Dive Brief:

Xcel Energy on Friday announced it would end its participation in the Mountain West Transmission Group (MWTG) and its efforts to form a full-fledged regional transmission organization (RTO) in the western U.S.

Xcel said it "continues to believe in energy markets," but recent developments in RTOs have introduced "increased risk to more significant changes" to retail electricity service than the utility anticipated. MWTG's "relatively small" footprint and "few opportunities for westward expansion" also contributed to the decision.

Xcel's decision comes as states and federal energy regulators tussle over the authority to create market participation rules for energy storage and distributed energy resources (DERs) connected on the distribution system. Xcel last month asked regulators for a rehearing on a decision allowing storage on the distribution system to participate in wholesale power markets.

Dive Insight:

Market expansion efforts continue elsewhere in the western U.S., but Xcel's decision likely ends the discussion among MWTG members, who were exploring membership in the Southwest Power Pool, an adjacent RTO.

Xcel's subsidiary Public Service Co. of Colorado was the largest member of the MWTG, which also includes the Basin Electric Power Cooperative, Tri-State Generation Cooperative and the Western Area Power Authority, among others.

Mountain West had been exploring SPP membership since 2013 and formally began the process of becoming a member in September of last year. A March 2018 report from SPP staff estimated existing SPP members would see between $270 million and $1.024 billion in net benefits throughout the 2020s if MWTG members were to join.

Xcel said in a statement it was unsure whether it would accrue similar benefits, particularly in the face of the risks of RTO membership.

"While the costs of forming an RTO are generally known, they have recently increased, and the benefits are less certain and highly dependent on both the footprint, generation flexibility and composition of MWTG," the company wrote, adding that "recent developments with RTOs have introduced an increased risk of more significant changes to state-regulated retail electric service than Xcel Energy had anticipated."

Some of those recent developments include action in Washington D.C.. In FERC Order 841, the commission mandated that energy storage resources connected at the distribution level be allowed to participate in wholesale electricity markets, and regulators are considering similar stipulations for distributed energy resources (DERs) after a technical conference this month.

Xcel opposes those moves, arguing in its rehearing proposal that Order 841 "oversteps the limits on the Commission's jurisdiction under the Federal Power Act by interfering in state jurisdiction over retail sales and affecting the ability to preserve distribution system reliability." If FERC rejects rehearing, legal scholars say a case at the D.C. Circuit court is probable.

Those jurisdictional concerns likely combined with other risk factors of market expansion to give Xcel cold feet, said Commissioner Travis Kavulla, a Montana utility regulator and former president of the National Association of Regulatory Utility Commissioners.

"It probably is a sense that when you join an RTO, you go from being a big fish in a small pond to a small fish in a big pond," Kavulla said, pointing out that FERC often asks for action from RTOs that it does not demand from other transmission owning entities, like Xcel.

"As a utility in a particular state jurisdiction if I exercise huge suasion in my legislature and state regulatory process I'm going to be pretty innately skeptical to a much more multilateral, multi-state process regulated by people not in my state House but Washington D.C.," Kavulla added.

Correction: A previous version of this post said the SPP staff study measured potential benefits to MWTG members of RTO membership, not existing members of SPP.