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Transmission Planning: Weighing Effects on Congestion Costs

Planners should focus on more than just meeting NERC reliability standards.

Fortnightly Magazine - July 15 2001

The Federal Energy Regulatory Commission (FERC) envisions a future U.S. electricity industry that will include large organizations to plan and expand regional transmission systems on a broad scale. This shift—from individual utilities seeking to meet the needs of their customers, to regional transmission organizations (RTOs) planning to meets the needs of markets—raises important issues:

1. The Planning Objective (reliability vs. commerce).

2. Alternative Investments (adding local generation or reducing load).

Figure 1: Two regions—A&B—With Similar Gen Resources

3. Effects on Land Use.

4. New Technology (new solid-state technologies permit operation of transmission systems closer to thermal limits).

5. Elusive Data (uncertainty over future load growth and power plant construction makes it difficult to estimate costs and benefits).

6. Congestion Costs (their role in deciding which projects to build).

At the same time, however, transmission expansion has failed to keep pace with changes in electric markets. The historical record shows a clear and long-term decline in United States transmission adequacy. 1 Specifically, the amounts of new transmission added during the past two decades have consistently lagged growth in peak demand. To make matters worse, projections for the next five and ten years show continued declines in adequacy.

Consider this: transmission owners and independent system operators are receiving so many requests for generator interconnections that they have little time for true planning. Instead, they focus primarily on preparing the system-impact and facility studies required for these new interconnections. Many transmission plans today are little more than compilations of individual generator-interconnection studies.

To make matters worse, little information is being developed on how the cost and location of grid congestion affects energy markets. Yet such information clearly is useful. In competitive electricity markets, with generation separated from transmission and system control, congestion pricing can offer valuable information on the potential benefits of new transmission investment. It can help potential investors decide where to locate new power plant units. It also can help load-serving entities decide what kinds of dynamic pricing and load-reduction programs to offer customers in different locations.

As Harvard University professor William Hogan has said, "In the long-run, investment in the grid is undertaken when customers find it economic to reduce these congestion costs and the cost of losses. In this sense, evolution of the grid would be determined by the market. ... [S]ecurity in the long-run is priced and provided through the market for long-run investments to increase generation and transmission adequacy." 2

This process occurred naturally under traditional regulation, when vertically integrated utilities coordinated their transmission and generation