Transmission Addendum

Preface to

Wind Energy System Operation and Transmission Issues Related To Restructuring
June 1998

Process

Wind Energy System Operation and Transmission Issues Related to Restructuring is intended to provide an introduction to various utility system and transmission issues that may be of interest to the wind energy community. The National Wind Coordinating Committee (NWCC) commissioned the report in 1995, and most of the report was drafted about the time the Federal Energy Regulatory Commission (FERC) released its landmark Order 888 rule in 1996.

At the time this report was written, only New Hampshire had formally adopted retail electric competition (although it was being debated in California and Rhode Island); the electric power industry was fresh from a grueling year-long debate over Order 888; there was only scattered discussion of transmission owners turning operation of their facilitates to an independent system operator; and there was limited legislative activity concerning electric restructuring in Congress. Now, 18 states have adopted retail competition either by regulatory order or through state legislation; there are ten Independent System Operators (ISOs) in various stages of planning and operation; all FERC-regulated utilities have open access transmission tariffs on file at FERC; and there are 17 congressional bills introduced concerning electric restructuring.

The NWCC is a multi-party organization with representations from utility, environmental, state regulatory, green power marketers, consumer advocacy, state legislative, and federal government organizations, in addition to wind energy companies. To encourage participation and ownership in the many projects sponsored by NWCC, the NWCC operates on a consensus basis, i.e., every member of the NWCC must agree or be comfortable with the themes and conclusions of a report before it is published. For primarily this reason, the release of this report has been delayed to address the comments received and to develop a glossary of terms used throughout the report. The NWCC approved this initial report at its November 1997 meeting in Boston.

The authors have also addressed the topics in this report in more depth in a subsequent forthcoming report. Copies of this report and the draft report were circulated to various stakeholders for review. The Edison Electric Institute, an industry trade association representing investor-owned electric utilities, provided comments on both reports. This addendum is intended to address these comments, the responses of Andrew Brown (one of the three co-authors) of Ellison and Schneider, and to simply note the industry and regulatory developments that have occurred since this report was written in 1996.

Goals and Approach of the Report

In designing the report, the authors discussed the general characteristics of wind energy technologies. They noted that wind is a variable resource--its availability is not always easy to predict in advance and can vary by season. For these reasons, the authors believe that firm transmission, priced on an around-the-clock, take-or-pay basis, may not work well for wind energy absent a robust secondary market for reselling and purchasing available transmission capacity. They also note that the wind resource can be remote from load and/or transmission lines, so proposals to price transmission based on distance, or to charge transmission customers congestion fees if there is congestion on the transmission system, may have negative economic consequences for wind development.

This report was written about the time FERC released Order 888, but before utilities had to file their open access transmission tariffs to FERC. Like many in the electric power industry, the authors believed the filing of individual open access transmission tariffs afforded utilities an opportunity to experiment with their tariffs, and perhaps file new transmission pricing proposals. The authors also noted FERC’s call for a capacity reservation tariff (CRT), and suggested the wind industry follow that initiative closely. The authors themselves proposed an energy-based, "pay for what you use" tariff to allow wind to access transmission when needed, but not be subject to firm, around the clock transmission to be paid for regardless of whether the wind resource is available or not ("take or pay" transmission). As it turned out, transmission-owning utilities closely followed the "pro forma" tariff FERC attached to Order 888, and FERC has yet to act upon its CRT proposal. After the open access transmission tariffs were filed, momentum in the electric power industry turned towards the formation and development of ISOs, and developments and innovations in transmission pricing have occurred in that context.

Areas for Further Discussion

Some issues remained after the exchange of comments between EEI and the authors. The authors noted that if transmission is priced based on the distance of a transmission transaction, and wind is remote from electric loads, then wind would be economically penalized. There was also discussion of pancaked transmission rates in the report, and between EEI and the authors. Pancaking occurs if a transmission transaction involves multiple transmission systems, with the transmission customer paying each transmission owner a full capacity value of the transaction.

EEI noted that the development of single system transmission rates may enhance the efficiency of competitive power markets, but EEI also cautioned that many transmission owners have varying amounts of transmission investments that need to be recovered in transmission rates. In addition, EEI said it is not necessarily supporters of distance-based transmission pricing as the "best" rate design, but do not want to rule it out if it reflects the costs of using a transmission system. Distance-based transmission pricing appears to be a somewhat divisive issue between transmission owners and customers, and it is not in the scope of this project to address this issue in any comprehensive way other than the possible impacts on wind.

Some discussion also occurred over the treatment of losses in a transmission transaction. Generally, a small amount of power is lost over transmission lines, and this amount may increase with distance. Treatment of losses can vary by transaction, but transmission customers often will compensate for losses with "in-kind" energy. If a financial charge is levied for losses, the authors believe the losses may be charged for around-the-clock usage, not accounting for the variable output and seasonal nature of wind. The authors also asserted that a standard number may be used for losses that may not represent the actual losses assigned to a transmission transaction. EEI believes this may reflect a trade-off between specificity (for each transaction) and simplicity (a more standard methodology of assigning losses).

Finally, with regard to ancillary services, the authors state that wind arguably should not face the same requirements for certain ancillary services such as spinning reserve as other generation sources, since wind represents a lower risk of a fuel or generator-related failure that could take the entire capacity of a generating plant off-line instantaneously. Alternatively, the authors believe wind could be viewed as a reduction in system load, which may also justify a reduction in ancillary service requirements. EEI countered that if wind accounts for a relatively large amount of capacity relative to other generating resources, then wind may have to be treated comparable to other resources and be charged for ancillary services to ensure system reliability. The authors acknowledge that if wind has a significant market share in some locations, then wind may impose greater issues for utility system operators. The authors state they "may be guilty of oversimplification" by presuming wind will be generally a small share of overall generating capacity.

Next Steps

EEI has been an active participant in the NWCC since its inception in 1994, and is supportive of wind energy development. EEI emphasized they view their relationship with NWCC as a productive and positive one. The NWCC appreciates EEI’s willingness to provide helpful and constructive perspectives on not only this paper, but all of NWCC’s work products, and the NWCC looks forward to working with EEI in the future.

The dialogue between EEI and the authors of this report illustrate that there could be opportunities for fruitful discussion over such issues as the possible impact of wind energy on system operations, and whether wind has specific transmission needs and issues that are not addressed under current transmission tariffs. While some of these issues are illustrative of the debate between transmission-dependent customers and transmission owners, some may represent specific issues about the interaction between wind energy and transmission.

As the development of wind projects moves into a more competitive world, transmission issues are likely to become more important for wind. Indeed, a number of the recent wind projects are using transmission to transmit wind power, sometimes to multiple parties. Should the NWCC decide to continue work on wind and transmission issues, they may wish to explore issues such as distance-based pricing or the treatment of transmission losses. Alternatively, the NWCC may wish to look at the real-world transmission issues some of the more recent wind projects have faced. Or the NWCC, through the auspices of RESOLVE, may wish to use its consensus-building approach to help "bridge the gap" between the wind industry and transmission owners.

Prepared by Kevin Porter, NREL
June 1998