Daniel Cooper - November 11, 2011

ELECTRIC TRANSMISSION CONSIDERATIONS IN

POWER SUPPLY DECISIONS

Holland BPW P21 Decision:

Internal or External Resources

Jennings, Strouss & Salmon

HBPW P21 Decision – Electric Transmission

Overview of Presentation


Everything you never wanted to know about Electric Transmission in one presentation: If base load generation is the goal, why discuss transmission?

What is Electric Transmission?

A Short History of Electric Transmission

Transmission today – ISOs, RTOs and more

Transmission considerations in electric power supply decisions – local resource or remote resource?

Giving away the ending – transmission considerations are almost certain to be a factor, but unlikely to the major factor in the P21 Decision

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Why Discuss Transmission in the P21 Decision Process?


Electric Transmission can be the means to the end

Think of a roadway. It isn’t where you want to go, but it can get you there

Some generating resources can’t or won’t be placed inside Holland.

For those external resources, electric transmission is needed to deliver the power and energy

Electric transmission can add economic, logistical and administrative considerations that become part of the electric power supply decision

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Electric Transmission is designed to move large amounts of electric energy over long distances

Physically, electric transmission structures and wires are taller and heavier

The operating voltage for electric transmission is higher

This allows the movement of larger amounts of electricity more efficiently

This also requires more equipment to raise the voltage for transmission, then lower it for use by the customer

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Jennings, Strouss & Salmon 5

345 kv


A Short History – the Early Days


At the start of the electric industry, electric transmission didn’t exist

The earliest electric systems were built for towns and cities

The generation and load were close together, so the same lines and voltages (or close to it) could be used to generate and distribute the electricity

This made for a simple system

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The Early Days – A Simple System Analogy


Note: to make this accurate, the lake has no storage, so pumping must match use


A Short History – Larger Generators call for Transmission


Electric loads increased as more areas were served by electric utilities

The electric industry entered a period of positive economies of scale for electric generators – larger plants cost less per kilowatt to build and produced electricity more cheaply than smaller plants

Due to land use, environmental and fuel supply considerations, the larger generators were generally built at sites remote from the loads

This resulted in need for more efficient, higher capacity lines – so electric transmission was built

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A Short History - Larger Generators were Built Remotely



A Short History – the Interconnected System Appears


As electric utilities expanded and more lines were built to connect generators, electric utilities began to interconnect their transmission systems with others

This allowed utilities to support each other when generators dropped off line

This also allowed utilities to make both short term and longer term sales between each other with economic benefits to both utilities and their customers

The interconnection process continued to today’s tightly-interconnected systems

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A Short History – the Interconnected System Appears



A Short History – with Complexity Comes Complication


The creation of the interconnected transmission grid gave substantial benefits, but also created concerns

As utilities began to compete to sell electricity to other than their retail customers, control of transmission became an advantage and a potential competitive tool (or weapon)

The flip side of reliability – just as utilities could help support each other, a collapsing utility system could drag others down

As the network became more complex, a single utility could no longer develop the most effective and reliable transmission system plan

So a broader solution was developed

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Regional Transmission Overseers – ISOs and RTOs


The concerns about discrimination by transmission owners, network reliability, and efficient planning led to a search for regional solutions

The idea of an independent regional transmission entity was one of those solutions

This type of organization is called a Regional Transmission Operator

The Midwest Independent System Operator – MISO – was created as the transmission overseer for Michigan and much of this part of the United States

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Regional Transmission Overseers – MISO





MISO’s original mission was limited to transmission MISO became the Transmission Provider for all of the

transmission customers in MISO’s footprint Even the transmission owners who joined MISO buy transmission

service from MISO for their bundled customers

The transmission owning MISO members agreed to allow MISO to tell them how to operate their systems and collect the transmission revenues In return, MISO pays the transmission owners the costs of owning

and operating their transmission

Then MISO’s mission expanded, affecting generation decisions…

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In following an economic theory on how an electricity market should operate, MISO’s role expanded so MISO moved into the middle of all electric transactions in its footprint

