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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
Jennings, Strouss & Salmon
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
2
HBPW P21 Decision – Electric Transmission
Why Discuss Transmission in the P21 Decision Process?
Jennings, Strouss & Salmon
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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HBPW P21 Decision – Electric Transmission
What is Electric Transmission?
Jennings, Strouss & Salmon
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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HBPW P21 Decision – Electric Transmission
What is Electric Transmission?
Jennings, Strouss & Salmon 5
345 kv
HBPW P21 Decision – Electric Transmission
A Short History – the Early Days
Jennings, Strouss & Salmon
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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HBPW P21 Decision – Electric Transmission
The Early Days – A Simple System Analogy
Jennings, Strouss & Salmon 7
Note: to make this accurate, the lake has no storage, so pumping must match use
HBPW P21 Decision – Electric Transmission
A Short History – Larger Generators call for Transmission
Jennings, Strouss & Salmon
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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HBPW P21 Decision – Electric Transmission
A Short History - Larger Generators were Built Remotely
Jennings, Strouss & Salmon 9
HBPW P21 Decision – Electric Transmission
A Short History – the Interconnected System Appears
Jennings, Strouss & Salmon
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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HBPW P21 Decision – Electric Transmission
A Short History – the Interconnected System Appears
Jennings, Strouss & Salmon 11
HBPW P21 Decision – Electric Transmission
A Short History – with Complexity Comes Complication
Jennings, Strouss & Salmon
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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HBPW P21 Decision – Electric Transmission
Regional Transmission Overseers – ISOs and RTOs
Jennings, Strouss & Salmon
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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HBPW P21 Decision – Electric Transmission
Regional Transmission Overseers – MISO
Jennings, Strouss & Salmon 14
HBPW P21 Decision – Electric Transmission
Regional Transmission Overseers – MISO
Jennings, Strouss & Salmon
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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HBPW P21 Decision – Electric Transmission
Regional Transmission Overseers – MISO
Jennings, Strouss & Salmon
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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HBPW P21 Decision – Electric Transmission
Regional Transmission Overseers – MISO
Jennings, Strouss & Salmon
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
17
HBPW P21 Decision – Electric Transmission
Regional Transmission Overseers – MISO
Jennings, Strouss & Salmon
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
18
HBPW P21 Decision – Electric Transmission
Regional Transmission Overseers – MISO
Jennings, Strouss & Salmon
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
19
HBPW P21 Decision – Electric Transmission
System Reliability Requirements
Jennings, Strouss & Salmon
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
20
HBPW P21 Decision – Electric Transmission
Bringing it Home – Transmission Considerations for P21
Jennings, Strouss & Salmon
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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HBPW P21 Decision – Electric Transmission
Bringing it Home – Transmission Considerations for P21
Jennings, Strouss & Salmon
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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HBPW P21 Decision – Electric Transmission
Much Redundancy between Holland and External Resources
Jennings, Strouss & Salmon 23
HBPW P21 Decision – Electric Transmission The Greatest Interruption Risk is the HBPW/Transmission Connection
Jennings, Strouss & Salmon 24
HBPW P21 Decision – Electric Transmission
Bringing it Home – Transmission Considerations for P21
Jennings, Strouss & Salmon
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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HBPW P21 Decision – Electric Transmission
Bringing it Home – Transmission Considerations for P21
Jennings, Strouss & Salmon
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.
26
HBPW P21 Decision – Electric Transmission
Bringing it Home – Transmission Considerations for P21
Jennings, Strouss & Salmon
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
27
QUESTIONS AND DISCUSSION
HBPW P21 Decision – Electric Transmission
Transmission Considerations
for the P21 Decision
Jennings, Strouss & Salmon