Wind power RFP processes* are common enough these days, typically driven by renewable energy mandates placed on utilities. A recent wind power RFP announcement out of Santa Fe, New Mexico, is different. A new company, Chamisa Energy, has initiated an RFP seeking wind power to pair up with a planned compressed-air energy storage (CAES) plant to be developed in Swisher County, Texas. Chamisa has partnered with Dresser-Rand and intends to use their SMARTCAES technology, which it claims can “provide a wide array of electrical services: peaking, intermediate, base load, tolling and ancillary services.”

The RFP says that the CAES project may connect to the ERCOT CREZ lines that will be crossing Swisher County, or it may connect to Xcel’s system in the Southwest Power Pool (SPP), or it may connect to both ERCOT and SPP! This last option would put Chamisa in the interesting position of being able to arbitrage some price differences between the two power markets. (It may raise some of the same jurisdictional barriers that Tres Amigas is facing with its proposed three-way power system interconnection, planned for Clovis, New Mexico. ADDED: But a few existing power plants in Texas are dually connected between ERCOT and utilities in the Eastern Interconnection, so the issue appears manageable.)

The relationship between Chamisa’s CAES project and the Tres Amigas interconnection is interesting. Both companies are headquartered in Santa Fe, New Mexico. The proposed projects are about 90 miles apart, one at the eastern edge of New Mexico and the other directly east, in the middle of the Texas panhandle. Chamisa proposes an energy storage project that may link the two regional power systems; Tres Amigas proposes to build a link for three regional power systems but would have an energy storage component, too. Both aim to facilitate the accommodation of intermittent power resources to the grid by providing storage and other grid reliability services.

Not clear that the business of accommodating intermittent power is big enough for both of them, but maybe that is just “not yet big enough.” Many wind projects are under development in the region, and just waiting for a little more clarity on when and where transmission enhancements will be showing up.

* RFP = “request for proposals”, a common process by which one company invites others to offer to become suppliers.

[Note: This item was originally posted at MasterResource as: "Texas Power Outages: A Preliminary Analysis (Cold snap brings failure--isolated ERCOT an issue)"]

Wednesday morning, ERCOT, the power grid operator for much of Texas, called upon local distribution companies to cut power to blocks of consumers on a rotating basis. The rolling outages were a great hardship the people throughout the region, and have consumers and policymakers wondering what went wrong and what should be done about it. The following is a preliminary analysis based on public data and news reports. A subsequent post will present more details once more complete information becomes available.

In brief, extreme cold weather pushed power demand to very high levels for the winter.  At the same time, 50 of the state’s power plants were offline due to the effects of the cold and several more were undergoing planned maintenance. The combination of very high demand and reduced supply left the ERCOT grid perilously short of reserves.  Some wondered whether wind power was at fault, but wind power contributed about 7 percent of ERCOT’s power during the emergency – about the same as this time last year. Rolling consumer outages were employed to protect the system from failing completely.

No power system is immune to hazards. But policy decisions that increase the likelihood of hazards or multiply the resulting damages ought to be given careful reconsideration. In this case, the choice by Texas policymakers to keep ERCOT isolated from surrounding power systems prevented power companies within ERCOT from accessing excess power capacity elsewhere in the state and in neighboring states.  Other policy issues also are raised by the emergency, but few solutions are likely to be as cost-effective and technically simple to implement as linking ERCOT to its neighbors.

A more detailed examination of the topic follows.

Cold Snap

ERCOT reported that severe weather led to the loss of 50 generation units amounting to 7,000 MW of capacity on Wednesday morning. From news accounts it looks like a few large coal plants failed after water pipes burst. Some natural gas generators found insufficient fuel supplies due to heavy demand for natural gas. Other natural gas generators found their access to fuel curtailed by state rules that give priorities to other customer classes when supplies run short.  In addition, a larger than usual amount of generation was off-line for scheduled maintenance – one estimate put this quantity at about 12,000 MW.

