Western governors ponder transmission issues

By the OGJ Online Staff

HOUSTON, Aug. 14, 2001 – The Western Governors’ Association said the cost of new electric transmission lines required to satisfy rising demand in the West would quadruple, if fuels other than natural gas were used for new generation.

But relying on gas has other costs that must be factored into any comprehensive transmission plans. The governors also said energy efficiency measures that reduce peak demand must be considered to offset the need for new transmission facilities.

The governors’ association discussed questions associated with the adequacy of the transmission system making up the western grid at their semiannual meeting Monday in Coeur d’ Alene, Ida. The group released a report concluding new transmission infrastructure required for gas-fired generation will cost $2.4 billion. If coal, wind, geothermal, or hydroelectric power plants are built, the cost of new transmission would approach $8-$12 billion.

The cost associated with constructing transmission to serve gas-fired generation is lower because these plants are located near load centers. Transmission projects already under way or committed to be on line by 2004 are projected to be adequate. But coal, hydro, wind, and geothermal power plants are usually built in remote areas requiring main grid transmission infrastructure, according to the report.

Determining tradeoffs
The tradeoffs to building or not building transmission involve fuel diversity and whether there is a need to mitigate market power, but the governors said certain questions could not be answered in the preliminary report and deserve further exploration.

Among the questions to be addressed is whether alternatives to gas-fired generation are worth the expense. The report also said there is an issue of how much should be spent on transmission to keep a generator or group of generators from setting the price of electricity within a geographic area.

Other tradeoffs involve the increased variable costs of generation from using natural gas compared to other fuels. But the report noted any conclusions concerning gas-fired generation depend on assumptions about gas prices.

The report estimated nongas power plants would produce savings of $3-$3 billion/year in variable costs or as much as $5 billion with high gas costs. A complete study of whether to build gas or nongas generation would require analysis of the costs of generation, the fuel, capital costs of expanding natural gas pipelines, benefits of fuel diversity, and the value of reducing market power from transmission construction.

The governors also said energy efficiency could reduce overall electricity use, checking the need for extensive new transmission lines. Alternatives to developing new transmission such as more efficient use of electricity, peak load management, and distributed generation located at or near the customer load could reduce the need for transmission associated with peaking plants.

Specifically, the governors’ association recommended tiered residential rates that increase with electricity use to promote conservation. In California, state regulators introduced rates that increase12% for customers who use 130-200% more than a base line amount.

As usage increases to more than 300% of the base line, rates increase 47%. In Idaho, the state regulatory commission set rates at 5.7-/ kw-hr for less than 800 kw-hr/month; 6.54-/kw-hr for consumption of 801 kw-hr-2000 kw-hrs.; and 8.39-/kw-hr for over 2001 kw-hrs.

Concerning peak load management, time-of-use rates could sharply reduce system peak loads and related transmission needs, the report noted. It recommended customers pay different prices, depending on the time of the day or based on the real-time prices in the wholesale electricity market.

Several Washington utilities have adopted time-of-use rates for customers that have special meters. The difference between peak and nonpeak rates is up to 3-/kw-hr.

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