Another Western grid plan bites the dust
Travis Kavulla, a Montana utility regulator, likes to joke that so many proposals for a unified Western power grid have died over the years that an expanded graveyard is needed to accommodate all the tombstones.
If that’s the case, call the undertaker.
Xcel Energy Inc. added another headstone to the resting place of Western grid plans last month, when it announced it was pulling out of the Mountain West Transmission Group, a collection of eight Rocky Mountain utilities that had been pondering a wider partnership with the Southwest Power Pool (SPP), a wholesale power market encompassing 14 Great Plains states.
The decision caught many power-sector observers by surprise. Xcel is the largest utility in Colorado and had previously been one of the chief boosters of a regionalized grid.
The move underscores the difficulty of uniting the region’s disparate utilities under a regional transmission organization, or RTO, as wholesale power markets are often known. It also represented a setback for renewable advocates, who believe an integrated grid will facilitate the expansion of wind and solar in the West’s coal-centric power sector.
“When you become part of a RTO, the stakeholder processes are pretty intense, which I think Mountain West got a taste of in negotiating with SPP,” said Robin Lunt, a utility lawyer at Wilkinson Barker Knauer LLP in Denver. “The value of working together with any RTO needs to be there, as well.”
Westerners have long pondered whether they should follow their eastern counterparts in creating an RTO to manage electricity flows and ensure the reliability of the region’s grid. Today, many Western utilities oversee their own power systems. That can hinder trading of electricity from utility to utility, with power companies charging separate rates to send electricity across their transmissions lines.
An influx of wind and solar power has added a new wrinkle to the discussions and upped the stakes of the conversation (Climatewire, July 31, 2017). A regional market, the thinking goes, would better facilitate trade between areas where the sun is shining or the wind is blowing to communities where the power is needed most.
But Xcel’s decision to leave Mountain West complicates those efforts, raising questions for the utility and the region at large.
For Xcel, the question is how the Minneapolis-based power company plans on meeting its renewable goals. Xcel projects wind will become its largest source of electricity generation by 2021, when it is estimated to account for more than a third of its power.
Mountain West offered Xcel two benefits: a unified grid in Colorado and access to SPP’s wider market in the Great Plains. Going it alone in Colorado may make it more expensive for Xcel to meet its renewable goals, Kavulla said. That’s because markets become more important as utilities’ renewable goals increase, facilitating trade and enabling power companies to rely on their peers to serve some of their demand with spare capacity instead of generating all their own power, he said.
But what’s good for Xcel’s ratepayers may not be good for the company’s shareholders, Kavulla said. Xcel is a regulated monopoly. It invests money, and state regulators determine how much of a return the utility can recoup on its investment.
“If you’re joining a market, there might not be a need for that much growth in rate base,” Kavulla said.
More room for Calif.?
The regional impact of Xcel’s move is even more difficult to discern. The breakdown of Mountain West comes amid wider talks of forming a unified Western grid.
California continues to mull the expansion of the California Independent System Operator (CAISO) to neighboring states.