New effort could reduce electricity costs, improve power reliability in Tucson

Tucson Electric Power Co. has joined an informal group of a dozen Western utilities exploring new regional power marketing models, to help keep electricity costs down and the lights on for energy consumers across much of the West.

The move comes as federal regulators and some utility stakeholders are urging utilities across the Mountain West to explore the formation of regional organizations to oversee wholesale power markets, to lower costs and improve grid reliability.

Currently, six regional transmission organizations, or RTOs, manage transmission and handle wholesale energy sales among their member regional utilities in North America, while the California Independent System Operator (CAISO) and the Electric Reliability Council of Texas handles similar duties in those states.

Two large regions of the U.S. have no RTOs — a broad swath of the West including Arizona, Utah, Colorado and most of Nevada and New Mexico, and all or part of five states in the Southeast — though some utilities in those regions, including TEP, participate in some regional reliability programs.

But the drumbeat for a Western RTO has gotten louder in recent years, driven by the need to integrate large amounts of new renewable solar and wind energy into the grid and notable failures of the current system, including energy shortages that prompted rolling blackouts in California and tight supplies across the West amid a major heat wave in August 2020.

In early October, TEP, Arizona Public Service Co., the Salt River Project and nine other Western utilities announced they formed a group to evaluate regional market solutions together.

The Western Markets Exploratory Group is exploring the potential for a “staged approach” to new market services, including day-ahead energy sales, transmission system expansion, and other power supply and grid approaches under existing state regulations.

Besides the three Arizona utilities, the group includes Xcel Energy-Colorado, Black Hills Energy, Idaho Power, NV Energy, PacifiCorp, Platte River Power Authority, Portland General Electric, Puget Sound Energy and Seattle City Light.

The group, which began discussions over the summer, says it hopes to identify market solutions that can help achieve carbon reduction goals while supporting reliable, affordable service for customers.

But those talks have just begun, and the group will initially focus on market mechanisms short of setting up an RTO, TEP spokesman Joe Salkowski said.

“The prospect of an RTO is being discussed, but that’s probably not where this would start,” Salkowski said, noting that TEP is looking to take smaller steps in the near term.

“Each utility faces different circumstances and might be ready for certain steps at different times,” he said. “TEP is looking at incremental market opportunities and might want to phase those in along with additional transmission coordination before proceeding to a possible RTO.”

TEP already has made some moves to cooperate on service reliability at the regional level.

The company is participating in a “reliability coordination” program launched in 2019 by the Southwest Power Pool, an RTO serving much of middle America, which includes wide-area monitoring, situational analysis tools, system rating methodology and outage coordination, Salkowski said.

TEP also is in the process of joining the Western Energy Imbalance Market, a wholesale market operated by the CAISO that automatically draws on the least-cost generating option available to meet short-term variations in their customers’ power usage.

The Tucson utility plans to start participating in the Western Energy Imbalance Market, which also includes APS and SRP, by next April.

“The EIM (Energy Imbalance Market) will expand our access to energy resources in real-time while improving utilization of our own resources, reducing costs for customers and contributing to regional electric reliability and resilience,” Salkowski said.

The move is expected to save TEP and its ratepayers some $13 million annually by expanding real-time access to renewable power and other low-cost energy resources across the Western grid.

TEP’s entry into the imbalance market will not be affected by the discussions under way by the Western Markets Exploratory Group, Salkowski said.

Pushing RTOs

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The debate over the need for a new Western RTO has heightened at the federal level and in states where integrating large amounts of intermittently available renewable power has become a challenge.

The chairman of the Federal Energy Regulatory Commission, Richard Glick, has said the time is right for a Western RTO, and several former FERC commissioners wrote a letter to FERC in June, urging an expansion of RTOs.

But RTOs are a hard sell in areas including Arizona that don’t allow electric competition and still have a system of regulated, monopoly utility companies.

The Edison Electric Institute, a trade group representing investor-owned utilities like TEP and APS, has said that expanding the RTO/ISO model across the country is a “one-size-fits-all approach” that is “not the answer.”

Jon Wellinghoff, a former FERC commissioner and CEO and founder of GridPolicy Consulting, said RTOs can boost system reliability and save money, citing a state-led report funded by the U.S. Energy Department that found that a Western RTO could save ratepayers some $2 billion by 2030.

An RTO also would help deliver clean energy across state lines to help meet renewable-energy mandates, he said.

Utilities are concerned about losing control of their power generation and transmission under an RTO, but they and their customers may benefit in the long run, Wellinghoff said.

“Under an RTO, they’re relinquishing their ability to balance their own their own service area and open it up to a lager (energy) balancing area,” he said. “The bad part might be they consider they have less control, but the good part is, the whole area has more resources to draw from, so it improves the reliability and stability of the whole area.”

Some environmental groups are pushing for new RTOs partly to make better use of renewable energy as major solar and wind projects come online to meet carbon-reduction goals.

Vijay Satyal, regional energy markets manager for Western Resource Advocates, said the group supports the establishment of a Western RTO to break up the monopoly practice of “bilateral” power transfers which ignore the needs of the larger grid.

An RTO also would allow independent governance to more fairly manage the grid on a regional basis and allow utilities and regulators to track progress toward greenhouse-gas reductions, Satyal said, adding that has become more critical amid climate disasters such as wildfires and flooding that threaten the electric grid.

Satyal said WRA applauds the formation of the Western Markets Exploratory Group but from its initial description it doesn’t go far enough.

“It’s not clear what they’re discussing, maybe that will become more clear when they come up with more specific plans, but I think they should be working toward a full RTO,” he said.

Next steps

TEP’s Salkowksi said the markets exploratory group is still in the early stages of what is expected to be a multi-year discussion process, while state regulators open their own debate on the wisdom of a Western RTO and other regional transmission options.

The Arizona Corporation Commission discussed the issue at a staff meeting in September and in early October, the commission’s Utilities Division sent a questionnaire to regulated utilities, asking about their plans to join an RTO, any studies the utilities have conducted on the issue and the pros and cons of joining such a group.

Salkowksi said TEP expects the ACC will hold workshops on various aspects of regional markets, including RTOs, based on the utilities’ responses.

“We see value in regional optimization of generation and transmission assets but have not endorsed mandatory participation because we want to fully understand the costs of moving in this direction and ensure it is in the best interest of our customers,” Salkowski added.