Tangled Network: Transmission or Meter Investments

Dec 23, 2009 - Kate Rowland- Energy Central

Kate Rowland Editor-in-Chief, Intelligent Utility Topic Centers Energy Central

It's as old a debate as the chicken and the egg, and as complicated as the Gordian knot. Should utilities tackle transmission or customers first when making investments in a smarter grid?

On the one hand, it's imperative -- and mandated in several states in their renewable energy portfolios -- to ensure new renewable generation can be added to the grid and transported to urban centers, often long distances away, where it can be used.

On the other hand, the federal money, and the more visible push, is on the other end of the equation: smart meters and demand response scenarios involving the end-use customer are getting a lot of play these days. If utilities can get their customers to use less, then not as much new generation will be immediately necessary. And, while that may decrease revenues to the utility, it may still be in a better financial position by not having to build new generation.

It's a tangled knot, indeed.

And then there's the question of available federal stimulus funding. The matching grant money is focused mainly on smart meter projects, though there has been $750 million in federal loan guarantees for transmission made available through the stimulus legislation.(1)

But even that is a tangled web, if a recent decision by the Public Utilities Commission of Texas (PUCT) is any indication. In August, PUCT agreed with utilities building the state's $5 billion renewable energy transmission network that the "Buy American" provisions of the funding, as well as the mandated construction start of no later than September 30, 2011, made the loan guarantees less appealing, and could increase product costs. As well, all projects receiving such federal funding are required to undergo a major environmental review, making that September 2011 start date pretty unlikely to begin with.

Further, there is a federal funding stipulation, utility executives pointed out, that requires firms to pay a "prevailing wage" in line with what laborers make for similar jobs within the country in which construction is taking place. As the Texas transmission plan spans several countries, this restriction could raise labor costs, and make payroll accounting far more complicated.

"We believe the long-term benefits of getting the project in on time and delivering clean, renewable energy to the market and relieving congestion outweighs the benefits that we might receive from loan guarantees," Oncor spokeswoman Carol Peters told the Dallas Morning News after the PUCT's decision.

"The transmission process doesn't need stimulus funding, federal support -- it needs federal legislation," Michael Morris, American Electric Power's chairman, president and CEO, told participants in an Energy Central webcast on renewables and the smart grid in late September. Siting permissions and the need for a "fair and just and reasonable way of allocating the cost of building these lines" is also necessary, added Monty Humble, vice president and general counsel, Mesa Power Group LLC.

Across the Canadian border in Alberta, the Alberta Electric System Operator (AESO) has been grappling with some of those sticky wickets for years. This spring, it got a little help from the provincial government, which introduced its controversial amendments to Bill 50. The bill argues that transmission falls under the category of critical infrastructure, like hospitals and highways. Under the changes proposed, the bill would enable AESO to take transmission needs applications to the provincial Cabinet for approval, alleviating the requirement, in specific cases, for public hearings on those particular needs applications.

"The intent is to expedite that which AESO needs to have expedited," explained Evan Bahry, executive director of the Independent Power Producers Society of Alberta (IPPSA). IPPSA believes that a robust transmission grid creates flexibility to accommodate whatever fuel technologies may prove economical at any given time, and to ensure that the output of those technologies can flow across the province to meet demand. Further, there has been an argument proffered by ENMAX Corp., an electric utility owned by the City of Calgary, that building the new transmission is opportunistic, rather than critical, as the amount of power flowing over the existing transmission lines has fallen back to 2005 levels. IPPSA, on the other hand, argues that new transmission facilities are needed to serve the province through the next few decades, as the economy and power needs evolve.

Paul D. McCoy, president and chief operating officer of Trans-Elect Development Company, LLC, and the newly elected president of transmission industry coalition WIRES, says the coalition views the fundamental problem facing new transmission projects as one of solving the issue of cost allocation. "We're encouraged, because we're seeing people trying to grapple with this," he said. "But the progress is slow, and it tends to be quite regional in nature. Each regional transmission organization (RTO)/independent system operator (ISO) is trying to grapple with it" within its own jurisdiction.

McCoy points to Texas, again, as an example of a realistic and practical approach to the issue. In that state, which, like Alberta, has the benefit of a single-state jurisdiction, the RTO has made the decision to build transmission to allow renewables to develop. Texas' approach, to build transmission in advance of the wind projects, and to build to the best wind areas, requires advance financial commitment of the wind generators intending to build in those areas.

"The state is being, in my view, pragmatic, and has parsed that $5 billion plan into digestible pieces," McCoy said. And other RTOs are moving in a similar, shared-cost direction with their transmission plans, he said, citing examples such as the Upper Midwest Transmission Development Initiative, a regional transmission planning effort launched in September 2008 by the states of Minnesota, Iowa, Wisconsin, North Dakota and South Dakota to promote investment and cost sharing among the states.

But because transmission planning "occurs in dog years relative to generation," according to Mesa Power's Humble, the chicken-or-egg argument truly becomes more one of chicken AND egg. Both ends of the equation -- transmission and customer -- must be pursued vigorously in terms of utility investment.

And it's obvious, through the sheer number of utility applications for Smart Grid Investment Grant (SGIG) and Smart Grid Demonstration Grant funding made public after August's application deadlines, that utilities are looking at investment in the customer side of the equation, as well.

Scores of utilities who made their funding applications public requested SGIG matching funding for smart grid projects, many targeted at the consumer end of the delivery chain. NV Energy, for instance, requested $138 million in funding to support its advanced service delivery project, designed to integrate customers and the utility through advanced technologies, enabling customers to take ownership of their energy usage. ComEd, too, applied for $175 million in matching funds, in part to deploy additional smart meters throughout its service territory.

Southern Company, on the other hand, is looking at both sides of the equation in its SGIG applications: the company requested $197 million for its advanced metering initiative, while also applying for $165 million to increase automation of its electric transmission and distribution infrastructure.

So, it's not an easy answer, no matter which side of the equation each utility chooses to tackle first. But it's one that's eliciting a lot of discussion. And on that point, everyone's on the same side: they're all "talkin' about an evolution."

Notes:

(1) Another $60 million in stimulus funding for transmission planning was announced on Dec. 18, 2009.

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