O Regional Transmission Organizations: A Primer

UW Public Utility Institute Energy Basics Program

October 2, 2012

By Bill Malcolm, MISO

RTO Map

In the U.S., 65% of end users are served by ISOs or RTOs.

In Canada, 50% of consumers are in an ISO.

What do RTOs do?

• Maintain regional reliability– Manage congestion on the grid

• Provide non-discriminatory wholesale transmission access• Operate a wholesale energy market (real-time, day ahead,

reserve market)• Prepare a regional transmission plan each year• Facilitate renewable portfolio standards implementation• Monitor the market

RTO Differences

• Serve one state or province: CA, NY, Alberta, ERCOT (TX)• Formed from pre-existing power pools: All except MISO• Operate (or will operate) a forward capacity market: New

England, PJM, MISO• Regulated by FERC: All except ERCOT• Serves primarily states that allow customers to choose their

retail supplier: ERCOT, PJM, New England, New York• Have regional state committee of state regulators: SPP (SPP

RSC), MISO (OMS), PJM (OPSI), ISO New England

MISO and RTO History

See attached appendix for detail on these FERC orders

History of RTOs - MISO Fast Facts (as of 9/21/12)

• America’s first FERC-approved RTO• Serving 11 states, 1 Canadian province• Peak load 98,576 MW• Generation capacity 131,581 MW• 11,857 MW of wind• 1,928 pricing nodes• 35 transmission-owner members• Based in Carmel, Indiana• Governed by an 8 member board

RTO Critical Deliverables

What RTOs Do• Provide independent

transmission system access• Deliver improved reliability

coordination• Perform efficient market

operations• Coordinate regional

planning• Foster platform for

wholesale energy markets

Implications• Equal and non-discriminatory

access• Regional reliability

improvements• Lower cost unit commitment,

dispatch, congestion management

• Integrated system planning• Encourage infrastructure

investment, facilitate regulatory initiatives

Policy consensus

Cost

alloca

tion and

recove

ry

Robust business

case

Before transmission is built a number of conditions must be met:

• Consensus on energy policies (current

and future).

• A robust business case that

demonstrates value sufficient to support

the construction of the transmission

project.

• A regional tariff that matches who

benefits with who pays over time.

• Cost recovery mechanisms that

reduces financial risk.

Ensuring Valued Transmission is Built

Renewable Portfolio StandardsMidwest Region

• Consensus reached regarding appropriate planning for energy policies.

• Implementation of renewable portfolio standards across the MISO footprint and the work of many stakeholders, spearheaded by the:

• Midwest Governor’s Association

• Upper Midwest Transmission Development Initiative

• Organization of Midwest ISO States Cost Allocation and Regional Planning Group

Types of MISO Transmission Projects & Cost Allocation

Allocation Category Driver(s) Allocation to Beneficiaries

Participant Funded (“Other”) Transmission Owner identified project that does not qualify for other cost allocation mechanisms.

Paid by requestor (local zone)

Transmission Delivery Service Project

Transmission Service Request Generally paid for by Transmission Customer; Transmission Owner can elect to roll-in into local zone rates

Generation Interconnection Project

Interconnection Request Paid for by requestor; 345 kV and above 10% postage stamp to load

Market Efficiency Project Reduce market congestion when benefits are 1.25 times in excess of cost

Distribute to local resource zones commensurate with expected benefit; 345 kV and above 20% postage stamp to load

Baseline Reliability Project NERC Reliability Criteria Primarily shared locally through Line Outage Distribution Factor Methodology; 345 kV and above 20% postage stamp to load

Multi Value Project Address energy policy laws and/or provide widespread benefits across footprint

100% postage stamp to load

* For additional information see Attachment FF of the Tariff at https://www.midwestiso.org/Library/Tariff/Pages/Tariff.aspx

MISO Multi-Value Portfolio Projects

*Total benefit of $7 to $33 billion over a 20-40 year life*Provides benefit cost ratios of 1.8 to 3.0. *Provides annual value of $1.3B vs. cost of $.0.6 B*Total portfolio construction cost of $5.2 billion*Resolves 650 reliability issues*Enables 41 million MWh of wind energy

