ELECTRIC

TRANSMISSION 101:
How The Grid Works
JANUARY 15, 2009 2 P.M.
210 Cannon House Office Building

FACULTY:
James Hoecker, Counsel to WIRES
Kevin Kelly, Director, Policy Analysis and Rulemaking, FERC
Wayne Galli, Director, Transmission Development,
NextEra Energy Resources (formerly FP&L Energy)
Gregory Ioanidis, Vice President, Business Strategy, ITC Holdings

Presented by WIRES - a national coalition of entities dedicated to investment

in a strong, well-planned and environmentally beneficial electricity high
voltage transmission system in the US.
 Evolving Transmission Grid
Evolving Issues
Before 1920 transmission was not an identifiable asset

By mid-century, transmission was being built to serve local needs

and for reliability and cost control purposes; very little interstate grid
existed

As larger generator plants located farther from load, transmission

expanded, reducing what was needed to serve load

In the 1960s and 1970s, voltages increased, transmission helped

reduce reserves, costs, and blackouts

Transmission integration increased bulk power transactions, market

integration

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 Todays National Grid
Key network infrastructure vital to the nations economy
A nationwide164,000-mile, highly-integrated network of
transmission lines and control facilities, interconnecting over
750,000 MW of generating capacity to millions of customers in
all regions, and 3000 utilities

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This is your fathers electric
systembut it cant stay that way
for long (Sue Tierney, 2008)

The Grid Is the Enabler Of New Technologies and System Innovation.

Primary Benefits of transmission: network reliability, lower costs of
energy/capacity

Strategic Benefits: renewable resource development and integration, lower

GHG emissions, fuel diversity, market power mitigation

Extreme Event Benefits: mitigate impact of multiple contingencies, reduce

price volatility from outages

Secondary Benefits: economic development, new investment, tax base

LBNL, Public Interest Energy Research
(

But transmission Faces Challenges

)

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The Challenges Facing
Transmission Investment
Aging and deteriorating infrastructure
More dispersed sources of generation
Wholesale competition among
generators
Complex bulk power markets
Arrival of the digital economy
Electricity consumption doubled after
1980; consumer electronics increase
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ELECTRIC TRANSMISSION:
Operational Characteristics

Wayne Galli, Ph.D., P.E.

Director, Transmission Development
NextEra Energy Resources

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Objectives
Primary objective is to understand how the power
system* operates in 30 minutes or less with
emphasis on transmission.

Understand the elements of the bulk power system

Understand basic physics and control of the system

Understand the practical limitations to the system

Understand what options exist in overcoming the

limitations and why they are important.

* Note it is the presenters opinion that the power system is the largest, most
complex machine ever designed by humans so this task is monumental 7
Basic Definitions and
Components of the Power
System
9
Basic Definitions

Voltage electrical pressure measured in volts. For

power systems we typically measure in 1000s of volts or
kilovolts (kv)

Current the movement of electrons through a conductor

measured in Amperes (A)

Power Rate at which electricity does work. Measured in

Watts or more typically kilowatts (kW) or megawatts (MW)

Energy The amount of work that can be done by electricity.

Measured in Watt-hours or more typically kilowatt-hours
(kWh) or megawatt-hours (MWh).

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Basic Definitions

Alternating Current AC. Magnitude of

current varies as a function of time. Typical
systems in the U.S. are AC.

Direct Current magnitude of current is fixed.

Some applications of high voltage direct current
(HVDC) in U.S. and elsewhere.

Interconnection a system of generators, loads,

and transmission that are electrically
synchronous.
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Basic Definitions

How much is 1 MW?

1 MW is one million
watts.
1 MW will power 10,000
one hundred watt light
bulbs
1 MW will power about
800 average homes in
North America or about
250 average homes
during the summer in
Phoenix 12
Components of the Grid:
Overview

Source: www.nerc.com

The grid can be broken down in to four main components:

Generation, Transmission, Distribution, and Load
This diagram is a basic overview, but does not truly illustrate the
HIGHLY interconnected nature of the transmission system.

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Components of the Grid:
Generation

Creates electric energy

Generation is fueled by coal, nuclear, wind, gas,
biomass, solar, and hydro.
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Components of the Grid:
Load

Consumer of electric energy

Loads can be smaller than your cell phone hooked to its
wall charger (say 1 watt) or as large as an industrial
facility (in the 10s of millions of watts)
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Components of the Grid:
Distribution

Primary purpose is to serve loads (your house is

connected to a distribution system)
Generally radial (non-networked) in nature
Not used for interstate commerce 16
Components of the Grid:
Transmission

Used to move power long distances from generators to

load with low losses.
Highly interconnected for enhanced reliability
The interstate system for electricity
Traditionally built to enhance reliability for vertically
integrated utilities.
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Now a critical part of the electric markets
Components of the Grid:
Transmission
Unlike highways, pipelines, and telecom, the flow of
electricity can not be routed or controlled. Power
flows via the path of least resistance. This is a
critical difference in how the grid differs from other
transportation mechanisms

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How the grid is controlled
Interconnected Operation

Power systems are interconnected across large

areas. For example, most of North America east
of the Rockies (with exceptions for Quebec and
most of TX) is an interconnection.

