JT Smith

Transmission Planning in

an RTO Environment

9/16/2011

2

$322-$482

$546-$604$34-$42

$605-$673 ($254)

$1,253-1,634

$648-$874

0

200

400

600

800

1000

1200

1400

1600

Improved Reliability Market Commitment and Dispatch

Wind Integration Benefits Driven by Load / Supply

Balance

Midwest ISO Cost Structure

Total Net Benefits Adjusted Total Net Benefits

Benefit by Value Driver1

(in $ millions)

1Figures shown reflect annual benefits and costs for 2010

The continuing growth of the MISO’s value proposition

depends on transmission expansion

MISO Cost

Structure

3

• Make the benefits of an economically efficient energy market

available to customers by providing access to the lowest electric

energy costs

• Provide a transmission infrastructure that safeguards local and

regional reliability and supports interconnection-wide reliability

• Support state and federal energy policy objectives by planning for

access to a changing resource mix

• Provide an appropriate cost mechanism that ensures the

realization of benefits over time is commensurate with the

allocation of costs

• Develop transmission system scenario models and make them

available to state and federal energy policy makers to provide

context and inform the choices they face

MISO

Board of

Director

Planning

Principles*

Fundamental

Goal

The development of a comprehensive expansion plan that meets

reliability needs, policy needs, and economic needs

MISO Planning Objectives

* As modified and approved by MISO Board of Directors System Planning Committee

5/16/2011; pending full board approval

MISO’s transmission planning process is focused on minimizing

the total cost of delivered power to consumers: energy, capacity

and transmission

Minimum Total Cost:

Energy, Capacity and

Transmission

High Capacity Cost

Low Transmission Cost

Goal

High Transmission Cost

Low Capacity Cost

Total

Cost ($)

Capacity Cost

Transmission Cost

H

L

L

H

Planning Model Evolution

5

Reliability-Based Model

• Focused primarily on grid

reliability

• Typically considers a short time

horizon

• Seeks to minimize transmission

build

Value-Based Model

• Focused on value while maintaining

reliability

• Reflects appropriate project time

scales

• Seeks to identify transmission

infrastructure that maximizes value

• Identification of the comprehensive

value of projects

In order to achieve its planning objectives, MISO

has transformed its transmission expansion planning model;

this process will continue to mature as experience is gained

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• The MTEP is the culmination of all

planning efforts performed by

MISO during a given planning

cycle

• This planning process is

consistent with the Board of

Directors Planning Principles

• Each of the four pillars of the

MISO Planning Approach informs

the other, resulting in a fully

integrated view of project value

inclusive of reliability, market

efficiency, public policy, and other

value drivers across all planning

horizons

Top Down Planning

Inter-connection

Queue

Bottom Up Planning

Policy Assessment

MISO Transmission Expansion Plan (MTEP)

MTEP

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• Objective of value based

planning is to develop a

wide range of future

scenarios

– The “best” transmission plan

may be different in each

policy-based future scenario

– The transmission plan that is

the best-fit (most robust)

against all these scenarios

should offer the most future

value in supporting the future

resource mix

MISO Value Based Planning

STEP 6: EVALUATE

CONCEPTUAL TRANSMISSION

FOR RELIABILITY

STEP 5: CONSOLIDATE &

SEQUENCE TRANSMISSION

PLANS

STEP 7: COST ALLOCATION

ANALYSIS

STEP 4: TEST CONCEPTUAL

TRANSMISSION FOR

ROBUSTNESS

STEP 3: DESIGN CONCEPTUAL

TRANSMISSION OVERLAYS BY

FUTURE IF NECESSARY

STEP 2: SITE-GENERATION

AND PLACE IN POWERFLOW

MODEL

STEP 1: MULTI-FUTURE

REGIONAL RESOURCE

FORECASTING

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• Comparability

• Dispute Resolution

• Regional Participation

• Congestion Studies

• Coordination

• Openness

• Transparency

• Information Exchange

Stakeholder Process

• FERC Order 890 Provides for Open and Transparent Planning

• Order 890 Planning Principles:

