Congestion Relief

Deck: 

Transmission expansion is only part of the remedy for system constraints.

Fortnightly Magazine - September 2010

Building new transmission across the entire United States is a concept that continues to dominate discussions about the future of electric power. Many believe large amounts of power need to be moved across the country, or that transmission is needed to relieve congested areas, or to make sure enough renewable power is built.

Con Edison supports building new transmission when needed and the increased use of clean energy. Con Edison principally operates in a restructured State—New York—and has divested most of its generation.1 We believe the best way to achieve clean energy is to set an economy-wide price on greenhouse-gas emissions. We also believe that the discussion about transmission must be based on sound evidence so that the most economically efficient solution is reached.

Economic Solutions

Consumers shouldn’t be exposed to unnecessary and unfair costs to build transmission, especially if it isn’t needed for reliability. For example, one of the key features of the recent FERC NOPR on transmission planning and cost allocation is the proposal to consider transmission and non-transmission solutions, a feature that has existed for several years as part of the planning process in New York.2

Moreover, power from the Midwest—even clean renewable power—isn’t necessarily needed to meet renewable energy goals. New York State has its own ambitious clean energy goal, to achieve a 15-percent reduction in electricity consumption by 2015 and to have 30 percent of electric power come from renewable sources by 2015.3 And the state has allocated more than $4 billion to achieve these goals. Con Edison supports these goals, which will require sustained efforts to increase both energy efficiency and renewable power, including the increased use of solar in downstate urban areas where it will have the most benefit, and the potential use of offshore wind. In addition, there’s significant wind potential in upstate New York (i.e., approximately 6,000 MW), and the New York Independent System Operator (NYISO) recently has completed a wind study that shows the need for limited investment in lower voltage transmission facilities in order to make that wind deliverable.4

New transmission isn’t necessarily the only way, or optimal way, to address power flow constraints that can result in increased prices. In particular, recent changes in the natural gas supply outlook and pricing must be considered, especially across the Northeast, where natural gas is the fuel on the margin much of the time and thus the primary driver for the level of electric price congestion.5 As a result of recent increases in shale gas production, the market price of natural gas has dropped significantly and might stay at these new lower levels. Shale gas development repeatedly has been described as a game changer and has contributed to the dissipation of natural gas price differences among regions.6 FERC staff recently reported that the “United States is closer than ever before to being a single natural gas market with congestion limited to a few markets for a few periods during the year.”7

These recent and potentially long-lasting decreases in natural gas prices and congestion could result in significantly reduced electric congestion over the long term. Additionally, as gas becomes the marginal fuel in more places, due to lower prices and the potential implementation of carbon pricing, congestion might be further reduced. New natural gas pipelines also further can reduce congestion by bringing natural gas to local gas-fired generators. This can be the equivalent of electric transmission when natural gas is the marginal fuel that sets the electricity price. This would impact the Northeast, one of the areas that transmission advocates claim is in need of additional transmission. Further, policymakers mustn’t ignore the added benefit of lower gas prices for heating customers, a feature of policy that might be unique to the Northeast with its high concentration of gas heating customers.

New, clean, efficient natural gas generation also can be built in load centers. Approximately 2,000 MW of new generation has commenced operation in New York City over the last nine years, and an additional 550 MW is expected to begin operation sometime next year.8 Older and less efficient generating units in New York City, totaling approximately 1,000 MW, have retired. The new gas plants are at least 25-percent more efficient than existing baseload plants.9

These changes in the natural gas market are especially important in light of the recent Department of Energy 2009 congestion study that identifies the Mid-Atlantic region as a “critical congestion area,” specifically highlighting southeastern New York as the single greatest regional challenge.10 The DOE’s conclusions are based on outdated data and should be revisited in light of more recent studies and changes in the natural gas market.

Recent NYISO studies show there are no reliability needs in New York and that while additional transmission may be beneficial, or useful in some amount, it isn’t a critical need, and not currently justified by the economics.11 As demonstrated by the NYISO study, the consumer cost to relieve congestion can be greater than the congestion itself (see Figure 1). Moreover, natural gas prices continue to change, and will continue to affect congestion. And recent natural gas price forecasts are lower on average than the prices that were used for the NYISO congestion study.

No Panacea

Electric transmission investment must continue, but shouldn’t be regarded as a panacea for achieving all energy goals. Electric transmission facility investments can, and should be, part of future energy infrastructure investments, but examining the overall impact on fuel mix and customer supply costs is an indelible part of the equation. In particular, relief from electric transmission congestion could come more quickly and more cost-effectively from energy efficiency, lower natural gas prices, new gas pipelines, and new efficient natural gas plants.

 

Endnotes:

1. The service area of Con Edison’s subsidiary, Orange and Rockland Utilities Inc., includes New Jersey and Pennsylvania. The small amount of generation owned by Con Edison (totaling approximately 700 MW) is associated with the plants that Con Edison owns and operates as part of its district and heating cooling system that supplies Manhattan.

2. The FERC has taken the first step to requiring more transmission planning in its recently released Notice of Proposed Rulemaking that contemplates building transmission that may be necessary for public policy needs. Docket No. RM10-23-000, 131 FERC ¶ 61,253, Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities (June 17, 2010). Comments on this NOPR were due on August 30, after the deadline date for this article.

3. See NYPSC Case No. 07-M-0548, Proceeding on Motion of the Commission Regarding an Energy Efficiency Portfolio Standard, Order Establishing Energy Efficiency Portfolio Standard And Approving Programs (June 23, 2008); NYPSC Case No. 03-E-0188 - Proceeding on Motion of the Commission Regarding a Retail Renewable Portfolio Standard, Order Establishing New RPS Goal and Resolving Main Tier Issues (Jan. 8, 2010).

4. Presentation on the NYISO wind integration study accessible at http://www.nyiso.com/public/webdocs/committees/bic_miwg/meeting_materials/2010-06-18/NYISO_Wind_Integration_Study_June_18_ Workshop_final_draft_6_14_10.pdf.

5. New York City has had a long standing reliance on clean natural gas, with a prohibition on coal-fired generation since 1972.

6. See FERC State of the Markets Report 2009 (April 15, 2010). Available at http://www.ferc.gov/market-oversight/st-mkt-ovr/som-rpt-2009.pdf.

7. FERC State of the Market Report, notes to slide 13.

8. There’s an additional 512-MW plant that would be located in Bayonne, New Jersey and would be electrically connected to New York City only that is also expected to commence operation in 2011.

9. See, e.g., New York City Energy Policy: An Electricity Resource Roadmap, prepared by the New York City Energy Policy Task Force, at 10 n. 5 (January 2004) accessible at http://www.nyc.gov/html/om/pdf/energy_ task_force.pdf.

10. 2009 Congestion Study, accessible at http://www.congestion09.anl.gov/.

11. The NYISO’s 2009 Economic Planning Study, accessible at http://www.nyiso.com/public/webdocs/services/planning/Caris_Report_Final/CARIS_Final_Report_1-19-10.pdf. The reliability study, accessible at http://www.nyiso.com/public/webdocs/newsroom/planning_reports/CRP__FINAL_5-19-09.pdf. (Figure 1 derived from that study).