Independent transmission companies have a role in creating public benefit in wholesale competitive electricity markets.
On April 25, FERC conditionally approved formation of TRANSLink Transmission Company, LLC (TRANSLink), a multi-state, multi-utility independent transmission company (ITC) that will operate in the Southwest, Midwest, and upper Midwest in the United States. TRANSLink will be an ITC under the combined Midwest Independent Transmission System Operator/Southwest Power Pool (MISO/SPP) regional transmission organizations and in a Western RTO covering the Colorado region. To date, there is no approved RTO in the Western region that TRANSLink serves. TRANSLink intends to use the same model in the West.
The purpose of this perspective article is to expand upon the FERC and DOE's public policy observations. It is directed at the TRANSLink relationship with MISO/SPP, and it describes the four key benefits the hybrid RTO/ITC structure envisioned by TRANSLink provides to electricity customers.
Key Benefit 1: Focus on Transmission as a Business
TRANSLink's primary benefit is that it will promote and, in fact, compel employees to think of the grid they plan and control as a distinct, customer value-added business. Like other owners and operators of infrastructure operations, TRANSLink's sole purpose will be to ensure market access for all suppliers and users of electricity on its system. TRANSLink's success will be measured by its ability to facilitate market transactions, increase transmission infrastructure, reduce the cost of electricity delivered over the bulk power system to customers, and provide a fair return to investors.
Transmission system operators in integrated utilities manage the system to maintain reliability. They often are told they have no role in market development, and certainly are never rewarded for finding ways to increase the level of electricity flowing over the bulk transmission system under their direction.
The experiences in the United States with the natural gas pipeline industry and in nations that have unbundled their electricity industries demonstrate the benefit of creating a distinct transmission business. In the natural gas industry experience in the United States, the public has benefited through infrastructure investments in gas transportation that reduced delivery costs nationwide.
In England, through National Grid, there have been both increases in investment and significant reductions in the costs caused by congestion.
The hybrid RTO/ITC relationship affords customers the advantage of an ITC with the business focus of strengthening and growing the transmission infrastructure, without creation-of-seams issues. For this reason, forming ITCs such as TRANSLink in the United States will create incentive to increase transmission investment and the climate for the same type of consumer advantages enjoyed by gas customers in the United States and electricity customers in the United Kingdom.
Key Benefit 2: System Planning and Expansion
Under the hybrid RTO/ITC relationship, MISO/SPP and TRANSLink are responsible for system planning within the TRANSLink footprint. Under the protocol developed by TRANSLink and MISO/SPP, TRANSLink will develop expansion plans for its footprint, and MISO/SPP will coordinate the plans as part of a regional planning process. However, MISO/SPP does not construct or own transmission infrastructure. Therefore, financing, siting, and constructing transmission within TRANSLink's footprint are left exclusively to TRANSLink. Under the current state of industry restructuring, we think this is the best situation.
Joint planning is essential. The best expansion plans in the world will remain just that if they are not implemented. By ensuring that TRANSLink as an owner and operator leads the planning process in its region, the process ensures that the least-cost system solutions will be explored and implemented. Siting and land acquisition are significant costs of grid expansion. Since TRANSLink will be accountable for construction and grid investment and will derive income from timely grid expansion, it has an incentive to explore and promote alternatives that are the easiest and least expensive to implement.
Key Benefit 3: Efficient and Cost-Effective Operations and Maintenance
A large part of the transmission business is in the control system operations that maintain and preserve short-term reliability and employee safety. System control operators are responsible for managing and monitoring the grid on a near-term and real-time basis and developing and directing the operating guidelines and switching rules that preserve reliable and safe operations. Under the FERC order, TRANSLink also will be responsible for scheduling transactions over its system and will provide certain ancillary services.
At TRANSLink, these short-term reliability functions will be performed or, in the case of the public power entities, directed by TRANSLink to ensure independence. TRANSLink's operations will be subject to the oversight of MISO/SPP as the super-regional reliability coordinator to ensure that TRANSLink's operations do not impair reliability on neighboring systems, and vice versa. MISO/SPP also will provide oversight of TRANSLink's operating protocols and will be responsible for supplying ancillary and congestion management tools necessary to enable the market. As in the case of planning and expansion, this functional split will allow TRANSLink to retain significant control over the grid it owns and operates, which is in the public interest.
Perhaps the best example of how an ITC promotes efficiency is TRANSLink's proposal to consolidate five of seven control areas currently in its region into one. Control area consolidation is cost effective and efficient in several respects. First, by expanding its control area, TRANSLink will increase the size of the energy-balancing region of the generation and load it serves. This will promote greater generator diversity, increase reliability, maximize useful transmission capacity and facilitate Standard Market Design.
Key Benefit 4: Product and Service Innovation
In its FERC filing, TRANSLink proposed an innovative rate design that addresses many of the cost-shifting issues that have bogged down debate over moving from individual utility to regional transmission tariffs. The FERC has yet to approve that rate-design proposal. TRANSLink's proposed rate design is intended to reflect both the local and inter-regional purposes of the grid and to ensure fair allocation of expansion costs among generators and load. The TRANSLink proposal avoids regional Balkanization by limiting its use to transactions that begin and end on its system, and by providing reciprocity with the MISO/SPP tariff. TRANSLink hopes the FERC will approve its rate design proposal.
As TRANSLink moves forward, it will continue to look for opportunities to add value for its customers. Under the FERC's order, TRANSLink is required to refile its tariff as a MISO/SPP schedule. Like any other business, TRANSLink would prefer its own tariff. Nonetheless, we hope the FERC's acknowledgement of the need to attract investment capital to the transmission business will be reflected in an adequate return on capital and meaningful encouragement of product and service creativity.
In summary, the lesson learned is simple. When told their job is to maintain reliability at lowest cost to captive retail consumers, transmission employees will do that job and do it well. However, if the same employees are challenged to maintain the reliability of the regional grid, to look for investment and operating opportunities that increase regional throughput and to reduce commodity costs-while also producing fair returns to shareholders-they will do those jobs, and do them well! It is time for the industry and regulators to give them a chance.
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