Electricity Transmission in a restructured industry: What the data show about reliability, investment, prices, access and competition

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Report #: DOE/EIA-0639
Release Date: December 2004

Electricity Transmission in a Restructured Industry:
What the data show about reliability, investment, prices, access and competition.

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Summary

Electricity restructuring is changing the way electricity transmission data needs to be collected and analyzed. Federal law and implementing regulations are causing the most significant change in the U.S. electric power industry since the Great Depression. For more than 60 years the industry was characterized by a structure-utilities serving exclusive franchises-and a regulatory strategy-pricing at average prudent cost of service-that are now changing in fundamental ways.

This report examines how well existing official transmission data inform policymakers about interstate electricity transmission in four areas- reliability, financial performance and investment (transmission investment and rate of return), wholesale power markets and competition-as the industry restructures. The other purpose is to determine whether currently unavailable data could in fact be obtained.

Reliability: Data collections that the Federal Government relies on to monitor reliability have not kept pace with the ascendancy of transmission in a restructuring industry. The Government does not have the electrical models and data necessary to verify that existing and planned transmission capability is adequate to keep the lights on.

Much improvement in the Government's ability to oversee reliability could be achieved by modifying existing data collections as shown in Table 1.

Table 1. Reliability Data: Possible Changes to Existing Forms
Information Need	Form	Needed Changes	Comment
1. High-quality power flow models of existing and planned systems.	FERC 715	1. Identify load buses by MSA.^a 2. Add selected power flow cases of existing system. 3. Model planning data for 1, 3, and 5 years in future. 4. Provide contingency lists. 5. Explain line and voltage violations.	The quality of reporting is uneven. Submissions often do not use EIA/EPA names and contain serious electrical violations.
2. Data on the recent adequacy, security status of control areas. Data to verify power flow models of existing system.	FERC 714	1. Actual hourly demand, generation, inter-control-area power flows experienced in control regions for selected 715 cases (2 above). 2. Experienced line and voltage violations. 3. Use EIA/EPA generator names and same line/bus identifiers as on FERC Form 715.
3. A consistent set of reference reliability plans.	FERC 714, EIA-411, EIA-860	1. Require Forms EIA-411 and EIA-860 data to describe the same plan. 2. Require FERC Form 714 (Part 111, Schedule 2) and Form EIA-411 demand projections to be consistent.	These plans should be the basis for the power flow analyses 1, 3, and 5 years into the future.
4. Monitor potential demand response.	EIA-861	Add a schedule showing annual total megawatthours metered hourly (or higher frequency) and megawatthours billed by time of consumption.	To quantify extent of price responsive demand (see Chapter 5).
5. Investment in metering and control of the high-voltage grid .	FERC 1, EIA-412	1. Adopt NIPA definition of investment. 2. Report investment in metering, communication, software, and control of the high-voltage grid.	See Chapter 2.
^aMSA stands for Metropolitan Statistical Area. An MSA is a geographic entity defined by the U.S. Office of Management and Budget. Qualification as an MSA requires the presence of a city with 50,000 or more inhabitants, or the presence of an Urbanized Area (UA) and a total population of at least 100,000 (75,000 in New England).

Financial performance and investment: Apart from a few "transmission only" entities FERC Form 1, the pre-eminent source of financial data, says little about the economics of transmission. The data do not capture transmission's financial performance, in large part because transmission revenue is bundled with revenue from retail sales and is not separately identifiable. It is not possible to calculate rates of return to transmission or to even know total transmission revenues with existing data.

The "investment" data derived from official data are flawed in at least four ways. Reporters define transmission differently so their data is neither comparable nor can it be summed for a valid industry total. Additions to transmission plant and equipment include expenditures for land and existing assets from others. FERC collects data on a calendar year while EIA's data refer to fiscal years. Finally some investments by merchant generators and transmission companies do not appear to be captured by either FERC or EIA.

The kinds of changes to existing forms that would solve most of these problems are shown in Table 2. However, the problem of bundled revenue streams would remain. Addressing that would require line-of-business reporting-a fundamental change that would be tantamount to introducing a new data collection.