Demand for power was sharply higher on Wednesday morning compared to earlier in the week, reaching over 53,000 MW between 9 AM and 10 AM. The rolling outages eliminated about 3,000 MW of demand during that period, so the true demand for power was nearer 56,000 MW. By comparison, the same hour on Monday saw demand of just 33,500 MW. ERCOT has seen demand at this level in the winter before –last winter the system handled demand of 57,000 MW without incident. The high demand was only a problem because so much generation was offline.

Rolling power outages are a way to limit power demand during emergencies in an attempt to prevent an uncontrolled cascading blackout.  While the rolling outages were controlled, they still impose heavy costs on consumers.  Hospitals and other priorities locations are protected from rolling outages, but schools are not.  Several San Antonio-area schools losing power resorted to busing students to school buildings that continued to have power. Traffic accidents in Austin were attributed to traffic signals being out due to the rolling outages.

ERCOT’s Electrical Isolation

Texas has pursued a policy of isolation for the ERCOT power grid so as to keep the state’s largest utilities subject primarily to state, rather than federal, regulation. Two minor links connect ERCOT and utilities in Oklahoma, but they are of little commercial significance. A small interconnection with Mexico was activated to send power into Texas for a few hours, but cold conditions in Mexico required it to suspend the assistance. The policy of isolation is questioned from time to time, but remains popular with the industry and many state policymakers. While the policy has important benefits, the costs are particularly visible at times of system stress.

In the Southeastern corner of the state, Beaumont was not experiencing outages. The local electric utility, Entergy Texas Inc., is not connected to the ERCOT power grid. If Entergy Texas had excess power capacity on Wednesday morning, they could have sold it east into Louisiana or elsewhere as far as Florida or even Maine. However, even thought the utility borders against ERCOT near Houston, no power could flow to help out the rest of the state.  Nearby CenterPoint Energy had to blackout an average of about 330,000 customers at a time during the emergency.

Amarillo’s Xcel Energy reported operations were running smoothly despite temperatures falling below zero overnight in the region. If the utility had excess power, however, none of it would have been able to reach ERCOT. Like Entergy Texas, Xcel and other utilities in the Panhandle and South Plains are connected into the Eastern Interconnection, which stretches to the Atlantic coast in the east and to Canada in the north. (On Thursday Xcel called upon consumers in the Panhandle to conserve power and natural gas, as heavy demand for gas was temporarily making the fuel harder to obtain.)

El Paso Electric Co. in the western tip of Texas is not connected to the ERCOT grid, but it also implemented rolling outages Wednesday morning after two of its power plants suffered partial shut downs due to the cold. In the case of El Paso, connected by power lines running throughout the western United States, while it worked to bring the generators back online it could seek out supplies from neighboring states of Arizona and New Mexico, or from as far away as Washington or British Columbia.

Other Single State Power Systems

Two other regional power grids are contained wholly within a single state – the New York ISO and the California ISO. The California ISO relies on imports for about a quarter of its annual energy consumption. The New York ISO similarly imports and exports high quantities of power. Only Texas pursues a policy of isolation.

The inter-system trade in power surely lowers the overall cost of electricity for consumers in New York and California. And, despite some high profile exceptions like the August 2003 blackout that spread from Ohio to New York, these interconnections tend to improve the reliability of power systems, too. More relevant for the current discussion, when emergency conditions arise, neighboring power systems can cooperate to help solve the problem.

Where was the Wind Power?

A few rumors bounced around the radio waves and internet forums on Wednesday linking the rolling blackouts to ERCOT’s wind capacity, one rumor even claiming that wind power had dropped to zero.  The rumors were false. News reports indicate that some wind turbines were out of service due to the cold, but the problems appeared not to be widespread. ERCOT spokesperson Dottie Roark said that wind power plants from between 3,500 to 4,000 MW of power during the worst parts of the emergency, about normal for this time of year.

Wind power may have had an indirect effect. The significant investment in wind power capacity may have discouraged some added investment in natural gas or coal powered plants. But given conditions Wednesday mornings, a few additional new thermal plants may not have made much difference. Some existing natural gas generating plants saw their access to fuel curtailed by rules giving higher priorities to other customer categories when supplies become short, other plants were confronted by low pressure in gas pipelines. Additional natural gas plants may have just added to the number of plants without access to fuel. A few of the new coal plants built in recent years were among the plants that were forced out of service yesterday by the cold, key contributors to the problem.

