The editorial staff of Transmission & Distribution World, along with the power-delivery unit of Black & Veach(B&V), convened a group of industry experts to discuss the future of the electric-transmission industry. B&V's Jim Lusby kicked off the event, welcoming participants to the B&V world head-quarters in Overland Park, Kansas, U.S., where he encouraged utility executives to share their perspectives candidly. T&D World's Editorial Director Rick Bush challenged this executive panel to provide our industry with a clear vision of the political, financial business and technical challenges we must face as we rebuild our long-neglected grid.
RICK BUSH: As an industry, have we seen a significant improvement in the climate for investment in transmission?
DAVE GEIER: The environment is more positive than it's been for at least the last seven or eight years, here in the West. That is not to say we still don't face a lot of hurdles. Too often, a utility launches an initiative in one environment, but soon finds itself facing a significantly different set of circumstances. Utilities must show perseverance to push forward in the licensing of transmission projects so we can actually build them.
Here in California, the business environment has changed as a result of the energy crisis five years ago. And we are seeing a shift, not only within utilities but also from a regulatory perspective. It is more positive toward transmission and generation infrastructure.
Gov. Schwarzenegger recently made the comment that, “We cannot conserve our way out of an energy crisis.” That was good news to hear. We are also seeing signs that regulators have come to realize we need more infrastructure. SDG&E [San Diego Gas & Electric] is in agreement with the state of California on a priority resource order. The first step is increasing emphasis on conservation, energy efficiency and demand response. We are also focusing on the need for renewables in the state. San Diego is located in an energy cul-de-sac, and we require additional transmission and generation to meet the load growth and reliability needs of the region. We are also investing in transmission in California to bring down congestion.
RICK BUSH: Do we have a transmission shortage in California?
STEWART RAMSAY: California relies heavily on imports to meet demand, particularly during peak load periods. Transmission constraints can limit these imports and reserve requirements need to reflect this reality. Policy makers in California are recognizing this situation and taking steps to enhance the process of investing in infrastructure. There has been a belief that you can't build transmission in California. This is not true. We've been spending US$400 million a year building transmission facilities. There is also a belief that the California Public Utility Commission's transmission siting process is a major roadblock for transmission. Frankly, this process only applies to the largest projects and much of the transmission expansion that Pacific Gas and Electric (PG&E ) actually implements does not require a lengthy permitting process. Even on the large projects PG&E is three for three in obtaining the necessary permits so, while improvements can be made, the permitting process has not been a major stumbling block.
Dave already pointed out we need more transmission in California. Today, reliability-driven must-run generation is needed to meet existing constraints, but we are hard at work to address those constraints. In addition, we see a big driver for major new transmission expansion in California and the West will be the need to bring renewable energy into the system.
DON MUNDY: Let's step back a little and look at why we have transmission in the first place: It's to bring generation to the load, and it's to share reserves and it is to allow for market transactions of power. These needs are real. It's time for us to build out the next grid overlay while we maintain the underlying grid. I believe the next series of initiatives to be made up [will be] a combination of high-voltage ac lines and dc lines. I expect we will ultimately go to 765-kV ac or the dc equivalent in the 800-kV range.
RICK BUSH: Has the Federal Energy Regulatory Commission (FERC) backstop authority made a difference?
JOSÉ DELGADO: We bear the burden of proof in helping the public understand the need for our work. We work very hard with a lot of folks to create an understanding of the importance and value of transmission and reliable electricity. Doing this requires constant communication and outreach. We have been very successful using techniques of political campaigns. We conduct public opinion surveys, identify issues, target messaging and use a variety of outreach tools to help people understand the need for our work. Ultimately, our goal is to create an understanding of need, knowing that not all folks will be happy with the siting of our facilities.
The 2005 energy bill gave FERC backstop authority on transmission siting. I have said, “FERC authority will be best if it's never used.” We prefer to work with the state regulators and facilitate their coming together to make collaborative decisions on projects that cross state borders.
RICK BUSH: How did we get in such poor shape nationally in terms of investment in new transmission?