Conditions Precedent to Increased

Transmission Build

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10

• Renewable Portfolio Standards passed by all MISO states except Kentucky

• Proposed federal legislation would drive additional homogeneity around resource requirements

– Possible National Renewable Portfolio Standard of 15 - 20%

– Carbon Reductions

• Increasing number of states with demand response and energy efficiency programs

Required: Policy Consensus

Current State Renewable Portfolio Standards As of 07/27/2011

Planned and Existing Wind as of 3/28/3011

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Required: Cost Allocation and Recovery Mechanism

• Reliability (RECB I)

• Market Efficiency (RECB II)

• Generator Interconnection

Projects

• Other Direct Assigned

Projects

Multi Value Projects

Regional

Local

The cost allocation goal is

– A fair system

– Get transmission built to

address a wide variety of

goals

– Maintain the MISO Value

Proposition

State participation in the

process reduces recovery

risk to the extent

– Investments are deemed

to be in the public interest

and

– The cost allocation is seen

as “fair”

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Required: Robust Business Case

• The following slides will walk through the RGOS/MVP process that utilized the MISO Value Based Planning Process as a framework for transmission development

As an increasing number of renewable energy mandates were

passed by MISO states, analyses were performed to determine a

least cost generation siting methodology

The least-cost approach to generation siting, when both

generation and transmission capital costs are considered, is

a combination of local and regional generation locations. 13

Energy Zone Siting Approaches and Costs

This methodology resulted in a set of energy zones

which were used as the locations for incremental

generation in continuing analyses

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These energy zones were created by balancing relative wind

capacities along with distances from natural gas pipelines and

existing transmission infrastructure

Incremental Energy Zones

Native Voltage Alternative

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765 kV Voltage Alternative

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How Do You Decide On a Strategy?

• Robustness testing

– How does an alternative perform in a variety of future scenarios?

– Are significantly greater economic benefits projected in one case

over the other?

• Faith based scenario evaluation

– What would you have to believe?

– Actively test important assumptions

• Delay choosing as long as possible

– Without jeopardizing legal requirements

– Without risking wasted investment

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What Would You Have To Believe…

• For the higher mileage lower voltage strategy to be

superior ?

• Energy policies will not expand beyond the current laws, thus the

actual construction will “most likely” stop short of full

implementation

• For the higher voltage lower mileage strategy to be

superior?

• Increasingly aggressive Energy Policy objectives will significantly

expand the objective and thus providing a more robust system

up front leads to significant flexibility and saved time

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Should We Wait to Build Until Consensus

on Strategy is Achieved?

• No - we can delay decision – for a bit

- by making a set of investments with

relatively low risk/reward ratio

• Multi Value Project portfolio

candidates would meet criteria such

as the following:

– Support renewable integration at

a level likely to still be required

under future policy shifts

– Retain the flexibility to support

the choice of 345 kV or 765 kV

as the overall strategy

– Provide sufficient value to be in

the public interest on a stand

alone basis

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765 345Candidate

MVP

Portfolio

Benefits of Candidate MVP Portfolio• Evaluation of first Candidate MVP Portfolio is nearing completion

including business case development to document the value provided

by the portfolio.

• Goals of Multi Value Projects

– facilitate the integration of large amounts of location constrained

resources, including renewable generation resources

– support MISO member and customer compliance with evolving state and

federal energy policy requirements

– enable MISO to address multiple reliability needs and provide economic

opportunities through regional transmission development

• Benefits include reducing costs associated with: congestion and fuel,

operating reserves, system planning reserves, transmission line

losses; wind turbine investment, etc…

• Benefit of the portfolio as a whole is generally greater than the sum of

the benefits of its parts; looking at one element in isolation gives an

incomplete picture of the total benefits

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These evaluations culminated in the

recommendation of the 2011 MVP Portfolio

• The 2011 MVP Portfolio

Analysis is the culmination of

MISO’s planning efforts to

meet the public policy

mandates of the MISO states,

while simultaneously

minimizing the total cost of

delivered power to consumers

• This analysis serves to justify

and demonstrate the value of

a regional portfolio of projects,

which brings multiple benefits

to stakeholders throughout the

MISO footprint.

