Wednesday, March 26, 2014——The Environmental and Energy Study Institute (EESI) and WIRES held a briefing on the modernization of the nation’s critical network of high-voltage transmission. Designed and built well before the digital age to serve more localized customer loads, the “grid” is struggling to support active and increasingly competitive wholesale power markets that now operate regionally. It is often congested or inadequate to deliver domestic energy resources that are not close to customers. Its aging facilities have acknowledged weather and cyber vulnerabilities. Moreover, the planning and regulation of this fundamental infrastructure is complex, often uncoordinated, and slow to produce results. However, despite the combined effects of the recession and greater energy efficiency, the grid will be called upon to serve 30 percent more electrical demand over the next two decades.
Modern transmission is the fundamental enabler of competition, new technologies, and our high standard of living. Upgrading and expanding the system is a priority. Transmission 201 provided a basic understanding of how the high-voltage system works and then moved to key issues affecting the grid: economic regulation; actual siting and permitting of the facilities; the regional markets that transmission supports; and the range of diverse economic, environmental, and operational benefits that transmission provides to the whole electric system and electricity consumers.
- Laura Manz, Executive Consultant for Smart Wire Grid, gave an introduction to the grid. She explained that voltage is like pressure in a garden hose and that current is the movement of electrical charge. Voltage and current together give you power (the rate at which electricity does work). Energy is the amount of work that electricity can do. Our grid is a 60-hertz, alternating current technology.
- Manz described how the grid can be broken into four components: generation, transmission, distribution, and customers, which are all connected. Generation is fueled by coal, nuclear, wind, gas, biomass, etc. Distribution is the smaller wires on posts down our streets which serve homes and other loads.
- Manz explained that FERC regulates the bulk transmission wires, often between states or across regions. Its authority ends as distribution becomes local or small, or arrives to an end-user, which is when local government steps in to regulate.
- Balancing authorities, system operators, and independent system operators are all terms of art that describe organizations which are like air traffic controllers, moving power through their regions and out into other regions. Manz said the grid is the world’s biggest machine. Direct current (DC) transmission acts like a direct fast track to transmit current quickly. Alternating current (AC) has to go through more places along the way. There is not a lot of DC in the US.
- The United States is interconnected in three regions: Eastern, Western and ERCOT (which is most of Texas). These each operate as their own "machines." Western and Eastern are not tightly tied, and ERCOT is not tied to anything.
- Manz explained that some forms of renewable power make supply less reliable, because wind and solar generate power based on environmental circumstances; e.g., wind turbines generate electricity when wind blows, solar panels generate electricity when the sun shines. On the grid, supply has to match demand exactly. Less reliable supply has led to innovations like microgrids and smart grids.
- Manz concluded by noting that the transmission system has limitations, including thermal limits (too much current will overheat lines) and stability issues (the grid can have large swings in demand). The grid also needs to make allowances for contingencies.
- Judy Chang, Principal, Brattle Group, covered the investment trend in the transmission network, and the benefits of transmission. She said the largest investments in the grid occurred in the 1960s and 1970s. Recently, annual investments have been about $7 to $16 billion, which is quite low compared to historic levels. We’re at the beginning of a wave to replace these now aging investments.
- Chang said there is a growing trend of investment in transmission, which is being strongly driven by the need to handle growing renewable energy power generation; the need to replace and upgrade aging facilities; and Regional Transmission Operator (RTO) planning cycles, which are causing waves of new project approvals. She explained that investment is moderately driven by the need to address load growth and increase reliability; by regulation, especially recent FERC orders and state policies incentivizing investment; and by the need to increase transmission between regions. Load growth rate has decreased due to energy efficiency measures, but growth does continue.
- Chang then broke down the benefits of investment in transmission, from a policy perspective. One benefit of transmission investments are production cost savings, which is the idea that creating a wider transmission network will allow greater competition between energy resources, creating cost savings for customers. Other benefits include increased reliability; generation capacity cost savings; the creation of local jobs; economic stimulation; and project-specific benefits, such as increasing the resiliency of a grid so that it stays up during storms.
- Jeff Dennis, Director of the Division of Policy Development at the Office of Energy Policy and Innovation, Federal Energy Regulatory Commission (FERC), discussed the role of regulation, especially federal regulation, for the grid. FERC regulates under the authority of the Federal Power Act, covering wholesale electricity sales in interstate commerce, interstate electricity transmission, as well as some siting, hydro plant permitting and grid reliability efforts. States regulate retail sales to end users, low-voltage distribution, power plant siting, and resource planning for utilities.
- Dennis explained that regulations are intended to ensure the reliability of the grid system, and ensure that the transmission system facilitates competition. The transmission grid is owned by hundreds of discrete entities, two-thirds of which are investor-owned utilities, and one-third of which are public entities. The type of owner affects what regulation is applied; public entities are generally less regulated.
- Dennis stated that under the Federal Power Act, section 5, FERC regulates interstate transmission rates, terms and conditions of service for public utilities. FERC judges rates by whether they are “just and reasonable.” To determine this, it examines the cost of establishing the service: expenses to operate and maintain the asset, return on equity (how much they are allowed to earn, i.e. what they need in order to attract investors), and return on investment. The “return on equity” part of the equation is complicated and important, and there is no single right answer.