JOSÉ DELGADO: In the mid-1990s, when the FERC ruled that wholesale customers were to have equal access to the utility grids, some of the systems that had been totally adequate up to that point became inadequate within six months. Open access required that we address factors over which we had no direct control or even knowledge. We have determined that, at least in our service territory in the upper Midwest, any significant new generation will require considerable new transmission. In local markets, we must be able to tie generation to customers over major lines of 230 kV to 345 kV, before we begin to speak about an electricity superhighway to move energy in a regional market. In fact, regional needs must be integrated into local needs.
JIM HAUNTY: Probably one of the biggest early initiatives immediately following the merger with CSW six years ago was a $500 million joint-development agreement with the Lower Colorado River Authority (LCRA), whereas AEP signed over to LCRA selected ERCOT-mandated transmission reliability projects and then developed them for LCRA on an EPC [engineer, procure, construct] basis. This was during a period when capital was tight due to other corporate priorities, so it was viewed as a win-win for both AEP and LCRA. These projects have pretty much all been developed and AEP has gone back to heavily investing in Texas transmission infrastructure, which is a good thing from both the infrastructure and the investment standpoint.
RICK BUSH: Do the drivers for new transmission vary from region to region?
JIM LUSBY: Sure they do. In the West, it's renewables and the need to build new transmission. In the middle of the country, it could be interregional grid interconnection. In the Northeast, it's the sheer need to overlay the grid with more capacity to serve load, because utilities are unable to site and build new generation, and to replace aging transmission facilities. Across the country, it's the need to interconnect new generation with load centers and provide new transmission access from generators to load centers.
RICK BUSH: We've heard a couple of comments on renewables driving transmission in the West. Dave, would you like to expound?
DAVE GEIER: Our major transmission initiative at SDG&E is the permitting and building of a new 120-mile (193-km), 500-kV line from San Diego to the Imperial Valley. We are partnering with the Imperial Irrigation District to get this line built. This line will be a model of the way to build consensus to determine project need. We call it our “three-legged stool approach.” We need this line for reliability. The economics are favorable, both for the state of California and for the city of San Diego customer. This line also will help us meet a 20% renewable target for 2010 set by the state. And just in the last six months, greenhouse gases have become a major issue. This line will help us address all these needs.
But to really get the large increments of renewables, we have to go to neighboring Imperial Valley. We have access to 600 MW, expandable to 900 MW, of solar thermal under contract. There is also 2000 MW of geothermal in the valley, plus significant wind resources. One of the primary drivers, transmission, has not been developed, and it must be part of the entire package to deliver the renewables.
So, I think right now if you ask what has traction, in my opinion, it's the renewable energy, the green power. Environmental groups like green power, even though they may not like the building of the new transmission lines.
If you believe that we must connect remote renewable power sources to customers, new transmission is critical. I think a lot of people have come around to say, “OK, there are trade-offs here.” You'll have folks that you'll never convince that new transmission is the right thing to do. But many people are coming to understand that if we really do want to retire the older, less efficient fossil-fuel power plants, we must have more green energy and build a transmission to deliver the power. We believe that as we work together with shareholders, that the renewable option has great potential.
STEWART RAMSAY: We continue to see investment in the grid. The grid in the West is very different than the grid in the East. I think what we're seeing now is a change that will have the grid in the West looking a lot more integrated. In addition, Dave's comments on renewables is right on the mark as all the California utilities struggle to meet the mandated goal of having 20% of their energy provided by renewables by 2010.
PAUL MCCOY: As you are probably aware, Trans-Elect was involved in the 500-kV Path 15 upgrade in California. Eventually everything came together: design, investment capital, engineering and construction. But the real breakthrough was the creation of a public-private partnership between Trans-Elect and the Western Area Power Administration. Trans-Elect provided the project's financial structure, funding and a method of recovering the investment in the line. Western handled the design, engineering and construction of the line itself. PG&E, through an interconnection agreement, provided the necessary substation modifications at the interconnection points, Los Banos and Gates, as well as modifications to parts of the lower-voltage network. All three parties worked together beautifully through a Construction Coordination Committee.
TRENDS IN TRANSMISSION
RICK BUSH: Will we see the emergence of larger transmission owning entities?
JOSÉ DELGADO: I hope so. It all depends on the continued good performance of the few transmission-only companies that now exist. Utility network design has traditionally been generation-centric, transmission considered mainly as connector between a utility's generation and the load centers it served. After the establishment of open access, the electric network became, without us ever realizing it, a transmission-centric system. Generator owners hunt around for the best market locations in which to plop down their new units, hopefully taking into account the capabilities of the existing network.