• B/C of 1.7/1 to 2.7/1 with

sensitivity cases as high as

5.4/1

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CapX 2020

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• Participants• Central MN Municipal Power Agency

• Dairyland Power Cooperative

• Great River Energy

• Minnesota Power

• Minnkota Power Cooperative

• Missouri River Energy Services

• Otter Tail Power Company

• Rochester Public Utilities

• Southern MN Municipal Power Agency

• WPPI Energy

• Xcel Energy

• Nearly 700 miles of transmission

• Costs estimated to be $1.9 billion

• Projects support local reliability and

regional transfer of energy

• Projects are a core assumption in the

MISO MVP development

Information source: http://www.capx2020.com/

Eastern Interconnect Planning Collaborative (EIPC)

• DOE Objective

– Facilitate the development / strengthening of capabilities to

prepare analyses of transmission requirements under a broad

range of alternative futures and develop long-term

interconnection-wide transmission expansion plans.

• DOE Expectations

– Improved

• Regional, inter-regional, and interconnection-level coordination on long-term

electricity policy and planning

• Quality of information available to state and federal policymakers and

regulators

• Understanding by stakeholders of Long-term transmission requirements

under a wide range of futures

– Facilitation and acceleration of development of renewable or

other low-carbon generation capacity

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EIPC - Approach

• Establishment of a Multi-Constituency Stakeholder

Process

• Roll Up and Analysis of Approved Regional Plans

• Development of Inter-Regional Resource

Expansion Scenarios

• Development of Inter-Regional Transmission

Expansion Options

• Prepare/Submit Reports to DOE

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Continuing Evolution: FERC Order 1000 -

Transmission Planning and Cost Allocation

• FERC issued Order 1000 on new transmission planning

and cost allocation requirements to build on the

principles identified in Order 890– Coordination; Openness; Transparency; Information Exchange;

Comparability; Dispute Resolution; Regional Participation; Economic

Planning Studies and Cost Allocation

• The new rules address:

– Participation in a regional planning process

– Planning for public policy requirements, such as renewable mandates

– Coordinated planning and improved cost sharing for interregional

facilities

– Elimination of federal “right of first refusal” for projects identified in a

regional planning process with regional cost allocation

– Principles for regional and interregional cost allocation

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Appendix

26

MTEP Activities

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Top Down

Planning

Bottom Up

Planning

Interconnection

Queue

Policy

Assessment

Description •Develop solutions for

outstanding needs,

•Test effectiveness of

input plans and seek

efficiencies

Ensure plans identified

by the member

Transmission Owners

are sufficient to address

reliability standards and

form an efficient set of

expansions to meet

identified needs

Evaluate specific

interconnection requests

and Place resulting

upgrades in base

expansion model

Analyze the impacts of

changes in state or

federal policy on the

MISO system

Examples Regional Generator

Outlet Study, Candidate

MVP Portfolio, MTEP

economic analysis, Long

Term Assessment

MTEP reliability analysis Interconnection Studies,

System Planning and

Analysis, Detailed

Planning Phase

EPA Regulations study,

Eastern Wind Integration

Transmission Study

Tools Production Cost models

(PROMOD), Generation

Expansion (EGEAS),

Loss of Load (MARS)

Load flow models

(PSS/E)

Load flow models

(PSS/E)

All

MISO Cost Allocation Overview

Allocation Category Driver(s) Allocation Overview

Baseline Reliability

Project

NERC Reliability Criteria Primarily shared locally through Line

Outage Distribution Factor

Methodology; 345 kV and above 20%

postage stamp to load

Generator

Interconnection

Project

Interconnection Request Paid for by requestor; 345 kV and

above 10% postage stamp to load

Market Efficiency

Project1Reduce market congestion

when benefits are 1.2 to 3

times in excess of cost

Distribute to planning regions

commensurate with expected benefit;

345 kV and above 20% postage stamp

to load

Multi Value Project Address energy policy laws

and/or provide widespread

benefits across footprint

100% postage stamp to load

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1. Market Efficiency Project cost allocation

methodology currently under review at the

RECBTF