Tres Amigas wants to take cheap electric power away from hard-working Texas families

February 8, 2010

Michael Giberson

I spent the middle of last week in Austin at the University of Texas-Law conference on wind, solar and geothermal energy law, and as a side bonus got to hear some informal, Austin-based commentary on the Tres Amigas proposal to interconnect the Eastern, Western, and Texas electric grids. It will give you some idea of the thinking in the state capital that I heard the term “Dos Amigas” used more than a few times.

During the pre-conference “fundamentals” discussion, in response to a question that asked whether stronger transmission links to other states would help accommodate added growth in Texas wind power, a current member of the Public Utility Commission of Texas arose from the audience, climbed onto the dais, and took the microphone to say, among other things, “ERCOT is just fine the way it is.” The other main point of his comment was to suggest that the Southwest Power Pool, which has long covered the wind resource rich Texas Panhandle (with relatively weak links elsewhere, but a plan to beef up those links), would ably serve to sell the wind resource out of state while not compromising ERCOT’s jurisdictional status with respect to the feds.

Later in the conference a speaker offered a Texas policymaker’s view: ERCOT has its well-regarded CREZ plan to spend $5 billion on transmission enhancements primarily intended to allow wind generation in far west Texas, central west Texas, and the Texas panhandle to be delivered downstate to consumers in the Dallas, Houston, Austin, and San Antonio regions. If those lines link to Tres Amigas, then the prospect arises that consumers elsewhere will – in effect – “drink our milkshake.” Texas policymakers don’t want other consumers to drink our milkshake, especially after ERCOT consumers spend $5 billion to build there own transmission “straw” into the Panhandle region.  (Yeah, I watched “There Will Be Blood” a week or so ago, hence the milkshake and straw references. The presenter did not use this language.)

Peter Behr, writing for ClimateWire, has a more journalistic report on the debate over Tres Amigas. Behr reports that Occidental Petroleum – a large power consumer within the ERCOT region – has actively opposed the Tres Amigas project in filings at FERC, as has the Texas Industrial Energy Consumers. I haven’t read their filings, but apparently they believe ERCOT power prices will be higher on average with Tres Amigas than without, and as consumers they prefer lower prices.

In my opinion, however, they are more likely to get slightly lower (and somewhat less volatile) prices with better links to the rest of the grid.  That’s the way market expansion usually works.

Tres Amigas posts its FERC filings and related documents on its website. Here are links to a couple of the opposing views filed at FERC.  The “Supplemental Protest of Occidental…” includes the expert witness testimony that Behr discusses in his story:

Not all Texas policymakers oppose Tres Amigas. Member of Congress Randy Neugebauer (R-TX) sent FERC a letter indicating the project would encourage investment in renewable power and urging the Commission to give the project a “fair and deliberate view.”  And, as the ClimateWire story suggests, developers aiming to exploit the extensive power generation potential of the region are strongly behind the project.

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Posted by Michael Giberson

Energy storage on the grid: transmission equipment or market participant? (Again)

January 25, 2010

Michael Giberson

In the wholesale power markets world, commercial energy storage concepts are commonly somewhat of an afterthought. None of the large regional wholesale power markets integrated into transmission operations put too much effort into thinking about energy storage as they developed their market rules.

A part of the problem is that the transmission system and the rules that surround it is set up to move power from generation sources to electrical loads. Grid-connected energy storage devices are something of a hybrid: sometimes act like generators – supplying power – and sometimes act like loads – consuming power. They don’t always fit neatly into traditional categories. Further mixing things up, energy storage can contribute greatly to system reliability, usually treated as a matter for transmission-system based coordination rather than market transaction.

But as commercial-scale energy storage begins to arrive on the scene it has become more important to sort through these issues.

I’m just quoting myself from a post of 14 months ago on the topic of integrating energy storage players into regional power markets.  At the time the case involved American Electric Power’s desire to add a battery storage system as part of a transmission system upgrade in Texas, and a request that the energy storage device be treated as transmission facilities (and therefore have costs recovered through regulated transmission rates) rather than as an energy market participant of some sort.  The PUC of Texas permitted AEP its battery-storage-system-as-transmission-facility.

