Legislation establishing an Independent System Operator (ISO) to manage the electric transmission grid in Colorado

This document describes an idea of central importance to Colorado’s energy future:  a statewide unified transmission grid managed by a non-profit Independent System Operator (ISO) under a common transmission tariff.

The purpose of this document is to explain the concept and attract the attention of one or more legislators who are knowledgeable about energy and might appreciate how transformative a Colorado ISO could be, and then discuss running a bill in the 2020 session to bring it about.

The envisioned 2020 legislation would require transmission owners in Colorado to pool those resources and relinquish control over their individual systems to allow a non-profit ISO to schedule transmission access according to principles of fairness, cost-minimization, maximum renewable energy utilization, and/or other principles established in the legislation.  The ISO would also oversee transmission planning and generator interconnection.  Transmission owners would still own their systems and earn revenue for their use, and they would have input to the ISO.  The ISO would establish a common transmission tariff for the unified grid, as opposed to multiple (“pancaked”) transmission tariffs when power is wheeled across the systems of multiple owners.

WHY AN ISO IS NEEDED, AND ITS RELATION TO WHOLESALE MARKETS

The Colorado Public Utilities Commission (PUC) will be considering the options for Colorado utilities to pursue wholesale electricity markets and/or a pooled transmission system, including either joining/forming a Regional Transmission Organization (RTO) or a lesser real-time Energy Imbalance Market (EIM), as mandated by SB19-236.  In a cursory sense one can view a full FERC-jurisdictional RTO as consisting of two pieces:  a unified transmission grid managed by an ISO, and a full wholesale electricity dispatch market that includes a real-time balancing market (EIM) as well as “day-ahead” and “ancillary services” markets.

The markets piece of the equation and the transmission piece of the equation can largely be considered separately, with a unified regional transmission grid being implemented first in order to greatly improve the operation of a market solution.  Thus, moving forward on legislation for a Colorado ISO in 2020 is not in conflict with the consideration of wholesale markets at the PUC, and in fact would lay the groundwork for optimization of any market solution.

The existing CAISO EIM and the planned SPP EIM (called the WEIS – Western Energy Imbalance Service) do not operate on a unified transmission grid, and in these cases a unified grid is not a necessity, but is certainly desirable in order to simplify power wheeling across the state (or larger region), reduce costs through efficiencies, improve fair and non-discriminatory transmission access, and other benefits.  A unified grid becomes even more desirable if/when a real-time market is expanded to include a day-ahead market, as is likely for both EIM scenarios, eventually.

Xcel Energy has a central position of control over transmission in Colorado, and all signs are that the company wants to keep it that way, which is a detriment to renewables integration, wholesale markets, independent power producers and power marketers, and also to the idea of Community Choice Energy (CCE), which is currently being studied by the IOU Review Interim Committee.

Transmission access under an ISO would be assigned in a logical manner according to predictable principles and rules by an independent operator acting in the interests of efficiency, cost minimization, ratepayer interests, and state policy goals (or whatever interests the legislation mandates).  Renewables developers, large energy users, potential future CCEs, and others need TRUE non-discriminatory access if they are to thrive.  Large transmission owners like Xcel Energy and Tri-State wouldn’t really lose anything, except a monopolistic stranglehold that prevents development of a dynamic 21st century grid hosting many innovative players.

Support could likely be garnered for a Colorado ISO from large energy users, renewables developers and Independent Power Producers, and it would be good for CCE as a potential solution for the dozen “Ready for 100” cities and two dozen Colorado Communities for Climate Action (CC4CA) that have ambitious near-term renewable energy goals and would then have access to alternative wholesale energy suppliers.  The increased efficiency of transmission asset use would also be good for ratepayers in general. Transmission owners in neighboring states may also want to join, and their participation could be accommodated.

SOME BACKGROUND AND SUGGESTIONS

Other states have legislated the formation of an ISO, including New York, California and Texas. This idea of pursuing a Colorado ISO is not new, as the majority of Colorado utilities have evaluated options for market and ISO development through an initiative that called itself the Mountain West Transmission Group, but that initiative stalled.  However, Colorado’s legislature does have the authority to require the formation of a Colorado ISO.  Many people who have been involved in the transition to a renewable energy supply believe that the state should address some of the institutional obstacles that have slowed progress, one of which is transmission access and efficiency.

FERC’s Order 2000 set the national regulatory landscape for Regional Transmission Organizations, which provide independent grid operations and wholesale electricity markets. The order provides that the independent grid operation (including delivery tariff access, generator interconnection process, reliability oversight) can be managed through a separate institution from the wholesale market. While most RTOs provide both functions, the western states have developed their market structures differently, with the CAISO now providing some form of wholesale market dispatch in most of the west but not providing the grid access services in the areas outside its original footprint. A Colorado ISO could interface with a separate functional wholesale market operator, such as CAISO, for example, on a contract-for-service basis to enable both a unified transmission grid plus a wholesale electricity market.

In conversations with wholesale electricity market experts, many share the opinion that with any RTO or wholesale electricity market the devil can be in the details. The first iteration of deregulation in California was heavily prescriptive from a legislative perspective and yielded disastrous results. The statutes directed the “how” rather than the “what” or the “goal”. From this experience, we suggest that a key element to legislative and operational success in forming an ISO (or RTO) is to promote a general framework that invites the perspectives of stakeholders toward attaining goals rather than mandate specific engineering designs.

Interested legislators on the Energy Legislation Review Interim Committee will have the opportunity to engage with stakeholders on this topic. The committee might elicit specific feedback from stakeholders about establishing a Colorado ISO. Perhaps based on this feedback, appropriate legislation could direct the PUC to oversee a stakeholder process to design an ISO for Colorado, subject to goals and parameters specified in the legislation.

CONTACTS

Representative Edie Hooton,  ediehooton@gmail.com

Larry Miloshevich,  larry@EnergyFreedomCO.org

Dan Greenberg,  dan@EnergyFreedomCO.org