Electric Transmission 101: How the Grid Works

Tuesday, July 9, 2013—The Environmental and Energy Study Institute (EESI) and WIRES (Working group for Investment in Reliable and Economic electric Systems) held a briefing about the operational basics of high-voltage transmission to help explain the complex economic and policy challenges facing the grid in the 21st century.

By delving into the grid's operation and the interstate markets for bulk power it supports, the briefing was designed to provide a foundation for discussions about cost responsibility, land use issues, transmission planning, integration of variable renewable energy resources, and other issues that are becoming more important to the future of the power industry.

• Jim Hoecker, Counsel to WIRES (Working group for Investment in Reliable and Economic electric Systems) and Senior Counsel and Energy Strategist at Husch Blackwell LLP, said that much of the electric grid is 40 to 50 years old. The grid's congestion keeps the price of electricity high.
• Hoecker, who served as FERC Chairman from 1997 to 2001, noted that the current grid is inadequate for the connection of new, rich sources of renewable energy, and its resilience needs to be improved.
• Wayne Galli, the Executive Vice President of Transmission and Technical Services at Clean Line Energy Partners, covered the basics of electricity transmission. He explained that the electric grid evolved using alternating current (AC), but that it sometimes makes sense to use direct current (DC).
• Galli described the grid as composed of four main components: generation, transmission, distribution, and load. He noted that most generation is predominantly thermal in nature: a heat source creates steam that spins turbines to generate energy. Load refers to the equipment using electricity, and distribution's purpose is to serve loads by connecting them to power. Transmission is used to convey electricity over longer distances.
• Galli emphasized that the flow of electricity on the grid is controlled by physics, meaning that it runs along the path of least resistance. Electricity flow on the AC grid cannot be easily routed or controlled.
• Jeff Dennis, Director of the Division of Policy Development for the Office of Energy Policy and Innovation at the Federal Energy Regulatory Commission (FERC), explained that the federal government mainly regulates the interstate transmission of electricity, while states are responsible for regulating in-state distribution and siting. Dennis said that regulation is the foundation for competition.
• Dennis noted that ownership of the grid is fragmented into hundreds of different discrete owners. Two-thirds of the transmission grid is owned by investor-owned utilities; the remaining third is owned by public entities. Much of the transmission grid is operated by third-parties, Independent System Operators (ISOs).
• Dennis discussed the difficulty of setting rates, which must be based on cost and service ratios. Rates need to provide a return on investment to utility companies, but must not be excessive. Regulating rates is part of FERC's responsibility.
• Jay Caspary, Director of Research and Development and Special Studies at Southwest Power Pool, explained that the transmission charge represents about 5-10 percent of a typical person's monthly power bill. He said that doubling investment in transmission could lower the total electric bill by increasing supplier competition.
• Caspary explained that Regional Transmission Organizations (RTOs) are essentially the same as Independent System Operators (ISOs), which were created in response to FERC Orders 2000 & 888 to mitigate market power abuses. ISOs and RTOs use bilateral markets and "organized" markets to buy and sell electricity; in areas without an ISO/RTO, power exchange is only conducted through bilateral contracts.
• Caspary highlighted that the main obstacle to new regional transmission plans is cost allocation. The current wisdom is that whoever benefits from a transmission line pays for it, but measuring who benefits is difficult.
• David Cook, Senior Counsel at the North American Electric Reliability Corporation (NERC), explained that one of the limits of the transmission system is the amount of electricity it can carry at a time. Congestion can occur (when demand for electricity exceeds the amount that can be safely distributed or transmitted), causing operators to shed load in order to keep their system stable. Adding new transmission alleviates congestion.
• Cook warned that though increased interconnectivity is generally a good thing, it can also be dangerous when a problem in one area reverberates into other areas, causing cascading power outages.