Monthly Energy Contribution from Wind

976

1,28

0

2,13

1

2,61

2

2,30

0

2,33

9

1,68

6

1,94

2

1,93

0

1,74

3

1,33

9

851

957

124

227

469

542

471

1,062

840

1,181 1,1431,180

1,000

6306871,099

1,506

2,600

3,154

2,771

3,401

2,526

3,124 3,0732,923

2,339

1,4811,644

0200400600800

1,0001,2001,4001,6001,8002,0002,2002,4002,6002,8003,0003,2003,4003,6003,8004,0004,200

Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12

GW

hDispatchable Intermittent Resources (DIR)Non Dispatchable Intermittent Resources (non-DIR)

MISO Wind Utilization *Sum of Hourly ICCP data

*Dispatchable Intermittent Resources (DIRs) allow participation of variable generation such as wind energy to participate in the real-time security constrained economic dispatch process. This allows MISO to order such resources to reduce their output (i.e., dispatch down) thereby mitigating the need for manual curtailments of such generation. **Hourly data.

Wind Energy** as a Percentage of MISO Energy**

2.4% 4.1% 7.0% 8.8% 7.1% 8.7% 6.9% 8.6% 9.5% 7.9% 5.8% 3.2% 4.0%

DIR Energy as a Percent of Total Wind Energy*

11.2% 15.1% 18.1% 17.2% 17.0% 31.2% 33.3% 37.8% 37.2% 40.4% 42.8% 42.5% 41.8%

For More Information on RTOs

• MISO (misoenergy.org)• PJM (pjm.com)• CA (caiso.com)• ERCOT (ercot.com)• New England (iso-ne.com)• NY (nyiso.com)• SPP (SPP.org)• Contact me bmalcolm@misoenergy.org• (317) 249-5426

Appendix

• Key FERC RTO Orders

RTO Regulatory Backdrop

• RTOs were the product of an extensive regulatory backdrop:– Promoting Wholesale Competition Through Open Access Non-

Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Final Rule, 75 FERC ¶ 61,080 (1996)(“Order No. 888”)

– Open Access Same-Time Information System (formerly Real-Time Information Networks) and Standards of Conduct, Final Rule, 75 FERC ¶ 61,078 (1996)(“Order No. 889”)

– Regional Transmission Organizations, Final Rule, 89 FERC ¶ 61,285 (1999)(“Order No. 2000”)

• Atlantic City Electric Co. et al. v. FERC, 295 F.3d 1 (D.C. Cir. 2002)

FERC Order No. 888 (April 24, 1996)

– In Order No. 888, the Federal Energy Regulatory Commission (“FERC”):

• Required public utilities to file open access non-discriminatory transmission tariffs; and

• Permitted public utilities to recover stranded costs.

– Goal of Order No. 888: “Remove impediments to competition in the wholesale bulk power marketplace and to bring more efficient, lower cost power to the nation’s electricity consumers.”

– Order No. 888 encouraged development of independent system operators (“ISOs”)

FERC Order No. 889 (issued April 24, 1996)

– In Order No. 889, FERC:• Required each public utility to implement standards of conduct to

functionally separate transmission/wholesale power merchant functions; and

• Required each public utility to create or participate in an Open Access Same-Time Information System (“OASIS”).

– OASIS: Provides information about available transmission capacity, prices, etc.

– Goal of Order No. 889: “[Ensure] that transmission customers have access to transmission information enabling them to obtain open access transmission service on a nondiscriminatory basis.”

Order No. 2000 (issued December 20, 1999)

– Sought to address certain problems that remained after Order Nos. 888 and 889.

– In Order No. 2000, FERC:• Amended its regulations under the Federal Power Act to advance

the formation of RTOs• Required each public utility to make certain filings with respect to

forming and participating in an RTO• Codified minimum characteristics and functions for RTOs

– Goal of Order No. 2000: “[P]romote efficiency in wholesale electricity markets and ensure that electricity consumers pay the lowest price possible for reliable service.”

FERC Order 1000: Inter-regional planning and cost allocation, new transmission development rules

Regional Planning

•Requirement to create a regional plan

Inter-regional Planning

• Facilitate evaluation of interregional facilities that may address the needs of neighboring regions

Cost Allocation

• Must incorporate a “beneficiaries pay” cost allocation methodology

• Costs cannot be allocated outside the region without external party consent

Federal Right of First Refusal

• Federal ROFR rights must be removed from tariffs

• Regions must create non-discriminatory selection criteria for competing projects/developers