The system needed all of the power it could get. Had more thermal plants been built, at least some of them would have been in service and helpful. Outages would have been moderated a little. Wind generated power was used and useful, but couldn’t be dialed up to produce more during a time of need. Wind power was neither the cause of the problem, nor of any special value in reaching a solution.

Infrastructure Interdependencies a Problem

Emergency actions by ERCOT prevented the generation outages from causing the entire system from failing. ERCOT’s emergency operations seemed to work okay, given the difficult situation. The primary problem on Wednesday was a lack of generator preparation for the extreme cold and the hazards that the weather brought with it. Given those problems, ERCOT probably did as well as it could.

Potential policy problems mostly lay elsewhere. In some cases there were interdependences between the power system and other infrastructure systems that magnified the costs of the rolling consumer outages.  For example, some of the controlled outages idled natural gas pipeline compressor stations, reducing pipeline pressure and hampering the ability of natural gas generation plants to get fuel they needed. Other power plants found their fuel supplies curtailed under natural gas priority rules that were last updated in the early 1970s. While the linkages between the electric power system and the natural gas pipeline system can’t be severed, actions can be taken to make each system a little more robust to problems with the other.

Another example, the power outage left many traffic signals out, so a power system problem added to an already difficult roadway congestion problem. Reports from Austin attributed at least one traffic accident to the loss of power to a traffic signal. Battery backup systems are widely available for traffic signals, and the City of Austin was already planning to begin installing the systems later this year. Other cities should take note.

Perhaps most or all cell phone towers have battery backup power, helping to assure continued lines of communication when power goes out. But one cable company served by El Paso Electric reported intermittent loss of service after its battery backup system was drained from repeated loss of power from the grid. While the loss of mid-day movies and soap operas may not be a serious public policy concern, it isn’t too hard to imagine conditions under which timely dissemination of information about health issues could be critical. Companies in the communications business should consider whether further steps are necessary to make their communication systems robust to failures in supporting infrastructure systems.

ERCOT Interconnecting?

It is entirely likely that, had power companies in ERCOT been linked more substantially to other utilities in the state and utilities in neighboring states, Wednesday’s rolling blackouts could have been completely averted. This conclusion is obviously not enough of an argument by itself to justify reforming the state’s policy of isolating ERCOT. But it may be sufficient to rekindle discussions about the costs and benefits of ERCOT’s electrical isolation.

Connections from ERCOT into to the southeast corner of the state would be valuable, in case of another emergency. It seems a shame for excess power capacity in various corners of the state to be unavailable at times of stress.

But possibly it is the case that Texas can, as the saying goes, have its cake and eat it too. The Tres Amigas project has proposed building a high-tech transmission link that would simultaneously link up the Eastern, Western, and ERCOT interconnections. At full capacity, the project would be capable of supplying up to 5,000 MW of power to the ERCOT grid – more than sufficient to cover Wednesday’s shortfall (assuming sufficient in-state transmission to carry the power).

State regulators and many power industry players in the state are reluctant to support the project, citing a desire to protect the current regulatory status quo. But the Federal Energy Regulatory Commission too has acted to protect the status quo in the past, and has signaled a willingness to continue to protect it should ERCOT link up to Tres Amigas.  Texas policymakers should explore the opportunities available.

Conclusion

Accidents happen, and no power system will be resistant to all challenges. It would be too expensive to build a power system that would never fail. Yet, when failures come, we ought to do our best to learn from them.

No doubt coal and gas-fueled generators across the state are reexamining their readiness for extreme coal weather. I suspect we could survive another severe storm as early as next week, should one come about. By this time next year, ERCOT and the industry will be well prepared to weather another storm like we’ve had this week.

At the same time, we have to consider the ability to respond to the next surprise. Not another storm like we’ve had this year, but something new that Mother Nature will surely toss our way.  Linking up with neighboring power systems would give ERCOT additional resources to draw upon during an emergency.  When policymakers in Austin next reconsider ERCOT’s current electrical isolation, the Tres Amigas plan ought to get the hearing it deserves.