Pragmatically, all electric energy and system support services generated are sold to MISO

All users of electricity buy their needs from MISO, either directly or through their local utility

The only significant exception to this is electricity generated and used within a municipality like Holland

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MISO’s energy market isn’t a cost-based market MISO’s energy prices are based on supplier offer costs which

may not be actual production costs

MISO charges all energy purchasers the marginal (highest accepted offer) cost of energy needed to meet load All suppliers are paid the marginal price, regardless of cost

All purchasers pay that marginal cost

This means a single high-cost generator can (and often does) drive the purchased energy cost far above the actual average production cost of units supplying the energy

Owning a resource can provide a hedge against MISO energy prices

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MISO’s position between Holland’s customers and resources outside of Holland’s system is a factor to consider in power supply decisions

Resources located outside of Holland BPW’s system are subject to administrative and operating requirements that won’t apply to a resource inside of Holland’s system

MISO also charges for transmission losses across its system. Those external losses aren’t a factor for a generator inside of Holland

MISO provides a reliable highway to a broad area, allowing far more generating resource options than available internally

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MISO has proposed a new capacity market and resource requirements program MISO has filed this plan with the Federal Energy Regulatory

Commission (FERC). FERC is considering the plan

One part of MISO’s capacity proposal is to have a potential additional delivery charge for generating resources that are outside of a utility’s home Local Resource Zone

The Local Resource Zone for Holland BPW is lower Michigan

This adds cost risk for Holland for resources outside of Michigan

Until FERC rules on MISO’s proposal, the impact of this factor can’t be quantified

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System Reliability Requirements


There is a body of reliability standards requirements that applies to all entities that affect the bulk electric system (the transmission system)

While the same rules apply to all generating resources, the location of the resource may have an effect on Holland BPW.

A large resource internal to Holland’s system may make Holland BPW subject to additional reliability standards

This depends on many factors and may or may not be a consideration in power supply choices

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Bringing it Home – Transmission Considerations for P21


There are considerations related to transmission that may be factors in the choice of a base load generating resource for Holland BPW

The main positive consideration is that the electric transmission system provides the opportunity to gain access to resources that can’t or shouldn’t be built in Holland This provides an option to obtain additional fuel diversity,

economies of scale through joint ownership arrangements, and access to resources not available locally for whatever reason

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One transmission consideration – reliability - is a very small concern

As shown on the system map, there are many alternative paths for electric power, so line outages generally have little effect

While there have been outages of wide parts of the bulk transmission system, those have been rare, with much effort to see they don’t happen again

The main concern for delivery of external resources for Holland is the loss of the external substation that ties Holland to the bulk transmission system

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Much Redundancy between Holland and External Resources


HBPW P21 Decision – Electric Transmission The Greatest Interruption Risk is the HBPW/Transmission Connection





MISO – the Transmission Provider for this part of the country – is a factor

MISO will likely add some extra administrative costs for resources external to Holland

MISO will add transmission loss costs for resources external to Holland

MISO’s capacity market and resource requirements proposal may add costs for resources outside of lower Michigan

MISO will assure reasonable access to external resources

MISO will make it easy to sell surplus energy from external resources. That may not be true for internal resources

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Bulk electric transmission system reliability considerations may favor external resources

A large generating resource inside of Holland may result in Holland being subject to additional reliability standards requirements

The same is not true for external resources

This area is subject to many other factors that will affect Holland BPW’s reliability standards obligations

The ultimate conclusion on Holland BPW’s reliability standards obligations will determine whether or not they are a factor in the P21 Decision.

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In the end, the impact of electric transmission considerations on the P21 Decision will likely end up being an incremental cost factor difference between internal and external resources

There may also be an incremental external transmission cost difference between different external resources

As an incremental cost factor, electric transmission considerations may sway, but won’t determine, the final decision

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QUESTIONS AND DISCUSSION


Transmission Considerations

for the P21 Decision


Daniel Cooper - November 11, 2011

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