Our five-year experience has confirmed that a larger transmission-only entity can operate, plan and build transmission better than smaller balkanized system owners.
RICK BUSH: Who will build the new transmission?
DON MUNDY: Expect to see a combination of private and public effort, much as what Trans-Elect was able to do on the Path 15 project, and National Grid in other locations, with a little bit of private and public effort. We will see some independent transmission lines built by companies that we know of today and will see others built by entities that will emerge in the future. But I wouldn't call independent transmission “merchant lines,” because as all of us know there isn't a transmission line that was ever built that hasn't been funded in some way by the rate base with some pre-established capacity or use agreements. No one's willing to take that sort of risk in today's world.
RICK BUSH: Do you see transmission as a “growth” business?
PAUL MCCOY: I do. In addition to the development of new transmission lines and corridors, there will be a growing need to update the infrastructure we already have. This will include updating protective relaying, controls, communications and data management, in addition to the replacement of major power components such as transformers and circuit breakers.
Greater application of power-flow control devices such as advanced phase shifters and other solid-state devices will occur as well. Overall, transmission capital investment could easily be sustained at $7 to $9 billion per year for quite a while. A big change from the 20 years between the early 1980s and, say, 2002.
RICK BUSH: The transmission segment is hot right now. Will we see entities throwing money into transmission?
PAUL MCCOY: In my view, “throwing money” into transmission investments is highly unlikely for a variety of reason. The biggest one is that transmission investment is almost universally regulated by somebody — either the FERC, the state or, in the case of G&Ts and co-ops, by their owner representatives. Second, investment in the grid almost always involves a lot of interaction with stakeholders regarding need and, of course, siting. So, it's highly unlikely that we will see runaway, ill-advised investment like we saw in the independent power market, where units were sited with little regard to getting the product to market.
RICK BUSH: Could someone comment on whether we have capital available for new construction?
STEWART RAMSAY: I'm often asked, “Where will the capital come from?” I'm here to say, there's no shortage of people knocking on my door wanting to invest in transmission. I have a meeting coming up with a group of publicly owned utilities to discuss the building of new lines.
We have a great history in the West of jointly owning transmission. I believe the way we will see transmission built in the future is through partnerships. And with all due respect, I would differ with Mr. McCoy in that I do see merchant transmission as a viable option.
RICK BUSH: We've been stymied so long on right-of-way issues. Today, we are seeing new lines built. What has changed?
JOSÉ DELGADO: We have been able to build $1 billion in transmission assets over a five-year period. We think we need to invest $2 to $3 billion more over the next 10 years. In dealing with state regulators in the licensing process, we ask only for what we will get a “yes” to, otherwise we are all wasting our time.
PAUL MCCOY: Several of the lines recently constructed, and those that have been formally announced, are actually the manifestation of long-planned additions to the grid that simply have been on hold for years, locked up in the planning stage. Continued load growth, high natural gas prices and a favorable climate for investment have combined to push some of these projects into the construction stage.
RICK BUSH: Now let's look at utility tactics in siting lines.
JOSÉ DELGADO: Planners facilitate the process by integrating the solution of local needs into every single project we propose. We engage the communities that will host our facilities in our process very early. We ask them where those facilities should and shouldn't go. This is not only good planning, it is smart planning.
Wisconsin law requires that for every new 345-kV line, we pay impact fees to the communities hosting our facilities. Now it typically isn't a lot of money, but the assistance is so appreciated in these communities, which often do not have great resources. There are other ways to make sure the local people benefit during the construction process. We engage the local real estate companies, local tree trimmers, the local gravel pit, etc.
DAVE GEIER: In California, we were not able to build our Valley Rainbow Line, which was to connect Southern California Edison to SDG&E because the line would traverse Riverside County. In hindsight, we had not clearly identified to the residents of Riverside what they would gain from the line. If we had, I believe the line would have been built.
RICK BUSH: Any other examples?
