Building Blocks for the 5th Power Plan:
Transmission Issues
December 10, 2003 | document 2003-23
Introduction
An electrical power system requires constant, second by second,
balancing of supply, demand, and transmission capability. Transmission
system operators are primarily responsible for maintaining this delicate
balance. Transmission system operations are organized into "control
areas", whose control area operators must continuously balance
electricity demands with electricity generation while keeping power flows
over individual transmission lines within specific limits for system
operating reliability. There are 13 control areas in the Pacific Northwest
U.S. Some control areas, such as Bonneville and PacifiCorp (which has two)
are quite large, and some, such as Grant County PUD, are relatively small.
Failure to maintain control over the transmission system can result in
failure of the entire electrical system as illustrated by the Midwest and
Northeast blackout of August 14, 2003.
The transmission system is operated for two primary objectives, (1) the
security or reliability of the physical system, and (2) the economy of the
system. Thus, from an operational perspective, it is transmission system
operators who are responsible for achieving an efficient, economical, and
reliable power supply. The Council's interest in transmission stems from
its charge under the 1980 Power Act to assure an adequate, efficient,
economical and reliable power supply for the region. Nevertheless, in past
power plans, the Council did not address transmission directly. Instead,
the plans focused on long-term resource adequacy and cost effectiveness.
It was assumed that the incentives for operational reliability and economy
were adequate to assure reliable operation of the regulated system of
vertically integrated utility service areas and that incentives were
sufficient to ensure transmission system expansion if needed.
These assumptions are no longer warranted. The reliability of the
system, which was assumed to be under satisfactory control in previous
plans, is now in question. Further, it has become the case that
longer-term resource adequacy and cost effectiveness no longer solely
depend on Council and utility planning, but also depend to a significant
degree on a well-functioning wholesale power market. The transmission
system is integral to that market and, therefore, has become an important
focus for the Council. The region has experienced the consequences of a
poorly designed California wholesale power market and the Council does not
want to see those experiences repeated.
This paper describes the evolution of the electrical system and the
problems it has caused for the present operation and control of the
transmission system. The paper describes some current efforts to solve
these problems, and proposes some important characteristics that should be
preserved as the region progresses toward a solution.
Description of the Problems
Over the last 30 years, changes in the basic structure of the
electricity sector have created challenges to the traditional operation of
power systems. Changes in the technology of electricity generation
have gradually led to the opening of electricity generation to more
competition and to a weakening of the rationale for monopoly electricity
generation by vertically integrated utilities. New generating technologies
such as combined cycle combustion turbines, cogeneration, wind power, and
geothermal generation tended to be smaller in scale and lower in capital
requirements than the then dominant utility-owned coal and nuclear plants.
The 1978 Public Utility Regulatory Policies Act (PURPA) created a class of
non-utility generators that had the right to sell their electricity to
regulated utilities at prices that utilities would have incurred to
develop their own generation. Ultimately, as technology continued to
improve and electricity generation by independent power producers proved
increasingly competitive, Congress and the Federal Energy Regulatory
Commission began taking actions to further facilitate competition in
wholesale power supply.
Today independent power producers play a significant role in
electricity supply, and these entities have developed most of the recent
and proposed new generating plants. While many independent power producers
were hurt financially in the aftermath of the 2000-2001 electricity
crisis, it would be premature to think they will not be an important
factor in the future. Electricity is and will continue to be bought and
sold in wholesale markets in amounts and patterns not contemplated when
the existing transmission systems and their operational procedures were
put in place. This has created problems in the operation and control of
the transmission system that, if not adequately addressed, threaten the
reliability and economy of the region's electricity supply.
The growth of independent power producers and increased wholesale
electricity trading have become increasingly incompatible with the
traditional electricity system operation by individual control area
operators, usually affiliated with regulated utilities and their
affiliated merchant generators. Issues of how best to manage actual power
flows for reliability and economy have become increasingly troublesome.
Similarly, the problem of planning for and implementing transmission
system expansion has become much more complex. The problem is no longer
only that of a single company linking its generation and loads. The issue
now is how utilities, independent power producers, transmission owners,
load-serving entities and even some consumers can make coherent decisions
about what to build and where to build in a vast interconnected and
interdependent system and the incentive and cost recovery questions raised
by those decisions.