Individual utilities within each interconnection

own and operate a small portion of the system (a
balancing area).

Transmission lines known as tie lines connect

the individual utilities to each other.
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North American Grid 230 kV
and above

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3 Major Interconnections
and 8 Regions

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3 Major Interconnections,
8 Regions, 135 Balancing
Authorities

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The Balancing Authority
and System Control
Generating Plant #1

M
M

Control
Center

Generating Plant #2 Customers 24

 Supply Demand Balance:
The goal of the system

Power Imports
Electricity by
Losses Loads Generated
Exports
nature is difficult to
store.
Demand Supply

Supply must equal

demand at any
given instant.

Interconnection frequency needs to be maintained close to 60 Hertz at all

times (for any instantaneous demand).
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Interconnection allows for
reliability and control
August 2003 Blackout example
Southwest Power Pool
8/14/03

60.04

60.02

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Frequency (Hz)

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Time (CDT) 26
Frequency Schedule
Power Flow Across the Grid
Simple bi-lateral transaction
my best attorneys finalized
the contract
Sale from A to B at 4-5 pm of 100 MW

3:40 pm Schedule
100 MW
3:55 pm Confirm
4:00 pm Begin A B
interchange $20/MWh $40/MWh
Seller increases generation
Buyer decreases generation M1 M2
5:00 pm End
Areas A & B may be separated by
Seller decreases generation thousands of miles. Price may be
Buyer increases generation affected by various factors including
transmission congestion
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 Power flow dictated by laws of
physics, not my contract

100 MW A to B
5

F 5 E
10
Contrary to popular
A 5

belief, the power 50 30 5

from A does NOT 15
flow directly 35 35
to B despite my best B D
contract negotiating C 29
skills.
Power flow dictated by laws of
physics typical power
transaction impacts

Service Provided Schedule Impacted Critical Facilities

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System Limitations
System Limitations

Thermal limitations wires have limited

capacity.

Angular Stability disturbances on the system

(switching, contingencies, etc) may cause the
system to become unstable. Think of controlling
a car in an evasive maneuver if your shocks are
gone.

Voltage Stability High demand/loading on

transmission can cause voltages to become
unstable and difficult to control.
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System Limitations
What are the effects

All the aforementioned limitations

are worsened by the lack of
appropriate transmission.

The limitations create CONGESTION

on the system which results in
uneconomic use of generation.
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System Limitations
What are the effects

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Federal, State, and Regional
Regulation
Gregory Ioanidis
Vice President, Business Strategy
ITC Holdings
Transmission Regulation Overview

Transmission can be impacted by a mix of federal, regional,

state, and local rules
Operation
Planning
Siting
Reliability
Ratemaking
Transmission will remain regulated but by whom?
Collectively, transmission-related regulations affect the
ongoing reliability of the system and capacity to add new
generation (particularly renewable sources like wind) to the
overall mix of electricity resources
A robust national electric grid is key to competitive markets

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Transmission Rates (All Markets)

Transmission is a small component of total delivered electricity

cost
Avoiding outages can more than offset investment in transmission
Savings from reduced energy costs associated with transmission
investments that facilitate movement of lower-cost generation to
markets surpass the increases related to the transmission
component
Transmission
Generation
Distribution 7%
65%
28%

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Federal Regulation (All Markets)

A number of federal entities have authority over transmission

related matters depending on location and market structure,
including:
Federal Energy Regulatory Commission
regulation of utility corporate matters, rates for some
transmission owners, wholesale
Department of Energy
policy, data collection and analysis
Department of Agriculture/Forest Service, Department of Interior/
Bureau of Land Management
rights of way and land use management
Federal Utilities
ownership and operation of facilities

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FERC Authority (All Markets)

Federal Energy Regulatory Commission regulates

interstate transmission rates for public utilities
General Ratemaking Principles assure rates and
terms are just and reasonable and not unduly
discriminatory
Driven by embedded system costs, not cost of serving the
next user
Based on cost of service principles
Revenue requirement is the amount needed to cover
operating expenses, taxes, interest, and a reasonable rate of
return

Revenue
Expenses + Return On + Return Of = Requirement

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FERC Authority (cond)

Backstop siting authority for national interest electric

transmission corridors

Monitors energy markets to protect customers from market

manipulation

Authorizes public utility asset dispositions and mergers over

$10MM

Oversees issuance of certain securities

Resolves disputes among market participants

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State Regulation

A number of state entities play a role in transmission issues:

Public Service/Public Utility Commissions (retail rates, siting)
Environmental agencies (land use, siting, environmental standards)
Legislatures
Local Authorities (siting)
States rules and requirements for transmission siting are not uniform
and there are no formal compacts; many states have no siting rules
and may be governed by local authorities
Most states regulate retail electric rates that end use customers pay,
including the collection of transmission revenues
Land use, contracts, corporate matters (e.g., public utility status)
eminent domain are usually under state law
There are entities that are not under state regulation, such as
municipal utilities, cooperative utilities and others