JIM HAUNTY: It took AEP something on the order of 13 years and $50 million to site the 765-kV Wyoming Station in Southern West Virginia to Jacksons Ferry Station in Southern Virginia. And the final route was not the one originally proposed. The original project would have been an additional 20 or 30 miles (32 to 48 km) longer to reach our Cloverdale Substation near Roanoke. AEP just ran into an absolute wall on siting that route. The final solution to Jacksons Ferry Station has an appreciably shorter shelf life than the original line. So at some point in time, one would intuitively think that AEP will have to eventually close that 765-kV loop in Virginia in coming years. But the point is, we were able to successfully demonstrate this project was needed to maintain area reliability and to meet load growth, and we were able to site/permit and construct the line.
Looking forward, AEP recently announced their intention to build a 555-mile (893-km), 765-kV project running from Sporn Generating Plant in West Virginia to New Jersey, which will significantly enhance the Eastern grid and the PJM system in ability to move needed power to load centers. This project has been appropriately coined “I-765.”
RICK BUSH: How do we deal with regional issues as we move to site transmission?
JOSÉ DELGADO: Collaboration between regulators in adjacent states is essential. A few years ago, the National Governors' Association put together a task force to look at infrastructure construction. And they came up with a document that (and I was an advisor to that bunch) promoted the whole idea of states working together like the Western states' governors did. When groups of states get together in compacts or agreements to collaborate, mutual needs can be addressed reasonably well. This is essential.
I believe interstate collaboration has improved significantly and that the regulator groups that have been formed to deal with RTOs are becoming very good forums for cooperation.
RICK BUSH: Is anyone having any luck addressing congestion on the grid?
DAVE GEIER: In San Diego, we're definitely in the growth mode. We have come out of the California energy crisis with high costs and high congestion. San Diego is located in an energy cul-de-sac. We only have a couple of major transmission lines that come into San Diego. We've recently spent over $100 million to reduce congestion costs. SDG&E invested $50 million in the Miguel Mission II Project, and that project reduced congestion and provided $100 million in benefits to our customers in the first year. In this case, the project had a six-month payback.
JIM HAUNTY, vice president of transmission capital improvements (retired), American Electric Power, earned his degree in civil engineering from Purdue University.
DON MUNDY AND PAUL MCCOY ON HIGHER FAULT-CURRENT LEVELS
PAUL MCCOY, COO, Trans-Elect, worked for Commonwealth Edison for 27 years, leaving that company in 1999 after serving as senior vice president of transmission and distribution.
DAVE GEIER, vice president of electric transmission and distribution, San Diego Gas & Electric, has served in a variety of management roles in T&D at SDG&E, where he has worked for 26 years.
JOSÉ DELGADO, president and CEO, American Transmission Co., spent the early part of his career at Wisconsin Electric (now We Energies), where he most recently served as vice president in charge of system operations.
STEWART RAMSAY is vice president asset management and electric transmission at Pacific Gas and Electric. Prior to that, Ramsay worked at American Electric Power running its asset management department.
DON MUNDY, senior vice president power-delivery strategies, Black & Veatch, has managed T&D projects throughout his career and now specializes in the more unique out-of-the-box projects. He has been involved with everything from rate studies to system planning, and from metering studies in Saudi Arabia to distributed generation in California.
JIM LUSBY, senior vice president and director power-delivery business line, Black & Veatch, went to work for Black & Veatch in 1968 and is still there 38 years later. Lusby is responsible for the management, design and construction of B&V's power-delivery projects.
DON MUNDY: We all know that fault-current levels have risen to the point that we're now looking at breakers with 80-kA capacities and higher. How are we going to deal with the higher fault-current levels? Well, one way to address this issue or to limit the impacts, of course, is a dc interconnection. And I think we will see a lot more dc sorts of interconnections grid-to-grid, region-to-region moving forward.
PAUL MCCOY: As the grid becomes “tighter” due to new construction, the fault currents become larger. I'm not aware of any sort of public awareness regarding the deleterious effects of rising fault-current levels, especially on older transformer infrastructure — not just system intertie transformers but the big generator step-up transformers, which are also more heavily stressed when short circuits occur on the grid. Units that may have been operating safely, on a risk-analysis basis, will be more prone to failure as the fault currents rise due to the higher internal physical forces imposed on the transformers during through-fault conditions.
So we can see the plate tilt more toward more advanced technology solutions in the form of current-limiting devices to deal with the higher fault-current levels on the ac system, or the application of more dc transmission to limit fault-current levels in the first place.