Related Readings

• ERCOT, “Grid situation improving but conservation still needed,” February 2, 2011.
• Jared Fleisher, “ERCOT’s Jurisdictional Status: A Legal History and Contemporary Appraisal,” Texas Journal of Oil, Gas, and Energy Law, Vol. 3, Issue 1 (2008).
• Kate Galbraith, “The Rolling Chain of Events Behind Texas Blackouts,” The Texas Tribune, February 3, 2011.
• Kate Galbraith, “Head of Texas Grid Discusses Blackouts,” The Texas Tribune, February 3, 2011.

UPDATE: WSJ, “Texas Power Outages Cause Natural Gas Shortages In US Southwest,” February 4, 2011.

The Texas Tribune offers an up-to-date overview of the Tres Amigas project. Here is the intro:

Texas has always operated its own energy grid, separate from the two other grids that span the rest of the nation. But a project quietly emerging in eastern New Mexico would curb that independence — and affect energy prices for Texas consumers in ways that remain much in dispute.

The $2 billion project could connect all three grids (eastern, western, and Texas) as soon as 2013. They would meet near Clovis, N.M., just west of the Texas border. The Federal Energy Regulatory Commission has given a preliminary go-ahead to the proposal, known as Tres Amigas, which doubles as the name of the company running it. The federal commission’s chairman has praised it as a “prime example of the creativity and pioneering thinking that our country needs.”

But serious questions remain over whether the project would benefit Texas residents and businesses — whether electricity prices would rise or fall and whether the connections would allow other states to siphon off too much of Texas’ wind power.  (Links in source.)

I’m not convinced that “serious questions remain over whether the project would benefit Texas residents and businesses,” except for the Federal/State jurisdiction issue.  (Discussed here before.)  The general economic and reliability benefits from linking power systems are well demonstrated and not seriously questioned.

The article wraps up with a question to Tres Amigas CEO Phil Harris:

Asked if Tres Amigas would move forward if only two grids — eastern and western — signed up, Harris replied: “Yeah. That’s already proceeding.” Construction of that interconnection should begin next year. But he quickly added that his company was “extraordinarily confident” that Texans would reap economic value from the project. “If there’s no benefit,” he says, “obviously you wouldn’t want to do it.”

Tres Amigas, as seen by their hometown newspaper The Santa Fe New Mexican, “Supersized power hub in southeastern N.M. to link 3 major U.S. grids“:

Phil Harris is masterminding an electricity superhighway — a facility near Clovis that will connect the nation’s three main power grids for the first time.

The Tres Amigas Superstation will link the Western Interconnection, Eastern Interconnection and Texas Interconnection at a point in southeastern New Mexico. It also will provide the transmission capacity that power managers say is needed to handle the renewable energy expected from new solar and wind sources.

The hub will allow energy to flow between the grids via superconductor cables in underground pipelines and AC/DC converters….

One of the problems is the current system for delivering power across the country is complex and separated by region. The lack of connection limits competition in power markets, Harris said. “In the U.S., no one is in charge. We have over 4,000 entities involved with power.”

Those entities include investor-owned utilities such as Public Service Company of New Mexico, 800 municipal power companies, 900 electric cooperatives, renewable energy generators and power traders such as Goldman Sachs. Regulations vary by group. So do power interconnections.

“There’s no way you can get a single decision about what is best for America,” Harris said.

“People are paying more (for electricity) than they should because it is a constrained market,” he added.

Tres Amigas will make the power market more competitive. Harris is banking on it, to the tune of investing $1 million of his own money in the project, he said.

Windpower Monthly has a great article describing changes in the market for transmission capacity between power systems in Europe and the benefits of the changes.  Here is a summary by way of selected quotes, but the full story is worth reading:

Most of the electricity cables connecting Europe were built when electricity systems in each country were monopolised by a single or, at most, a few companies, each operating within their individual monopoly supply areas. Each utility ran its own system and had its own generation backup for emergencies. There was no competitive pressure on the higher costs of such “island” systems since these could easily be passed on to customers who, in those days, had no alternative suppliers that they could switch to.