- FERC requires “open access” to jurisdictional transmission facilities, in order to promote competition. FERC has rules that don’t allow discriminatory access to transmission lines, so utilities that own transmission lines can’t favor their own generation sources.
- Dennis discussed Regional Transmission Operators (RTOs) and Independent System Operators (ISOs), which are voluntary, subject to FERC jurisdiction, and ensure independent operation of the grid. The grid used to be largely operated by vertically-operated investor-utilities that controlled access. ISOs and RTOs were introduced to break down the wall of vertical ownership, so that grids can be operated by third parties who aren’t invested in the market, in order to facilitate competition. RTOs and ISOs now operate two-thirds of the grid. The utilities still own the grid, but they turn the control of planning and operations over to the RTO or the ISO. The entities also began to operate markets, and take bids from generators in order to ensure that the most economic resources are used to respond to demand.
- Dennis concluded by saying that as the grid has grown, state and federal regulatory issues have become more complicated.
- Kevin Reeves, Managing Director, American Electric Power, explained that RTOs and ISOs were created by FERC orders 2000 and 888, to facilitate competition among wholesale suppliers, ensure non-discriminatory access to transmission, manage the interconnection of new sources, provide transparency, and plan grid operations to ensure reliability.
- Reeves explained that there are three interconnections (Eastern, Western and ERCOT) and eight North American Electric Reliability Corporation (NERC) regions. NERC regions are charged with maintaining reliability, not managing markets. NERC regions predate RTOs, and NERC is mandatory, while RTOs are voluntary. Many parts of the country do not belong to RTOs, and so it's clear that in many places, the benefits of a RTO are not perceived to be worth the costs. RTOs and ISOs do not follow a standard design, and generally provide a central clearing house for transactions. FERC provides incentives to join.
- Reeves explained that key drivers of new transmission are the development of renewable energy resources, coal generation retirements, and new customer interconnections.
- Reeves described the Energy Power Act of 2005, wherein FERC was given authority to protect the existing grid, but not to order additions. Potential projects are submitted to RTOs/ISOs for modeling, and if data showed the project would be beneficial, it is approved. Approved projects are eligible for cost recovery. Cost recovery is determined by FERC in accordance with transmission rates. Cost allocation is determined by load in zone, and cost is socialized across all rate-payers. Each RTO approaches cost allocation in a different way. Regional planning and cost allocation are expanding beyond RTOs following the issuance of FERC Order 1000.
- Jack Halpern, Power Sector Leader for Environmental Services at Stantec, began by saying site selection is not a science, it’s an art. One must take into account ecological impacts, local population, etc. This is becoming more important as renewable energy enters the equation, and must often be transmitted from far away. During siting evaluations, there is a need to examine places where installing transmission lines could be made easier by piggybacking on currently existing infrastructure, or by updating aging infrastructure.
- The National Environmental Policy Act (NEPA) can be involved if the line crosses federally-protected lands. Involving NEPA can extend a project’s timeline by around three years (from an average of five years to completion to an average of eight), as environmental impact studies are required. Access roads become a major consideration when building new transmission in untouched areas.
- Coal plant closure is necessitating the retooling of transmission, as coal, which was burned in urban areas, is replaced by more rural renewable energy generation further away.
- Halpern explained that preferences for siting (in order of preference from most desirable to least) is to update an existing line, parallel an existing line, parallel a road, railroad or pipeline, or finally, if necessary, to put down transmission where there are no existing lines. Nevertheless, paralleling something that already exists is not a panacea.
- Eminent domain is a lengthy process, and often requires the state's approval. Some states do not allow eminent domain.
- Dan Belin, Director for Electric Transmission at Ecology & Environment, discussed regulatory authority in terms of recent trends and developments. One of the evolving challenges to developing new resources is the lack of a federal standard. Pipelines, in contrast, have a federal standard, which streamlines their permitting process. At the federal level, authority is piecemeal. If a project crosses federal lands, it comes under the authority of the U.S. Forest Service, the Bureau of Land Management, or the National Park Service. If one requires a loan guarantee, it comes under the authority of the Department of Energy or the Department of Agriculture. Seventy-five percent of states have siting boards and utility commissions. This makes development more difficult.
- Belin explained that the lack of regulatory certainty is a key challenge.
- Jim Hoecker, Counsel to WIRES at Husch Blackwell LLP and former FERC Chairman, concluded that national policymakers need to understand the ramifications of what they are talking about when they design policy for the grid.
- The grid does not reach a lot of new energy resources like wind or natural gas, though it will increasingly need to. We, therefore, need to invest more heavily in the grid over the next 20-25 years.
- Hoecker said Electric transmission is probably the most important thing that you never think about. As the economy and electric grid changes, transmission is necessary. People are often concerned about increased rates due to new transmission projects, but the reality is that transmission is an economic benefit, with long-term positive impacts.
This briefing was the tenth in a series co-sponsored by EESI and WIRES.