Last week FERC took initial action on a similar request (link goes to decision; see also FERC news release).  Western Grid Development LLC has proposed installing energy storage devices on the CAISO-managed transmission system and seeks to have its system treated as transmission facilities. The comments and protests filed in response to the Western Grid raise the same concerns heard in the AEP/Texas case.  Some parties object that storage inherently involves participation in energy buying and selling and therefore the systems ought to be energy market participants; Western Grid states that any purchase or sale of energy would be incidental to operation of the system in support of the transmission grid, done only at the direction of CAISO, and net revenues – if any – would be refunded to transmission ratepayers.

In FERC’s decision, it agreed that the facilities could be treated as transmission equipment so long as they are built and operated as described by Western Grid, and so long as the CAISO approves the project as part of the ISO’s regional transmission planning process.  (CAISO, by the way, filed a strong protest in response to the Western Grid request, so I expect Western Grid will have much work to do to gets its project off the ground, even with this preliminary approval by FERC.)

FERC was clear that this decision is limited to Western Grid’s project as proposed and does not suggest any general position on the treatment of energy storage devices on the grid.  In fact no general position may be available, given, as FERC explains, “electricity storage devices …do not readily fit into only one of the traditional asset functions of generation, transmission or distribution. Under certain circumstances, storage devices can resemble any of these functions or even load. For this reason, the Commission has addressed the classification of energy storage devices on a case-by-case basis.”

By the way, a number of the key people involved in Western Grid are also working together on the Tres Amigas project though (I think) no official links exist between the two companies.

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Posted by Michael Giberson

Texas and the Tres Amigas interconnection

January 13, 2010

Michael Giberson

Over the holiday NYTimes.com posted a story by ClimateWire reporter Peter Behr that does a pretty good job of describing the proposed Tres Amigas project (proposing to link the three main electric regions in the U.S. – Eastern, Western, and Texas) and surrounding issues.  Among other things, the story provides a good short summary of the Federal/Texas jurisdictional relationship, which stands as one challenge to success:

The developers have also asked FERC for a second ruling disclaiming jurisdiction over transmission providers that tie into the Tres Amigas lines and in effect, to maintain Texas’ jurisdictional independence. “Clearly, if we don’t the jurisdiction disclaimer, I can’t imagine how we get support for this in Texas,” [Tres Amigas attorney David] Raskin says.

Echoing the state’s Alamo heritage and a tenacious attachment to its independence, Texas’ largest utilities cut their power line connections with other states in 1935, after passage of the Federal Power Act in the New Deal, to keep Washington from asserting jurisdiction over their operations. (Texas had no state regulation of utilities before the 1970s, notes Judge Richard Cudahy of the 7th U.S. Circuit Court of Appeals).

In one famous showdown, a Texas utility — Central and Southwest Corp. — did create a transmission link between its divisions in Texas and Oklahoma to preserve its status as an interstate electric power holding company. At night on May 4, 1976, a technician opened a switch at a CSW substation sending power surreptitiously from Vernon, Texas to Altus, Okla., according to Cudahy’s account of the “midnight connection.”

Since Texas’ other major utilities were linked to CSW, their power was also flowing in interstate commerce. Several hours later, Texas utilities were informed of these events, and two of the largest responded in outrage by severing their transmission ties to CSW, at some risk to the state’s entire grid.

The Tres Amigas petition to FERC says that because energy is converted from an AC wave to a DC electronic pulse and then back into an AC wave synchronized with the receiving grid, the electrons in Texas are not “free flowing” into New Mexico or Oklahoma, preserving Texas’ separation.

The Tres Amigas jurisdictional request submitted to FERC offers more detail (FERC docket number EL10-22-000) and for further background I’d recommend the chapter on the subject by Darren Bush and David Spence in Electric Restructuring: The Texas Story (the book recently published by AEI Press edited by Lynne and Andy Kleit).

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Posted by Michael Giberson

The Benefits of the proposed Tres Amigas interconnection

December 10, 2009

Michael Giberson

Both of the Tres Amigas filings at FERC (see background) provide summaries of the anticipated benefits of the proposed interconnection between the Eastern, Western, and ERCOT interconnections.  Each of the five kinds of benefits listed below seem plausible to me.  While estimating the size of the benefits would require a lot of hard work, given the scale of the project and other generation and transmission projects under consideration for the surrounding area, it seems likely that the benefits will be substantial.

