Territorial fights emerge in the interregional transmission plans proposed for compliance with FERC Order 1000.
keys to Transmission and Distribution Reliability
customers and utility shareholders alike.
These two questions are related. And both depend on a third, rarely addressed question: What is the best level of T D system reliability for a utility? Some answers to these questions, and some of the pitfalls of using ill-conceived approaches to the dual questions of allocating scarce resources and addressing aging assets, are addressed below.
Common T D Planning Problems
Before addressing the twin questions of how to definine prudent T D system management and determine how to allocate T D expenditures, it will help to briefly discuss some common T D system planning problems. These include treating individual T D assets as profit centers, relying on bang-for-the-buck measures to allocate expenditures, sweating T D assets, underestimating the likelihood of catastrophic T D failures, and failing to consider reliability tradeoffs adequately. Fortunately, as we will discuss, these problems can be avoided by clarifying T D management objectives and applying more robust analytical methods.
How Profitable Is Your Substation?
Profitability is not a dirty word. Regulatory incentives that encourage utilities to increase profits while improving service quality benefit customers and shareholders alike. But in the T D arena, profitability and, more insidiously, the profit-center concept, has sometimes been extended too far. Trying to define the profitability of individual substations and circuit breakers, for example, is at best fruitless, and, at worst, the type of calculation that can lead a utility to manage its T D assets in a way that damages reliability and, ironically, hurts profits.
The profit-center fallacy stems from what economists refer to as the joint cost allocation problem. A typical textbook example is a steer that provides both meat and leather. It is straightforward enough to determine the total cost to raise the steer, but impossible to uniquely allocate that cost between meat and leather. The same sort of problem arises with a utility's T D system. An individual substation, for example, has no value by itself. Instead, the substation's value arises because it is connected with an entire T D system. If a utility allocates T D expenditures based on the profitability of individual assets, however, the effects of the resulting decisions will be arbitrary. There is no guarantee that the resulting T D system will be more reliable, or even more profitable as a whole.
In our experience, some utilities misallocate T D expenditures because they use bang-for-the-buck measures to allocate budgets. While extracting the most value per dollar spent sounds perfectly reasonable, in practice such approaches have been implemented poorly for a number of reasons, including: (1) reliance only on benefit-cost ratios for spending alternatives; (2) allocating this year's budget based only on this year's costs and benefits, when many projects have implications far into the future; and (3) not considering all of the dimensions of project value. T D projects are undertaken not only to improve reliability, but also to address safety, power quality and even environmental issues.
Bang-for-the-buck methods generally work as follows. First, a utility decides how much money will be available for maintenance and capital improvements on its T D system. The utility then ranks potential expenditures in terms of their benefit-cost ratios