Speakers say regional transmission organization crucial to economic decarbonization of electrical supplies
BV: These speakers are speaking from their economic self interest. Large utilities prioritize large generation plants and big transmission. Sometimes these even are cheapest. But this article does not talk about the relative costs of more regional transmission versus more local storage. I believe that both are needed, but the relative costs need to be kept in mind, and we cannot count on utilities to advocate for solutions that are cheaper but less profitable.
If you’re interested in how Colorado will achieve its climate change goals, prepare to wrap your mind around the concept of an RTO, or regional transmission organization.
In the first half of 2019, Colorado set economy-wide carbon reduction goals of 50% by 2030 and 90% by 2050. Getting there will require electrifying many uses that now depend upon fossil fuels. Think cars and then trucks, but eventually houses, too, and more.
This only works if emissions are largely removed from the production of electricity. Colorado legislators in 2019 understood that. They set a target of 80% fewer emissions by 2030 among electrical utilities. They did not tell utilities how to get there. Now recent research from GridLab, Sierra Club, and NRDC shows this needs to happen much faster — getting to 98-99% renewable electricity by 2030. This means perhaps 75-85% by 2025.
By Allen Best
On a September morning in which smoke was wafting eastward across the Great Plains from the wildfires in the Rocky Mountains and the West Coast, I sat in a cabin near Nebraska’s Lake McConaughy to hear representatives of Colorado’s two largest electrical utilities and one state legislator explain how they thought Colorado might get a regional transmission organization (RTO) or its close relative, an Independent System Operator (ISO). Each pools electrical generation resources and also consolidate transmission.
Colorado currently has neither, although it has been talking about it for several years. Instead, the state remains composed of fiefdoms. These utilities do share electricity to a point, but the current system is little more advanced than one utility calling a neighboring utility and asking if they have a little extra sugar to share.
Now think more broadly of Western states and provinces. There are wide open spaces, the stuff of calendars and posters. That’s the image of the West. The reality in which 80% or more of Westerners live lies in the dispersed archipelagoes of urban development: Colorado’s Front Range, Utah’s Wasatch Front, and Arizona’s Phoenix-Tucson, the mass of Southern California, and so on. These islands define and determine the West’s electrical infrastructure. You can see them in the nighttime photographs taken from outer space, including this 2012 image from the NASA Earth Observatory/NOSAA NGDC. These 38 islands represent more-or-less autonomous grids, only loosely connected to the other islands and archipelagoes.
RTOs pool commitments and dispatch of generation, creating cost savings for participating utilities. An RTO also consolidates transmission tariff functions under one operator, resulting in more efficient use of high-voltage transmission.
BV: The previous paragraph shows how beginning a 21st century renewable grid design with the 20th century neoliberal assumptions used for designing the RTO concept is a bad idea. The idea of an electricity market in both an RTO and ISO is a system composed of decentralized, dispatchable generators that can bid into a local energy markets based on a ‘local marginal price’. This isn’t how renewable generators work. Once a renewable generator is built, the marginal cost of generation is close to zero and the goal should be use use all of the electricity, not hold onto it like some scarce good. Systems where fixed costs dominate marginal costs need to be funded by ‘subscription prices’ (like internet service), or better yet, by taxes (a la Hoetelling).
In the 20th century, this pattern of loosely linked islands worked well enough. Each island had its big power plants, most of them coal-fired generation. The intermittency of renewables was not an issue, because there were few renewables. And, of course, there was less need for transmission. In keeping with the fiefdom theme, transmission providers levied charges for electricity that moves through those wires.
Much has changed. Renewables have become the lowest-cost generation. Prices of wind and solar, plus batteries, too, dropped 90% in the last 10 to 15 years. Utilities have figured out how to integrate wind and solar into their resource mix. Xcel Energy, in its Colorado operations, has used more than 70% of wind at certain times, for example.
BV: Because renewables are mostly fixed costs, the price of renewables depends upon how they are financed. Phrases like ‘lowest cost generation’ confuse fixed and marginal costs. Again, a house is a good model. The “cost” of buying a house depends upon the fixed cost of the house and the interest rate. You can say that your house payment is the cost of the house, but this isn’t true. Once you pay the loan, the ongoing ‘price’ of the house is near zero. It’s the same thing with renewables, particularly for solar. You may finance it over 30 years, but the panel will still be able to produce electricity. Most new panels have degradation rates less than 0.5% per year. In 30 years, the panel will still produce 85% of its original output. So the average cost of electricity produced by the panel is much lower than the financing costs.