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Reliability Rules

Adequacy + Security = Reliability

North American Electric Reliability Corporation
(NERC) ensures the reliability of the bulk power
system in North America (EPAct 2005)
Authority derived from FERC
Provides educating, training, and certifying of industry personnel
Develops and enforces (with penalties as appropriate)
mandatory reliability standards
Conducts tests of possible scenarios and the effect on the
electric grid

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Organized Markets

Organized markets are managed by regional oversight entities

called Regional Transmission Organizations and Independent
System Operators, created by regional stakeholders in response to
FERCs Orders 2000 and 888 respectively, to:
Facilitate competition among wholesale suppliers
Provide non-discriminatory access to transmission by scheduling and
monitoring the use of transmission
Perform planning and operations of the grid to ensure reliability
Manage the interconnection of new generation
Oversee competitive energy markets to guard against market power
and manipulation
Provide greater transparency of transactions on the system
Some are confined to a single state (ISO); some cross multiple
states (RTO) (terms often used interchangeably)
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Current RTOs/ISOs

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Regional Transmission Organizations
Independent System Operators

Manage and provide a central clearing house for

transactions (transmission and generation) versus
bilateral markets with parties working directly to establish
terms and conditions
Includes allocation of transmission rights, day ahead and
spot market purchases
Participants still negotiate bilateral arrangements as
appropriate for business needs
Replaces less efficient grid management utility by utility
Participation is officially voluntary though FERC provides
incentives to encourage membership
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Regional Planning Process

RTO/ISO planning encompasses the regional footprint; stakeholders

can provide input and advocate positions throughout the process

Project is submitted to RTO/ISO for modeling to evaluate the impact on the

regional system, including costs and benefits

If the data shows the project is beneficial based on the RTO/ISOs established
criteria, it is approved

Approved projects are eligible for cost recovery according to the RTO/ISOs
methodology

Projects may proceed outside the planning process but no cost recovery
through RTO/ISO will be available
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 Bilateral Markets:
Outside of RTOs and ISOs

Kevin Kelly
Director, Policy Analysis and Rulemaking
Federal Energy Regulatory Commission
 Bilateral vs. Organized Markets

Bilateral contract a buyer and seller negotiate directly

and sign a two-party contract to trade electric power.
Outside the RTOs/ISOmainly the Southeast, the upper
Great Plains, and the West outside of California,
wholesale power trades occur through bilateral contracts.
Areas outside RTOs and ISOs are often called bilateral
market areas.
In the RTOs and ISOs, there are both bilateral markets
and organized markets that pool all sellers and buyers.
In the RTOs, FERCs oversight of transmission is stronger
because all transmission owners follow the RTOs or
ISOs transmission policies approved by the Commission.
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Regional Grid Enlargement in
Bilateral Market Areas
Outside RTOs and ISO, there are many types of
transmission owners, only some regulated by FERC.
FERC regulates only wholesale transmission by public
utilities.
One-third of U.S. transmission is not owned by public
utilities nor subject to full FERC wholesale regulation.
States regulate most transmission for retail power sales.
Transmission not fully regulated by FERC includes
transmission owned by public power (governments), by
most cooperatives, and by most of the utilities in Texas.
Outside RTOs and ISO, FERCs ability to promote
coordinated enlargement of the interconnected grid is
weaker than in RTOs and ISOs because its policies to do
not apply to all the owners of the interconnected system.
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FERC Authorities and Rules

Transmission Reliability
FERC implemented EPAct 2005 authority over
transmission reliability.
The new authority is to protect existing grid but not to
order additions.

Regional Transmission Planning

Planning needs to be regional to get some new
generation to distant markets.
FERC requires regional planning by the transmission
owners and operators it regulates.

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Some Obstacles To Carrying Out
Regional Transmission Plans

Cost allocation
A major obstacle to carrying out a regional plan is
deciding Who pays? for it.

Transmission Siting
Local transmission siting can be another obstacle to
realizing a regional transmission plan.
EPAct 2005 gave FERC backstop siting authority in
DOE designated areas.
These areas today are 1) Boston to D.C.
and 2) lower Arizona to greater L.A.-San Diego.

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 Closing
Jim Hoecker
Themes To Think About

The transmission system is:

A massive, highly integrated machine
A basic component of a vibrant economy
Regional in operation
Impacted by many federal, state and local authorities
Essential to delivering remote clean energy resources

Todays challenges to investment:

Planning
Cost recovery
Cost allocation
Siting

Join us for our Policy Discussion in Transmission 102

Coming in February!
Questions? Contact us at
www.wiresgroup.com 53
 Contact Our Faculty
James Hoecker, Counsel to WIRES
jhoecker@helppllc.com

Kevin Kelly, Director, Policy Analysis and Rulemaking, FERC

kevin.kelly@ferc.gov

Wayne Galli, Director, Transmission Development,

NextEra Energy Resources (formerly FP&L Energy)
wayne.galli@NextEranergy.com

Gregory Ioanidis, Vice President, Business Strategy,

ITC Holdings
gioanidis@itctransco.com

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