These interconnectors were built between neighbouring countries’ electricity grids not to enable trading and competition across borders but rather for the utilities to help each other out….  [As the Eurpopean power industry was liberalized] insufficient connection capacity between some of the national electricity networks [emerged as] one of the key problems.  [An] efficient allocation for the scarce interconnector capacity that is available is crucial to make improvements towards an integrated European electricity market.

Before the new [market coupling] system started, transmission capacity available on the two interconnectors was sold to electricity traders in tranches in annual, monthly and daily auctions, called explicit auctions. This happened completely separate from auctioning of electricity with the result that, due to the time lag in buying the transport capacity and the actual time of use, as well as other reasons, inefficiencies occurred.

Transport capacity could be bought ahead of time and hoarded, a form of market abuse. Or transmission capacity was bought for one direction, say from Germany to Denmark, which then turned out to be inappropriate because the price difference between the two was such that the electricity ought to flow in the other direction – from the low- to the high-price zone. In such instances, the electricity did then flow in the wrong direction, contradicting market forces, or not allowing extra capacity to be used – and traders and end users lost out.

Explicit auctions were implemented for interconnectors at most European borders, recounts [EMCC managing director Enno] Bšttcher. “Even though this can be considered as progress compared to the formerly applied first-come, first-served or pro-rata regimes, explicit auctions still have many disadvantages,” he says.

Today, explicit auction methods have become more sophisticated. The fundamental flaw, however, remains: that actual trade of electricity at energy exchanges in the different market areas is separate from transmission capacity, trading leading to market inefficiency. This can be reduced by combining cross-border transmission capacity allocation and electricity trade from one country or market area to another in a so-called market-coupling regime.

Market coupling uses implicit auctioning and focuses on the short term (day ahead), rather than months or a year ahead. The transmission capacity available on an interconnector the next day, as reported by the transmission system operators (TSOs), is matched with electricity bought or sold on the energy exchanges in the two countries involved for delivery the next day, creating a price for the transmission capacity and making it clear in which direction the market requires use of the transmission capacity of the cables.

In effect, market coupling is a charge placed on the power exported or imported between countries when the network interconnector capacity is optimised to reduce congestion.

The result of market coupling is that the interconnected power systems operate more efficiently, benefiting consumers and low-cost producers of power.

As Tres Amigas works out its design for the sale of transmission capacity across the proposed three-way transmission interconnection, market coupling should be among the designs contemplated.

Note that while day-ahead market coupling seems to work well between systems with relatively few interconnecting links, more complex transmission links between systems – say as exists between PJM and the Midwest ISO – may well call for still more extensive coordination. The market coupling principle seems sound, so probably forms an adequate foundation to build upon, but simple day-ahead coordination is likely insufficient. Real-time market coupling, anyone?

In the most recent Energy Journal, Ramteem Sioshonsi has an article examining the welfare effects of the incentives to use energy storage in electric power systems. (“Welfare Impacts of Electricity Storage and the Implications of Ownership Structure,” See volume 31:2 here.) He considers the incentives faced by consumers, generators, and merchant energy storage owners (companies lacking consumer or generator affiliates).

His theoretical analysis demonstrates:

[W]elfare-maximizing storage use benefits consumers while reducing producer profits, [and therefore] will result in consumers and producers having vastly different incentives to use storage from one another and from merchant storage owners.  This is because the three different agent types will use storage to maximize their net payoffs. In the case of consumers this would consist of the sum of arbitrage value and consumer surplus change, whereas producers would maximize the sum of generation and arbitrage profits.  Merchant storage operators, on the other hand, will maximize arbitrage profits only.  Because consumer surplus is enhanced by welfare-maximizing storage use, and since consumers that own storage would not consider the impact of storage use on generator profits, they will tend to have an incentive to overuse storage.  Conversely, because storage use reduces producer profits, generators will have an incentive to underuse storage.

A numerical analysis based loosely on ERCOT system characteristics in 2005 provides further elaboration of the model.