By now the problems facing the regional transmission system as a result
of industry restructuring are pretty clearly understood by parties close
to the issue. In May 2002 the Council issued a paper that described the
problems and discussed possible solutions.[1]
More recently the Regional Representatives Group (RRG) of the RTO West
developed a list of transmission problems and issues that reflects many of
the same problems.[2] The
problems include:
- Difficulty managing unscheduled electricity flows over transmission
lines leading to increased risks to electric system reliability due to
unexpected real-time operational requirements;
- Lack of clear responsibility and incentives for planning and
implementing transmission system expansion leading to inadequate
transmission capacity;
- Inability to monitor wholesale electricity markets, identify market
power abuse or provide mitigation and accountability;
- Difficulty in reconciling actual physical available transmission
capacity with that available on a contractual basis, resulting in
inefficient utilization of existing transmission and generation
capacity;
- Transaction and rate pancaking, i.e. contracting and paying for the
fixed costs of multiple transmission segments on a volumetric basis to
complete a power sale, resulting in inefficient utilization of
generation; and
- Competitive advantage of control area operators over competing
generation owners causing inefficient utilization of generation and
potentially a proliferation of control areas and greater operational
complexity.
Attempting to Correct the Problems
The problems likely to be created by the restructuring of electricity
markets have been recognized for some time. The 1996 Comprehensive Review
of the Northwest Energy System concluded;
Transmission is the "highway system" over which the
products of electrical generation flow. If there is to be effective
competition among generators, transmission facilities should be operated
independently of generation ownership. An independent grid operator (IGO)
regulated by the Federal Energy Regulatory Commission with broad
membership, including Bonneville and the region's other major
transmission owners, is proposed as a means of ensuring independence of
transmission operation and improving the efficiency of transmission
operation. An independent grid operator should also have clear
incentives to maintain reliability and encourage efficient use of the
transmission system.[3]
The Northwest has devoted enormous efforts to trying to find agreement
on changes to the management and operation of the regional transmission
system, first with IndeGO and later with RTO West. However, while there
has been growing consensus on the problems, there has not been agreement
on the solutions. Consequently, there has been little progress in
implementing needed changes to the transmission system. Efforts by the
Federal Energy Regulatory Commission to mandate specific solutions on a
national level have not achieved substantial support in the Northwest and,
have probably exacerbated the impasse.
For a number of reasons, this region should be at some advantage in
adapting to the restructuring of electricity markets. To a greater extent
than most areas, the Pacific Northwest has a long experience with active
wholesale markets, and has a well-developed transmission system to
facilitate them. This experience is due to Bonneville Power Administration
marketing wholesale electricity throughout the region, the location of
much generation distant from loads due to the locations of federal dams
and coal deposits, and active seasonal exchanges and non-firm power sales
to California. At the same time, these factors have created resistance to
the dramatic changes to transmission management proposed by FERC, many in
the region feeling that such large changes are not appropriate for the
Pacific Northwest.
Recently, the Regional Representatives Group (RRG) of the RTO West has
taken some promising steps toward a resolution. The RRG, composed of
members of interest groups in the region, including Bonneville, other
utilities, and regulators has worked collaboratively to identify a
structured, incremental approach to reforming the management and operation
of the transmission system. The proposal identifies a desirable end state,
but relies on incremental and voluntary steps toward that state. A
structured process is defined for agreeing on significant changes to the
system over time. Many details remain to be ironed out, but the process
has potentially moved the region beyond its impasse and begun a
constructive process to resolve the most serious problems. The Council
supports this effort. It is important that the region move ahead to
correct the growing problems in the regional power system.
Characteristics of a Well-Functioning System
There are four characteristics that any successful transmission
operation and management solution must have. In addition, there are a
number of considerations that must be addressed in implementing changes
with broad regional support.
Reliability
The foremost characteristic is that reliable operation of the regional
power system be established and maintained. Central to this characteristic
is a better set of tools for the region's Reliability Coordinator and
movement toward transmission system management based on power system flows
rather than contract paths. Consolidation of control areas will help this
process work better. Any entity that operates a consolidated transmission
system needs to be independent of commercial conflict of interest, but
also accountable to the region.
Efficiency
A second key characteristic is to provide efficient, low-cost
transmission system operation and to facilitate the operation of a
well-functioning electricity-trading platform. This requires a system for
transmission congestion management that promotes least cost solutions
whether they be from generation redispatch, transmission system upgrades,
or demand-side alternatives. Success in this area will necessarily involve
wholesale electricity markets and transmission systems that are open and
accessible to all participants on an equal, nondiscriminatory basis.