Coal earlier this year remained the source of 40% of electrical generation in Colorado, but should decline rapidly. Two coal-fired units at Pueblo, two in or near Colorado Springs, and one at Craig will cease production by 2025. Xcel would like to run other units until the 2040s and 2070.
Tri-State Generation & Transmission, Colorado’s second largest electrical supplier, will close the two remaining plants it operates in Craig by 2030. Xcel Energy, Colorado’s largest utility, will almost certainly have closed either Hayden or Pawnee, conceivably both, by 2030. Platte River Power Authority also plans to shutter its Rawhide plant north of Fort Collins
To take advantage of low-cost renewables but also ensure reliable delivery of electricity, utilities will have to do more sharing. That was the common theme of the webinar sponsored by the Colorado Rural Electric Association on Sept. 14.
A must for decarbonization
The subject of RTOs was “a very important topic, and one that the average voter knows absolutely nothing about, in my experience,” said State Sen. Chris Hansen, an engineer who has a Ph.D. in economic geography from Oxford University. He has been involved with most of Colorado’s most important energy legislation of recent years.
Hansen pointed out that 80% of energy use in the West is aligned with decarbonization goals. Hansen foresees a $700 billion investment in the next 20 years needed to reinvent electrical generation, transmission, and distribution across the Western grid, including British Columbia and Alberta. “If we stay with 38 unintegrated grids, I just don’t think we can physically get there (to achieve climate targets) without a hugely expensive overbuild of wind and solar, and nobody wants that,” said Hansen on the webinar.
While decarbonizing the grid, an RTO will deliver strong economic benefits. “Just leave climate change aside for the minute—which is hard to do as fires rage across the West—we are looking at a minimum $4 billion in savings in the West if we have an integrated grid,” he said.
What’s the snag? As Hansen has pointed out, the smart phone took only two years from introduction into the market to broad adoption.
The short answer is that creating markets in the West is relatively new and this stuff gets very, very complicated, as was pointed out by Carrie Simpson, who looks after markets for Xcel’s Colorado operations. She cited the devilish details involving charges on electricity transmission, how utilities make money, who makes the money and who doesn’t, and then a massive rejiggering of the electrical grid through invention of sophisticated software intended to deliver lowest-cost electricity while keeping the lights on.
BV: So don’t fund additional transmission by marginal cost. Build it like the interstate highway system – entirely taxpayer funded.
Hansen was asked by webinar host Thomas Dougherty, an attorney for Tri-State Generation and Transmission, whether Colorado’s utilities might expect legislative direction in the coming session. He prefaced his answer by pointing to the ability of an RTO or ISO to reduce needed reserves to ensure reliability. Currently, utilities need backup generation of 16% or 17%. With an RTO, said Hansen, that could be lowered to 10% or 11%. It’s like needing 9 pickups in your fleet instead of 10. “You could easily take 5% out of reserve margins in Colorado,” he said. “That is worth more than $100 million dollars per year.”
“I think you will see the Legislature really try to push this, because there is so much at stake for the ratepayers,” Hansen replied.
Later, in an email interview, Hansen confirmed his plans to introduce legislation next winter that “will address both the near-term and longer-term issues in CO around transmission. I believe we need a clear policy direction for Colorado to join a well-structured RTO or ISO and transmission owners. To accomplish that goal, we may need incentives and disincentives for operators.”
Hansen also confirmed that he believes even existing coal plants are less foundational than they once were.
Why Tri-State needs it
Duane Highley, the chief executive of Tri-State, has practical experience in the benefits of regional markets. A veteran of 38 years in electrical cooperatives in the Midwest, he recalled being in Arkansas a few years ago when he drew on the power of the Midwest Independent System Operator, or MISO, to deliver wind power from Iowa during winter to Arkansas customers. This enabled coal-fired power plants to be shut down. He called it “decommitting” of resources.
Tri-State must decommit coal resources in coming years to meet Colorado’s decarbonization targets. The utility, Colorado’s second largest, behind Xcel, has started shifting from coal. It closed one small plant in Colorado, at Nucla, in September 2019, and Escalante, in New Mexico, in September 2020. The three much larger units at Craig, of which Tri-State shares ownership with other utilities, will close between 2025 and 2030.