Our numerical example showed that for most reasonable storage device efficiencies merchant ownership of storage is welfare-maximizing compared to the alternatives of consumer or generator ownership….  When storage assets can be divided amongst agent types the socially optimal allocation of storage favors merchants, although some consumer ownership of storage can be beneficial since their overuse of storage can compensate for underuse by merchants.

Sioshonsi observes that as the number of storage operators increases, overall use of storage capability approaches the social welfare maximizing outcome.  This is, of course, the familiar effect of competition in markets on welfare.

Reading this paper I couldn’t help but think of the Tres Amigas proposal, which I think would be the first merchant energy storage project of any significant size if built. (Am I overlooking any large grid-connected merchant energy storage projects?)  While this article was far from an analysis of the welfare consequences of building the Tres Amigas project, it does suggest that the project’s storage capability would offer substantial public benefits.

Sioshonsi only considers use of energy storage to buy and sell energy, but grid-connected energy storage can also be used to provide transmission support services (generally called “ancillary services”).  When energy storage gets built as a transmission-system component and factored into regulated transmission rates, regulations tend to prevent that energy storage from being used for energy price arbitrage.  So, “transmission-system” energy storage assets will be underused relative to the public interest.  But markets for ancillary services are incomplete, meaning merchant incentives to supply ancillary services may also be underdeveloped.  Most of the regional, integrated power markets (i.e. RTOs) have substantially improved their ancillary services markets over the past several years, and the way forward here is to continue to improve ancillary services markets.

ASIDE: Sioshonsi also notes that an integrated utility with consumer loads and its own generation assets may inherently favor the socially optimum welfare use of storage assets, “since these entities would be concerned with both producer and consumer surplus.”  However, this expansive claim is just an add-on remark in the conclusion not examined in the body of the paper.  Suffice to say that if the interests of integrated utilities were always aligned with both producer and consumer surplus, we could dispense with both restructuring and regulation and let consumers live in the warm embrace of unregulated, integrated monopoly power companies.

On March 18, the Federal Energy Regulatory Commission acted on the Tres Amigas project’s two regulatory requests submitted last October.  Tres Amigas has proposed to link the large scale power interconnections covering the eastern and western halves of the United States with the ERCOT interconnection in Texas.  The New Mexico-based project would facilitate trading power among the interconnections and aid development of electric power generation resources in all three areas.

In docket ER10-396-000, FERC granted the project’s request for negotiated rate authority subject to conditions intended “to ensure that the goals of open access are protected and that rates for transmission service on the Project remain just and reasonable by limiting Applicant’s ability to withhold the Project’s capacity from the market.”  Haven’t read the order yet, but when I have the chance I’ll let you know if I see something interesting.

In docket EL10-22-000, Tres Amigas requested the Commission agree not to assume federal jurisdiction over the parts of the ERCOT interconnection currently regulated by Texas just because the Tres Amigas project would allow ERCOT market participants to join in interstate commerce.  FERC concluded that the information submitted by Tres Amigas did not warrant a blanket disclaimer of jurisdiction and so denied the request. However, the Commission offered suggestions on how Tres Amigas may go about securing the jurisdictional assurance it wants without the Commission implicitly endorsing the various justifications the project offered in the company’s filing.

MORE: The FERC press release contains more information, and see Chairman Jon Wellinghoff’s statement, Commission Marc Spitzer’s statement, and Commissioner John Norris’s statement.  Mostly these statements say: we like innovative transmission infrastructure projects like this one, we support them as we can, we couldn’t quite swallow the jurisdictional request as presented, but that doesn’t mean we don’t like these kinds of projects.

The Wall Street Journal summarized the ruling, “Power Grid Connection Wins First Approval.” Bloomberg reports, “FERC Slows Tres Amigas Plan to Link U.S. Power Grids.”

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:

• Comments of the Public Utility Commission of Texas under ER10-396. (2010-Jan-19)
• Supplemental Protest of Occidental Permian, Ltd., Occidental Chemical Corporation and Occidental Power Marketing, L.P. under ER10-396. (2010-Jan-19)

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.

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.

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).