Transmission users need to have easy access to information about available
transmission capacity and other market conditions so that all economic
transactions can executed.
Planning and Capacity Expansion
Part of electricity restructuring was the administrative separation of
electricity transmission from generation. The separation was intended to
improve access to the transmission grid for non-transmission owners, but
it also had the effect of undermining an integrated planning process for
both added generation and development of new transmission capacity.
To ensure reliability and efficiency in a restructured environment, policy
planners need to supporta regional, or West-wide forum or organization
with responsibility for a forward-looking assessment of long-term
transmission system requirements and a mechanism to encourage investments
to meet those requirements. This planning needs to consider future
capacity needs in transmission, generation, and demand management and
their possible locations, who will make investments in future capacity,
how the costs of capacity expansion will be recovered, and how adaptable
the system will be to future changes in loads or technology.
Efforts are underway, both westwide and in the Pacific Northwest, to
assess the long-term transmission system capacity expansion needs. The
Seams Steering Group / Western Interconnection (SSG-WI) Planning Work
Group provides a forum for an expansive westwide look at potential
transmission needs over the next 10 years. It is intended to complement
existing WECC reliability and path rating work. The Northwest Power Pool's
Transmission Planning Committee recently form an open-membership group
called the Northwest Transmission Assessment Committee (NTAC). The NTAC "is an open forum to address forward-looking planning and development
for a robust and cost effective NWPP area transmission system"[4].
The NTAC has had initial meetings focused on defining its charter and
approach to the issues.
Bonneville convened a large group of stakeholders beginning in January
2003 to consider how to identify and implement alternatives to
transmission construction. These alternatives include demand side
programs, conservation, distributed generation, and other possible
approaches. Working with Bonneville's transmission business line, this
group is working on screening criteria, pilot projects, funding issues,
and institutional hurdles. The product of this effort should provide an
improved approach to incorporating alternatives into the transmission
planning process.
Market Monitoring and Evaluation
Active market monitoring is important to making the current hybrid
regulated/deregulated energy market work successfully. The transitional
nature of these markets has resulted in vulnerability to poor market
designs, misplaced incentive structures and exploitation of the markets in
unintended ways. The nature of electricity markets, at least for the
foreseeable future, will likely result in cases of significant market
power under tight market conditions. An independent transmission operator
should collect the data necessary to evaluate the market's performance
and report regularly on its competitiveness and efficiency.
Other Considerations: Fairness and Protection During the Transition
As the region struggles toward solutions to transmission system
problems, there are important concerns and policies that need to be
considered, in addition to the aforementioned characteristics, to maintain
fairness and achieve regional support for needed changes in power system
operations.
- To the extent possible, neither the costs of transmission nor the
quality of service should be shifted among current transmission system
users.
- Existing transmission rights should be preserved.
- The ability of utilities to serve their native loads should not be
impaired.
- Electricity markets and transmission system operations should not
impair the benefits from coordinated operation of the Columbia River
Power System.
- To the extent possible, implementation of changes to the management
and operation of the power system should be phased in and maximize the
utilization of existing organizations and equipment to minimize
additional costs.
- Any centralized operator of the transmission system needs to include
a governance structure that provides appropriate checks and balances
and also ensures that the operation and management of the system is
responsive to regional needs.
Conclusion
It is important that the region address the current problems in the
management and operation of the regional transmission system. The problems
are now widely understood. The Council is pleased that the RRG process
appears to have moved beyond regional conflicts over transmission reform.
It is making progress through a collaborative process toward designing
significant improvements to the more serious problems affecting the
transmission system. The Council supports the RRG process and will monitor
its progress toward a transmission system that achieves the
characteristics of a well-functioning power system while fairly preserving
important regional values. The Council will continue to make its staff
available to participate in the RRG process.
[1] http://www.nwcouncil.org/energy/transmission/rto2002_0517.pdf
[2] http://www.rtowest.com/Doc/RRGA_ReformattedList_July292003.pdf
[3] Comprehensive Review
of the Northwest Energy System: Final Report. (96-CR26). December 12,
1996. page 8. http://www.nwcouncil.org/library/1996/cr96-26.htm
.
[4] http://www.nwpp.org/ntac/
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