National Grid weighs in on U.S. transmission market

Pam Boschee, Managing Editor

National Grid USA’s Nick Winser, senior vice president with responsibility for transmission strategy and development in the U.S., spoke with EL&P shortly after FERC issued its Notice of Proposed Rulemaking on standard market design.

Nick Winser, National Grid Click here to enlarge image

As an independent transmission company, owning and operating approximately 84,000 miles of transmission and distribution lines in New England and New York, this international U.K.-based company offers a unique perspective on the evolving U.S. transmission market.

EL&P: FERC’s Notice of Proposed Rulemaking (NOPR) on standard market design is being touted as a landmark ruling with the potential to significantly change U.S. electric transmission. What changes do you anticipate occurring in the near term as a result of this NOPR?

Winser: From our point of view, it had some very positive references and changes to apply to our core business. National Grid’s business is running transmission and distribution systems as an independent entity, i.e., independent from generation and load-serving. We run those systems with some excellence, we believe, with management focus, with good investment levels, and with high efficiency. The thing that jumps out of the NOPR for us was a number of references and a number of changes which are being proposed to be made to drive investment into transmission, to drive higher operational efficiency in transmission. We think the NOPR signals FERC’s desire to move forward with deregulation, which National Grid has had a lot of involvement with in various parts of the world over the last decade. Our view has been that deregulation has been very successful; certainly in our primary territory in the U.K., we’ve seen customers’ bills come down by 30 percent in real terms and reliability go up. We’ve seen transmission costs come down very quickly and substantial investment go to transmission, which has lead to the success of the wholesale market-and I’ve very much combined those two issues. We welcome the fact that this charts a way forward for deregulation and for the introduction of markets, but I think the commissioners now understand very well that the wholesale markets will only be successful if there is a very vigorous approach taken to improving levels of investment and efficiency in transmission. There aren’t any commodity markets around which work well without good transportation. In this case, the transmission system moves from a role of providing local access for generation to demand and to reliability, to a role of not only providing reliability, but also actually being the main mechanism-the only-for getting lots of generating units competing head-to-head to drive down costs for the benefit of the customer. Without a good transmission system, these markets are going to fail. Investment levels in transmssion the U.S. are currently running at very low levels by international standards, actually half the level of 10 years ago, which frankly was already a very low level. We really have a massive crisis in under-investment in transmission, and without that being solved, the markets themselves aren’t going to be successful.

EL&P: What change do you identify as immediately necessary in U.S. transmission?

Winser: I think the lack of independence in transmission is a huge issue. Transmission is held to quite a large degree in the U.S. in the hands of vertically integrated companies. That has several effects. I think it somewhat explains the low levels of transmission investment because in vertically integrated companies, for every dollar that they can raise, they have a number of different choices as to where they would like to spend it. They spend it in generation, or transmission, or distribution, or in load-serving programs. The situation today might be slightly different, but historically those companies have felt that dollars spent in generation probably get a better return. There is capital rationing going on, and transmission seems to be the Cinderella in that sense. It isn’t given a great deal of attention. Vertical integration has another huge and slightly less tangible effect, in my view. It means you don’t have real management focus on bringing excellence to the transmission service because integrated companies have a number of balls in the air. Transmission tends to be neglected in that context-minimum management focus, particularly at the board level, on ways to improve the transmission system. Boards will be thinking about generation and load-serving and so on. I think vertical integration is affecting the health of this vital piece of infrastructure, and I’d like to see that changed. I believe that regulators have a great opportunity to encourage, with sensibly designed carrots, vertically integrated companies to divest their transmission to independent transmission companies who will bring much needed investment, management focus, and engineering excellence to transmission and make this sort of unloved element of the industry a bit better cared for.

As a second point, I would look for arrangements whereby transmission companies are encouraged to make the best of the existing through-routes because getting new rights-of-way is very difficult. We’ve had tremendous success elsewhere in the world in taking existing rights-of-way and really sweating them-getting the best out of them-and it’s quick and inexpensive, but I think it will give great benefits to the wholesale market.

EL&P: Do you think the RTO (regional transmission organization) model as it is currently proposed is a step in the right direction toward some of these changes?

Winser: I think the RTOs are morphing into organizations which have responsibility for running the wholesale market and also have a super-regional overview of what’s going on in the transmission system. I think that creates a space below the RTO for the creation of transmission companies which will own the assets and really make them work a lot better. That means the RTOs shouldn’t have a very great functional responsibility for transmission-their focus should be on the markets. Because they’re going to be very big organizations, they should check on the plans that come forward for transmission expansion or operation. That’s the model FERC now [favors]. I’ve certainly been arguing very strongly for that model and I think I’ve received a sympathetic hearing. It is imperative that we don’t place the whole of the operation of transmission in the market organizations, the RTOs, which will have their attention on other things. [RTOs] are not-for-profit organizations with no ability to raise capital to invest in transmission. I have no particular wish for transmission companies to run the markets. National Grid’s great skill and experience is in bringing real engineering to bear to make transmission systems work a lot better.

EL&P: Do you think demand response will be a viable option in managing supply and demand in the U.S.?

Winser: I think it is vital that the demand side of the market is encouraged because that provides the damping mechanism on price spikes when there is shortage. It enables the demand side to signal its wish to not take electricity at very high prices. That really completes the markets, and it has been a struggle right around the globe to get this done efficiently. The problem is that most customers don’t have any idea when the price is high and they carry on using electricity. Somewhere down the track moving forward, better metering which can signal the price of the market more clearly to customers probably needs to come as well.

EL&P: In mid-August, National Grid signed a multimillion-dollar contract with GE Power Systems to supply protection and control systems for a number of transmission substations throughout England and Wales. Do you anticipate similar investment by National Grid in the U.S.?

Winser: You can certainly expect in the U.S. that we will be making such investments in the transmission system over the next period of years. It is too early to say whether such a contract is appropriate at the moment. National Grid is very serious about investing in transmission, upgrading transmission-and that means not only in its ultimate, engineering new lines, but also making existing infrastructure work a lot better and bringing it up-to-date and keeping it in a good state of repair, which is what the GE Power Systems contract in England and Wales is about.

EL&P: Does National Grid have plans to acquire additional transmission assets in the U.S.?

Winser: We believe that we have a great track record on making transmission systems work a lot better, investing in them, driving up efficiency. We think that’s incredibly important to the electricity markets, and we think FERC understands that-we receive a great deal of encouragement from that. So, we are very keen to find opportunities to invest in transmission and we believe that should be a profitable exercise for us. You can expect to see us looking very hard for opportunities to invest sensibly in transmission in the U.S.

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