Daniel Cooper - November 11, 2011

Holland BPW P21 Decision:
Internal or External Resources

ELECTRIC TRANSMISSION CONSIDERATIONS IN
POWER SUPPLY DECISIONS

Jennings, Strouss & Salmon

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 Decision

Jennings, Strouss & Salmon 2

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 decision


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 customer


What is Electric Transmission?

345 kv


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 system


The Early Days – A Simple System Analogy

Note: to make this accurate, the lake has no storage, so pumping must match use


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 built


A Short History - Larger Generators were Built Remotely


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 systems


A Short History – the Interconnected System Appears


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 developed


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 States


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…



 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



 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



 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



 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


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 choices


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
reason



 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


Much Redundancy between Holland and External Resources


The Greatest Interruption Risk is the HBPW/Transmission Connection



 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



 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.



 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


Transmission Considerations
for the P21 Decision

QUESTIONS AND DISCUSSION

Jennings, Strouss & Salmon

Daniel Cooper - November 11, 2011

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