Table 2. Financial and Investment Data: Possible Changes to Existing Forms
Information Need	Form	Needed Changes	Comment
1. Consistent separation of transmission from distribution accounts.	FERC 1, EIA-412	Explicitly define transmission in the same way for all utilities and use that definition in assigning costs, revenues, and net capital.	Current data are an “apples and oranges” mix.
2. Utility investment in the high-voltage grid.	FERC 1, EIA-412	1. Adopt NIPA definition of investment. 2. Report line and associated equipment investment by voltage level. 3. Report investment in metering, communication, software, and control of the high-voltage grid.	Current “additions to plant and equipment” data have very limited use for economic and reliability analysis, although they are important to capital cost recovery.
3. Independent power producer (IPP) investment.	EIA-860	Collect direct connection and grid reinforcement costs from IPPs on EIA 860.	Some of these investments may not be picked up on FERC Form 1. See Chapters 3 and 4.
4. Merchant transmission investment.	EIA-412	Add to the list of respondents and require them to report transmission investments, as defined above, and to fill out Schedules 10 and 11.	Merchant investment and line data are not currently collected.
5. Ancillary service revenues.	FERC 1, EIA-412	Require reporting as proposed by FERC.
6. Re-dispatch costs.	FERC 1, EIA-412	Require reporting.	Only applicable to utilities owning generators. Not necessary for ISOs.
7. Regional costs.	FERC 1, EIA-412	Require reporters to disaggregate cost, revenue, net capital stock, and investment by appropriate region.	This would allow regional cost comparisons.
8. Consistent aggregation.	EIA-412	Adopt FERC definitions (see above) and require reporting by calendar year.	EIA currently allows reporting by fiscal year.

Transmission and Wholesale Markets: Much of the data the Government would need to evaluate the grid's support of wholesale power markets exists, but is either not routinely made available or is inaccessible for policy analyses. NERC'S power flow and curtailment data are not routinely available for government uses. Consolidating, editing and archiving data that are required on individual OASIS sites would substantially improve the government's ability to monitor open access. Outside of the RTOs and ISOs, market prices and associated trade flows do not exist.

Many of the data gaps could be filled by modifying existing data collection forms. Table 3 shows modifications to existing data collection forms that would address those gaps. However, it would require considerable work and ingenuity to estimate spot market like prices and trade flows for areas outside of RTOs and ISOs.

Table 3. Transmission and Wholesale Power Market Data: Possible Changes to Existing Forms
Information Need	Form	Needed Changes	Comment
1. Access time series data by provider.	OASIS	Consolidate, edit, and archive all data required on OASIS in a single database.
2. Transmission service offerings and actual rates.	OASIS	As above.
3. Cost and time required for generator connection.	EIA-860	Report how much generator paid for grid reinforcements, direct (other) connection costs, and the date of the initial connection request.	For newly activated generators, add questions to Schedule 3, Part B, Line 4.
4. Load-serving entity cost and quality of transmission service.	EIA-861	Report percent of supply covered by long-term contracts, percent covered by firm service (or financial transmission rights), transmission service expense, and curtailments (megawatthours) of firm and non-firm service in past year.	Schedule 2, Part B.
5. Generator cost and quality of transmission service.	EIA-906	Report paralleling that of load-serving entities (see above).
6. Congestion costs, trade flows and price differentials.	ISO web sites	ISOs define data elements the same way across ISOs and report data to FERC.	None of this information is available for analyzing the effect of restructuring policy outside the ISOs.

Wholesale competition: The ISOs and RTOs have all the data needed to assess competition within their areas, but outside the ISOs/RTOs the Government does not have the data necessary to monitor and evaluate the competitive status of wholesale markets. The major missing data are prices and corresponding trade flows. As mentioned before, filling those gaps would require considerable effort.

Conclusion: Changing and consolidating existing data collections would greatly enhance the data available to Federal and State Policy makers. The changes would require long-term, coordinated effort across many government organizations.

New collections would be useful to describe wholesale prices and trade flows, congestion, regional costs and revenues, and interconnection-wide reliability management. However, the reality is that new collections often are controversial and have long gestations.

Released: December 2004