Daniel Cooper - November 11, 2011

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Daniel Cooper - November 11, 2011

  1. 1. Holland BPW P21 Decision: Internal or External Resources ELECTRIC TRANSMISSION CONSIDERATIONS IN POWER SUPPLY DECISIONSJennings, Strouss & Salmon
  2. 2. 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 DecisionJennings, Strouss & Salmon 2
  3. 3. HBPW P21 Decision – Electric Transmission 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 decisionJennings, Strouss & Salmon 3
  4. 4. HBPW P21 Decision – Electric Transmission What is Electric Transmission?  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 customerJennings, Strouss & Salmon 4
  5. 5. HBPW P21 Decision – Electric Transmission What is Electric Transmission? 345 kvJennings, Strouss & Salmon 5
  6. 6. HBPW P21 Decision – Electric Transmission 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 systemJennings, Strouss & Salmon 6
  7. 7. HBPW P21 Decision – Electric Transmission The Early Days – A Simple System Analogy Note: to make this accurate, the lake has no storage, so pumping must match useJennings, Strouss & Salmon 7
  8. 8. HBPW P21 Decision – Electric Transmission 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 builtJennings, Strouss & Salmon 8
  9. 9. HBPW P21 Decision – Electric Transmission A Short History - Larger Generators were Built RemotelyJennings, Strouss & Salmon 9
  10. 10. HBPW P21 Decision – Electric Transmission 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 systemsJennings, Strouss & Salmon 10
  11. 11. HBPW P21 Decision – Electric Transmission A Short History – the Interconnected System AppearsJennings, Strouss & Salmon 11
  12. 12. HBPW P21 Decision – Electric Transmission 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 developedJennings, Strouss & Salmon 12
  13. 13. HBPW P21 Decision – Electric Transmission 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 StatesJennings, Strouss & Salmon 13
  14. 14. HBPW P21 Decision – Electric Transmission Regional Transmission Overseers – MISOJennings, Strouss & Salmon 14
  15. 15. HBPW P21 Decision – Electric Transmission 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…Jennings, Strouss & Salmon 15
  16. 16. HBPW P21 Decision – Electric Transmission Regional Transmission Overseers – MISO  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 HollandJennings, Strouss & Salmon 16
  17. 17. HBPW P21 Decision – Electric Transmission Regional Transmission Overseers – MISO  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 pricesJennings, Strouss & Salmon 17
  18. 18. HBPW P21 Decision – Electric Transmission Regional Transmission Overseers – MISO  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 internallyJennings, Strouss & Salmon 18
  19. 19. HBPW P21 Decision – Electric Transmission Regional Transmission Overseers – MISO  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 quantifiedJennings, Strouss & Salmon 19
  20. 20. HBPW P21 Decision – Electric Transmission 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 choicesJennings, Strouss & Salmon 20
  21. 21. HBPW P21 Decision – Electric Transmission 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 reasonJennings, Strouss & Salmon 21
  22. 22. HBPW P21 Decision – Electric Transmission Bringing it Home – Transmission Considerations for P21  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 systemJennings, Strouss & Salmon 22
  23. 23. HBPW P21 Decision – Electric Transmission Much Redundancy between Holland and External ResourcesJennings, Strouss & Salmon 23
  24. 24. HBPW P21 Decision – Electric Transmission The Greatest Interruption Risk is the HBPW/Transmission ConnectionJennings, Strouss & Salmon 24
  25. 25. HBPW P21 Decision – Electric Transmission Bringing it Home – Transmission Considerations for P21  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 resourcesJennings, Strouss & Salmon 25
  26. 26. HBPW P21 Decision – Electric Transmission Bringing it Home – Transmission Considerations for P21  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.Jennings, Strouss & Salmon 26
  27. 27. HBPW P21 Decision – Electric Transmission Bringing it Home – Transmission Considerations for P21  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 decisionJennings, Strouss & Salmon 27
  28. 28. HBPW P21 Decision – Electric Transmission Transmission Considerations for the P21 Decision QUESTIONS AND DISCUSSIONJennings, Strouss & Salmon

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