To a degree, of course, the investors in Tres Amigas hope that the project will capture some of the value created in the form of profits.  But to a degree such a project should inherently produce spillover benefits in the form of more efficient energy generation and lower cost provision of reliability services.  (A recent working paper discussing the economic effects of the NorNed interconnection suggests that in the NorNed case the interconnection produced mostly private benefits to the investors. I think there is reason to believe that the Tres Amigas case is different, but the point is worth further examination.)

Here is the version of “The Benefits of Tres Amigas” section appearing in the jurisdictional filing (the version in the transmission rate filing is essentially the same; emphasis added):

Tres Amigas will advance the public interest in several important ways. First, a new power marketing hub will be created in proximity to large amounts of existing and potential renewable generation, providing the developers of renewable (and other) generation expanded markets in which to sell their power. Tres Amigas will permit renewable generation being developed in each of the Eastern Interconnection, ERCOT and WECC to be delivered to markets that are currently only minimally accessible. This will enhance the value of new generation, creating additional incentives for its development. This benefit is particularly important because Tres Amigas will be located adjacent to areas of the country that have been identified as among the most promising from the standpoint of developing renewable wind, solar and geothermal power.

Second, marginal prices for energy in the three interconnections, which typically diverge because the markets are electrically separated, will move closer together, allowing electricity to be produced more efficiently and saving electric consumers large amounts of money. For example, the Petitioner’s studies show that marginal energy prices vary significantly between the Southwest Power Pool (in the Eastern Interconnection), ERCOT and the WECC at this time. Our studies show that energy prices vary by more than $50 per MwH in over 2,000 hours per year between the CAISO and ERCOT, over 1,600 hours per year between ERCOT and the Palo Verde hub, over approximately 1,500 hours per year between SPP and the CAISO, and over approximately 800 hours per year between ERCOT and the SPP. Accordingly, significant opportunities exist to produce power more efficiently.

Third, opportunities will exist to “firm up” intermittent and variable renewable energy by taking advantage of geographical diversity and onsite battery technology at Tres Amigas. Studies have shown that the quality of intermittent and variable renewable energy can be enhanced by aggregating sources from geographic locations that may experience high winds or sunshine at different times. In addition, Tres Amigas will expand the geographic reach of markets generally, offering additional opportunities to take advantage of load and resource diversity.

Fourth, the value of transmission investments made in the regions around Tres Amigas will be enhanced by allowing power to move more freely between the interconnections. Tres Amigas will permit power to move to and from different markets, expanding the potential use of the existing transmission grid and expansions thereto. Tres Amigas should provide system planners new opportunities to improve the efficiency and reliability of the electric system at a lower overall cost.

Fifth, electric system reliability in the area around Tres Amigas will be improved because Tres Amigas will connect the three asynchronous grids at a robust station with back-up power and voltage source converter technology that will provide substantial reactive power to the transmission system in each of the interconnections. This is particularly important because Tres Amigas will be located in a remote area, where a strong source of reactive power is necessary to support both new transmission and new renewable generation. Tres Amigas will allow more renewable generation to be interconnected in this important region and reduce the investment cost associated with transmission development in the area.

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More Tres Amigas interconnection details revealed in FERC filings

December 8, 2009

Michael Giberson

Today Tres Amigas LLC submitted two filings to the Federal Energy Regulatory Commission, one seeking assurance from FERC that linking the ERCOT system to the proposed interconnection project would not subject ERCOT to FERC jurisdiction, and the other seeking authority to sell transmission services at negotiated rates. According to the filings, affirmative answers to both requests are necessary for the project to proceed.

In the jurisdictional request, Tres Amigas said:

The relief requested in this Petition is essential for the Tres Amigas project to move forward. The ERCOT parties with whom the Petitioner has discussed interconnecting with Tres Amigas have made clear that they will not likely obtain approvals in Texas to construct transmission lines to Tres Amigas without this jurisdictional disclaimer, and without an ERCOT interconnection the unique benefits of Tres Amigas will be lost.

In the request for authority to sell transmission services, Tres Amigas said:

Although this filing is styled as a request for negotiated rates, it is in reality a request for authorization to proceed with the Tres Amigas Superstation (“Tres Amigas”). The Applicant cannot realistically use traditional, cost-based transmission service pricing. Cost-based pricing normally applies to transmission providers that have captive customers who bear responsibility for the cost of transmission under an individual or regional open access transmission tariff (“OATT”) or other transmission arrangement.