On the flip side, Tri-State is adding 1,000 megawatts of renewable generation before the end of 2024. That will get Tri-State to 50% renewables across its four-state operating area. It then has plans for more than 2,000 megawatts of additional renewable generation from 2025 to 2030.
That won’t be enough to get Tri-State to the 80% emission reduction by 2030 that Colorado lawmakers want to see. In preliminary filings with the PUC, Tri-State has not shown its cards about how it intends to get there. Environmental groups have started making noise. In a filing with the PUC, Western Resource Advocates pointed out that current plans will get Tri-State to only a 34% reduction in carbon emissions by 2030 as compared to 2005 levels. (B: area of cooperation with WRA?)
Crucial will be what Tri-State intends to do with its share of two other coal-fired power plants, the Laramie River Station in Wyoming and the Springerville plant in Arizona. Highley, in the webinar, did not acknowledge the critique directly. He did, however, say that Tri-State needs an RTO to get across the finish line.
“We see a strong need for an RTO to get us past that 50% renewable level as we try to integrate larger and larger amounts of renewables,” he said.
Colorado and its neighbors in the Rocky Mountains currently operate bilateral markets. Highley described it as getting “on the phone and calling your neighbors. That’s sort of the way the West operates. It’s very inefficient,” he said.
Utilities in Colorado in 2017 began getting together in an ad hoc organization called the Mountain West Transmission Group to talk about how to do it more efficiently. That effort fell apart in spring 2019 when Xcel pulled out. The company said the benefits weren’t obvious relative to the cost.
Tri-State, which delivers about roughly a quarter of electricity in Colorado, and Xcel, which has more than 60% of market share, have gone their separate ways. Both have led efforts to create energy imbalance markets, or EIMs. These are best described as the first step toward an RTO or ISO, with smaller risk and smaller rewards.
The first, small step
Only five months after arriving from Arkansas to chart a new course for Tri-State, Highley in September 2019 announced formation of an energy imbalance market, or EIM, in conjunction with the Western Area Power Authority, the federal agency that delivers electricity from federal dams. The federal government makes the low-cost hydroelectric power available to co-operatives and municipal utilities, but not to Xcel and other investor-owned utilities.
Think of an energy imbalance market, or EIM, as being like a 100-level class in energy markets. It is a low-cost, low-gain endeavor. RTOs are a graduate-level course.
With an EIM, utilities can share power, but on a somewhat limited basis. There is sub-hourly balancing, but not the day-ahead planning that begins to deliver big benefits.
“We wanted to get something going. It may not be the ultimate solution for the West, but we can recover the cost from the savings in three years. Maybe this is the first step toward an ultimate market or restarting the Mountain West conversation,” Highley said.
This new EIM will go on-line in February 2021 and will be administered through the Arkansas-based Southwest Power Pool.
Xcel and its three partners—Platte River, Colorado Springs Utilities, and Black Hills Energy—are looking west. Are you ready for more alphabet soup? They will have CAISO creating an EIM for them. CAISO stands for California Independent System Operator. It was established in 1998. An ISO, like an RTO, is motivated to produce efficiency. They’re often compared to air traffic controllers, because they independently manage the traffic on a power grid that they don’t own, much like air traffic controllers manage airplane traffic in the airways and on airport runways. CAISO has advanced services to utilities north and east. This, however, will not be an RTO.
Highley said that the “real prize will be getting the RTO,” and then he threw down a spade in the conversation.
“About 90% of transmission (in Colorado) is controlled by Tri-State and our partner, the Western Area Power Authority,” he said. “We are key to what happens regionally and not just in the state of Colorado.”
It’s been conventional wisdom that an RTO will look either east or west. There are problems in both directions.
One challenge is that of political control. Do you think for a second that Wyoming will allow control of its electrical grid in the hands of appointees of the governor of California? Colorado, which of late has aligned more comfortably with California in its politics, nonetheless has its own hesitancy about that sort of arrangement. It’s not a hypothetical example. California legislators in 2019 refused to put administration of CAISO into independent hands. In other words, the better acronym for CAISO would be CASO. Forget about Independent.
