The US Federal Electricity Regulatory Commission has told utilities to submit plans to join regional transmission organizations, or lose the right to sell power in wholesale markets. But the plans have been questioned by some in the industry.
Bonneville Power Authority (BPA), which markets power from federally-owned generating capacity in northwest USA, made clear in a position paper earlier this year that the area’s transmission system was under strain.
The company said, “Since 1987 few transmission lines have been built while system use has increased by 1.7 per cent a year. BPA made incremental additions to reliably use the margin built into its transmission system, but that margin is now gone.
The BPA believes that the introduction of RTOs could push development of transmission lines back by eight to ten years
“The Northwest Power Pool predicts that winter peak loads in the region will grow by 12 per cent between 1998 and 2008, while transmission circuit miles will increase by two per cent.”
BPA was clear that problems have been exacerbated by the recent changes in power markets. The company said, “Deregulation increased the number of transmission transactions as many marketers entered the wholesale power arena. Instead of having a stable number of transactions of large size, as happened before deregulation, the market became unstable and the number of transactions exploded while the size of each transaction was radically reduced.”
Last year, deficiencies in the transmission system along the entire west coast were in the spotlight during the California energy crisis. “California’s energy crisis has spread to the northwest in several ways,” BPA says.
“One way is by increasing system instability generally through increased transmission transactions and uncertainty. Another is through increased use of BPA’s transmission system because system constraints in California have prevented power from southern California being sent directly to northern California. The power has been sent up the direct-current intertie from Los Angeles to BPA’s converter station in The Dalles, Oregon. This power is then converted to alternating current (AC) power and shipped to northern California on the AC intertie that runs down the I-5 corridor.”
Throughout the US, the patchwork of grids that makes up the high-voltage transmission system is under increasing pressure, and the solution of the Federal Electricity Regulatory Commission (FERC) is to abandon development of independent system operators and to require all users to join regional transmission operators (RTOs).
In the new scheme, five nonprofit making limited-liability RTOs will operate all the transmission system. Under FERC’s timetable the RTOs will demonstrate compliance by 2003 and become operational by 2004.
But while plans to develop the US’s cumbersome transmission system have broad support, not all industry members have welcomed the FERC’s lead on the issue.
For and against
BPA’s Ron Rodewald says “FERC’s Order 2000 directs jurisdictional utilities to participate in RTO discussions. It aims to provide open equal access to all users. It parallels FERC’s development of the natural gas market over the last four-five years. And they are watching overseas markets, which have clearly put competitive market pricing as a driver for competitive decisions. They are convinced it will provide more effective delivery. The RTO would make all the operating decisions, although ownership of existing facilities may not change.”
Traditional utilities – those owning transmission lines – have been the most reluctant to join RTOs, because they will lose control over part of their charging structure, and consideration of physical assets has not yet been addressed.
Pure generation and trading companies, as might be expected, have welcomed the shift towards RTOs, as making access to transmission lines is easier and – if not necessarily cheaper – simpler in operation and charging terms.
David Mills, BPA’s trading floor manager, explained some of the problems as they appear in the northwest. “BPA deals with all the transmission and power owners. It is easy enough in our own load area, but near Seattle, for example, we need to sell across three territories. That means paying three times and completing three lots of paperwork.”
Mills says that the RTO system is unlikely to reduce prices as it will carry its own cost. “For us the big benefit of the RTO will be that it is all one entity. It will be much more efficient.” The reason for this is that as electricity is traded across a larger area it has to cross more and more service areas, and it can result in reliability problems.
Mills explains that exports are planned and traded even in the half hour before dispatch, and each is granted a series of ‘tags’ – often tens of tags are required – to cross service areas. “We may find out at minute 28 [ie two minutes before dispatch] that, say, tag 23 has been denied,” he says, and then the dispatch has to be rerouted, and new tags requested along the change of route.
Addressing the issues
Ron Rodewald says, “There is a broad spectrum of support for the RTOs but we must be sure this is the right economic decision. We would like to see a full cost-benefit analysis that includes the costs of establishing these central facilities – for example; providing staff and equipment, and upgrading metering and data communications.”
Rodewald notes that there are also some other issues to be addressed: “For example, will small public customers be sure of access to the high voltage network?” he asks, and if the RTO is focusing on the high voltage/high capacity sector how will it deal with areas where there is a very low population density?
These issues have to be considered, but Rodewald is optimistic about the possibilities of the RTO setup. “Automatic generation control, reserve, frequency control and other services have a value,” he says, “the next step is to be able to market these as products through RTO West and on to other RTOs.”
On the utility side, the region’s Public Utility Pool, a group of public utilities, is adamant that “RTOs are not necessary in the northwest”. It says it will be “easier to address ‘seams’ issues among three western RTOs than to attempt to force distinctly different power systems in the west to come to agreement on a single market design.”
The RTOs are unlikely to reduce costs but they are expected to improve efficiency
The Pool also argues that the high proportion of hydroelectric power, and the area’s load/resource separation, makes the area unsuitable for locational marginal pricing.
The fact that many of the resources in the area are state-owned, the Pool says, will reduce oversight and provide “opportunities for mischief.” The Pool also questions the role of an RTO in planning system expansion.
Developing RTOs may help stabilize the US’s creaking transmission system, and it may solve a perennial problem in the US industry identified by Tony Kilduff, strategic advisor to Seattle Power & Light. “The limits on connection exemplify one of the problems of this industry – the regulatory and deregulatory cycles,” he says. “It tends to cause paralysis, as no one knows whether to invest in generation or transmission.”
Fighting for RTOs
But an issue still unresolved is how RTOs can be reconciled with federal and state authorities. This is already being tested in the Supreme Court. It is deciding whether to uphold a decision in the District of Columbia that FERC should have authority over state transmission assets – a decision that would allow FERC to force competition in retail as well as wholesale markets.
In a separate case, the state of New York – through its Public Service Commission – is arguing that FERC should not have authority to regulate retail sales because such electricity stays within state boundaries and is therefore a state matter.
In the end, similar issues of jurisdiction will have to be addressed in developing the physical assets of the transmission system.
But BPA reminds users that it cannot wait for the RTOs to solve existing problems. It says, “The regional transmission organization [RTO West] is not likely to be functioning before 2004. It takes two to five years for lines to be designed, approved and built. The RTO will take some time to establish its planning function. The alignment of these activities pushes the completion of major new construction out eight to ten years. The region cannot wait that long, because the situation is critical now.”