A state law requiring Colorado’s electric power producers to participate in “an organized wholesale market” for electricity could negatively impact the state’s “nationally recognized success with robust competition for generation development,” a report issued by the Colorado Public Utilities Commission warns.

Joining one particular wholesale market could, for example, subordinate Colorado’s power needs to another state’s parochial interests, not to mention invite system reliability issues, the report said.

In 2019, the legislature passed the Colorado Transmission Coordination Act, ordering the utilities commission to study the costs and benefits of organized wholesale energy markets. Earlier this year, the legislature passed a law requiring all Colorado power producers to join a wholesale market by 2030.

The report, issued earlier this month, says implementation of the law “would transfer functional control of Colorado’s electric utility transmission assets to a broader regional process” while optimizing the flow of energy in the western power grid.

While the report details the potential economic, environmental and grid-reliability benefits of a regional wholesale market, it also “considered the possible negative impacts associated with shifting state control over core generation, interconnection, and transmission decision-making, which have generally worked well in Colorado, to regional approaches that may currently be ineffective.”

Two existing wholesale markets – the California Independent System Operator to the west and the Southwest Power Pool to the east – seem to be in contention, according to the report. But each has potential downsides, the utilities commission says.

“CAISO would appear to be particularly well-suited to lead the effort to expand regional coordination since it already optimizes real-time imbalance energy over 84 percent of the western footprint,” the report says. On the other hand, “CAISO could protect California’s parochial interests at the expense of what is best for the region. … Recent filings by CAISO … appear to have significantly exacerbated and given substance to these concerns.”

Another serious concern voiced by the utilities commission has to do with electric system reliability: “CAISO has, for the last few summers, been experiencing extreme capacity shortages often resulting in rolling blackouts,” the report says.

Moreover, the utilities commission says, Colorado already has a robust, low-cost regulatory system in place. “In considering the impact of Colorado utilities joining an organized wholesale market, the Commission should consider the beneficial processes we have today … that efficiently flows the benefits of low-cost generation … to customers.”

Another problem with wholesale markets is that they interfere with the process by which grid operators decide when to build and retire facilities.

“In theory and in practice, prices … are the primary tool by which grid operators ensure reliability,” the report says.

The fuel cost of wind and solar generation is “essentially zero,” according to the report, so it drives down the cost of electricity.

“This in turn impacts the profitability of new generation resources,” the utilities commission says. “While ratepayers certainly benefit from lower prices, the price needs to be high enough to attract developers to bring on new generation resources to meet demand.”

This is already playing out in some markets, according to the utilities commission. Additionally, wholesale markets appear to be having problems dealing with grid expansion projects.

“In (the Southwest Power Pool ) alone, the interconnection queue backlog amounts to over 100GW of primarily wind and solar generation projects – more than twice the size of all of SPP. … It is not clear why Colorado would trade its current well-functioning interconnection processes for a system that has created such inefficient and unequitable access.”

“The Commission’s quantitative analysis concluded that markets have the potential to deliver substantial economic benefits through reduced operation and investment costs” amounting to perhaps $230 million annually, about 4% to 5% of annual revenues.

“However, the Commission is concerned with the effects that market participation would have on the State’s robust resource planning and interconnection queue processes and the PUC’s authority over such issues as resource adequacy, emissions tracking and transmission cost allocation, and planning,” the report concludes.