The Applicant has no captive customers and there is no regional transmission organization (“RTO”) OATT under which the costs of Tres Amigas can be recovered. The beneficiaries of the Tres Amigas project will be in all three interconnections and therefore will be spread over a geographical area that far exceeds the scope of any existing or proposed OATT with cost-based rates. The very purpose of Tres Amigas is to eliminate the barrier created by the current separation of the U.S. transmission system into three asynchronous grids, providing new transaction opportunities across much of the United States.

The risks associated with Tres Amigas also exceed those associated with a typical cost-based transmission project. As discussed in Section VI.A below, the Applicant is taking on the full market risk associated with this project. This risk is unique in that no one has constructed a facility like Tres Amigas before. The economic success of this project will depend on the market’s response to the availability of service through this facility and on the willingness and ability of third parties to construct transmission lines to Tres Amigas, factors over which the Applicant will have virtually no control.

The Applicant has invested two years of effort and considerable expense to develop an engineering solution to a long-recognized transmission system need. Thus far, Tres Amigas has received a positive response from throughout the industry and from public officials. However, if this application is not approved, the Applicant will have no means to recover the $1 billion or more projected initial investment required to design and build Tres Amigas, and the project cannot proceed.

The request for authority to sell transmission service contains extensive discussions concerning the company’s proposed business model.  I anticipate finding time later in the week for a careful review.

[Various other Tres Amigas-related posts here at Knowledge Problem can be found using this search link.]

UPDATE: The Tres Amigas jurisdicational filing is assigned FERC docket number EL10-22; the transmission rate filing is ER10-396.  Comments on both filings are due at FERC on December 29, 2009.

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Posted by Michael Giberson

Tres Amigas project discussed on public radio show

November 20, 2009

Michael Giberson

My most recent 15 seconds of fame*: The Environment Report: The ‘Tres Amigas’ Project. (Or, if you prefer, you can listen to today’s full 4:00 minute news segment.)

In the segment I make the outrageous claim** that the project is located in an area where many renewable power resources will be built.  The Environment Report is public radio news service focused on environment issues, they were interested in Tres Amigas transmission project because it is promoted as a “renewable energy hub.”***

 

*Actually, my part is slightly less than 15 seconds, closer to 12, but fame is generally parceled out in 15-unit intervals and I want it all.  The Tres Amigas segment is about a minute long.

**Actually, I make the relatively obvious observation described, but I’m trying to develop a reputation for outrageous claims in case, later, I want a job hosting a cable news program.

***For more substance on the Tres Amigas project, read the USA Today story, try my guest post at Alt Energy Stocks or see the earlier posts here at KP on the topic.

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Posted by Michael Giberson

Tres Amigas presentation

November 12, 2009

Michael Giberson

Tres Amigas CEO Phil Harris recently gave a presentation about the proposed project to interconnect the Eastern, Western and Texas grids to folks at the Electric Power Research Institute:

Cover page - Tres Amigas presentation - 2009 November

Tres Amigas LLC presentation to EPRI - 2009 November 5

ADDED: Technology Review, “Superconductors to Wire a Smarter Grid,” explains the project with a little more description of the role played by superconducting technology than offered in earlier newspaper accounts (or blog posts).

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Tres Amigas transmission link overview at Alt Energy Stocks

November 11, 2009

Michael Giberson

I put together an overview of the Tres Amigas LLC proposal for Alt Energy Stocks, published today: “Tres Amigas Proposes Three-way Transmission Link.”  (Tres Amigas proposes to build a three-way transmission link between the Eastern Interconnection, the Western Interconnection, and the Texas Interconnection.)

The only company mentioned in the summary with a stock trading somewhere is AMSC.  The Tres Amigas project has been promoted as aiding the development of renewable power sources.  The combination apparently qualifies the discussion for posting at Alt Energy Stocks.  (Thanks Tom.)

The project should facilitate trade (of all kinds of power) among the three areas, reducing price volatility and lowering average wholesale prices overall.  Since it is proposed as a merchant transmission facility, without electric ratepayer money at risk, there is almost no downside to consumers from the project.