Tooting the horn
Highley, coming from Arkansas, toots the horn of the Southwest Power Pool. “It would make sense in some ways for us to help SPP to move west, and CAISO, of course, is moving east. Think of it like the great railroad days.”
The golden spike completing the transcontinental railroad was hammered down in the salt flats along the Great Salt Lake in 1869. Highley describes a different geography, with a fortune yet to be made – or costs reduced – depending upon who can get wind-generated electricity of the Great Plains to markets.
“There’s an extremely large amount of wind in SPP area that needs to go somewhere, and it has negative pricing now at some points in time. And they haven’t built all the wind that will be built in Kansas yet,” he said. “It’s going to be an opportunity for whoever manages the DC (direct current) ties to better tie together the grids east and west. Everything east of those ties is currently managed by SPP (Southwest Power Pool),” said Highley.
The DC stands for direct-current. The DC ties provide portals between the Eastern Interconnection Grid and the Western Interconnection, which hum along not quite on the same tune and both on alternating current. (Surely you have experience with this part of the alphabet soup). Think of narrow gates along a very tall fence. There are eight such DC portals between Artesia, N.M., and Miles City, Mont. One is north of Lamar, Colorado. There are also two in the Nebraska panhandle.
The afternoon of the webinar, I drove to the one near Stegall, Neb., which is about 35 minutes southwest of Scottsbluff. How would I not? I had been hearing about this for near 40 years. You leave the valley of the North Platte River and its fields of corn and climb into the landscape out of a Remington painting. There was a flock of wild turkeys and then, just over the hill, the focus of all the electrical lines: the David Hamil Tie.
It’s owned and operated by Tri-State, but used exclusively to get electricity from the Laramie River Station at Wheatland, about an hour to the west, to its customers in the Eastern grid. I was neither thrilled nor disappointed by what I saw. An electrical engineer probably understood what was evident to the eye, but I did not.
There has been much talk about creating greater permeability between this giant electrical wall just beyond eyesight of the Rocky Mountains and the energy resources of the Great Plains. A study by the National Renewable Energy Laboratory was devoted to that idea, with the goal being to integrate greater quantities of renewables. It was called the Seams study, but it got smothered by Trump administration officials. It is likely to re-emerge.
“Yes, that study will be very helpful in guiding our policy discussions in this area, as will the DoE study being done by Utah on western grid options,” said Hansen in an e-mail after the webinar.
Optimizing the east-west gates
These portals currently can accommodate transmission of 1,300 megawatts. Highley suggested – but did not go into details – about figuring out creating wider gates at these portals.
“Who best could manage those DC ties and optimize them than possibly SPP,” he asked rhetorically, referring to the Arkansas-based Southwest Power Pool.
(The Colorado Public Utilities Commission will host an information meeting devoted specifically to transmission on Oct. 22, and I would be shocked if this is not addressed. I also expect much discussion of the infamous Seams Study squelched by the coal-happy Trump administration.)
Highley said the real benefit of renewables will be realized by creating opportunities to move them east and west – and in different time zones. “The person who sits on the seams will have the opportunity to either make a lot of money or lower prices, however you look at it,” he said.
Much has been made about seams in Colorado (including a story I did that was published in March). “I do think there will be a seam somewhere,” Highley said. Too much has been made of seams, too much “fear” expressed. “If you look east of us, there are seams all over the place. This problem has been solved any number of times. We can figure this out, too.”
Simpson, representing Xcel, suggested a third option for an RTO, one that does not explicitly look either east or west but instead uses Colorado as a focal point. But, she said, Colorado alone cannot deliver the market efficiencies. The footprint must be somewhat larger, but she did not specify exactly how large.
When may Colorado become part of an RTO? That was the parting question, and all three panelists answered much alike,
“Five years might be a little quick, but I would love to see this happen in the 2025-2028 time-frame,” said Hansen.
Xcel’s Simpson largely agreed. “Five years may be a little aggressive, but I do think that the EIM will open up new opportunities for us to learn about our system and how we can interact with the rest of the West more efficiently.”
Tri-State’s Highley was the most sporting. He offered to bet a bottle of wine that a quicker pace can occur, delivering an RTO by the end of 2025.
“I will keep that wine bottle bet out there,” he said.
Allen Best is a Colorado-based journalist who publishes an e-magazine called Big Pivots. Reach him at firstname.lastname@example.org or 303.463.8630.