NOTE: Link to related Tres Amigas posts at Knowledge Problem.

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Posted by Michael Giberson

Market designs for Tres Amigas: How about trilateral market coupling?

October 21, 2009

Michael Giberson

More thoughts on economic issues related to the Tres Amigas project, an ambitious proposal to connect the Western, Eastern, and Texas electric grids via a three-way high tech transmission link located in eastern New Mexico. (Earlier: Tres Amigas intro and Economics for …).

Europeans have had several years of experience connecting separate national power markets via transmission links, and years of experience with inefficient use of those links.  Problems in inefficient use arise in part due to the difficulty in coordinating power transactions with matching transmission transactions.  The current best solution to the problem has been to employ a concept of “market coupling.”

The APX Group, Belpex, and Powernext jointly operate a trilateral market coupling process for France, Belgium, and Netherlands.  APX explains the market coupling process on its website:

Market coupling is a mechanism used to integrate electricity markets in different physical areas while requiring minimal changes to the local arrangements. Market coupling replaces a two-step process: a daily explicit auction of transmission capacity followed by the day-ahead energy markets. Market coupling integrates transmission allocations and energy trading, removing many of the inefficiencies at the day-ahead stage.

Market coupling allows exchanges to remain separate legal entities with individual trading platforms, contracts and clearing; a single regional market is created by optimising the use of the already existing transmission capacity.

There’s more (including a 28-page Trilateral Market Coupling Algorithm Appendix for the interested reader), but in short the neighboring power exchanges share information about the bids and offers submitted to each during the day-ahead market and then adjust their individual clearing of bids and offers such that power flows from low-cost to high-cost areas and the price of power tends to be equalized among the areas.  The result is a much more efficient use of the interconnecting links, reduced price volatility, and a reduced cost of producing power over the three-region area.

For a deeper look at market coupling issues: Leonardo Meeus and co-authors have noted that pricing outcomes may not be unique in the market coupling process (i.e. an efficient set of power flows may be consistent with more than one set of possible prices).  In “Market coupling and the importance of price coordination between power exchanges,” Energy, 34:3 (March 2009), Meeus et al. explain market coupling, the possible pricing problem, and how to choose among multiple possible price solutions.

Want more? Searching “market coupling” at Google Scholar yields several hundred results.

I also wanted to look at Derek Bunn and Georg Zachmann, “Inefficient arbitrage in inter-regional electricity transmission,” Journal of Regulatory Economics, forthcoming.  The pre-print is available online for JRE subscribers, but my institution is not a subscriber so I don’t have access yet. Here is the abstract:

This paper analyzes the efficiency of an explicit ex ante auction for network access to facilitating trade between two separate, but linked, electricity wholesale markets. It is generally assumed that greater regional interconnection will mitigate the exercise of local market power by dominant generators, but we show analytically that when a dominant player has access to a more competitive neighboring market, and is also the lowest cost producer, the exercise of market power becomes attractive and can have negative consumer welfare implications. For an empirical analysis, we use a unique data set of daily company-level flow nominations on the Anglo-French Interconnector (IFA). …We are able to identify evident inefficiencies in the market behavior, for which several explanations, including market power, may contribute.

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External costs of energy production, auditing the Energy Star program, and more

October 20, 2009

Michael Giberson

NewsWatch:Energy puts together a pretty good list of energy links, today noting the National Research Council’s new “Hidden costs of energy: Unpriced consequences of energy production and use.” (Surprise: coal looks bad. But note that much of the harm arises from a small number of coal-fueled generators.  The rest of the coal-burners are not awful.)

Also, a Department of Energy audit of the the Energy Star program “has concluded … that it does not properly track whether manufacturers that give their appliances an Energy Star label have met the required specifications for energy efficiency.” From the New York Times.

NewsWatch:Energy also notes the flare-up at the Texas Energy and Environment blog over informal remarks by the Oncor CEO on the lack of value from restructuring electric power in the state. Later Oncor issued a formal statement by the CEO. The official story: “In the long-run, deregulation – even with the short-run challenges we had – is the best decision Texas could have made.”

Hey, I just noticed that they also linked to my post on the Economics of Tres Amigas. Wow, they really are good at finding the best stuff. :-)

More links at Chron Energy Newslinks 10.20.09.

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