Workshop I

Marginal Transmission Costs

IV-1
 Workshop I

The Short-Run Marginal Transmission

Cost of moving energy between two nodes
of the system is the difference between the
marginal cost of energy at the two nodes.

The direction of the transaction matters.

IV-2
 Workshop I

Ideal World: No Losses Or Congestion

2.0 c 3.0 c 4.0 c

A B C

200 MW 200 MW 200 MW

200 MWh 100 MWh

Node Y

Node X
100 MWh

200 MWh 100 MWh

Load Load
200 MWh 100 MWh

MC = 3.0 c MC = 3.0 c

SR Marginal Transmission Cost: X to Y = 3.0 - 3.0 = 0.0 c

IV-3
 Workshop I
Figure 2
Losses (No Congestion)

2.0 c 3.0 c 4.0 c

A B C

200 MW 200 MW 200 MW

200 MWh 110 MWh

Node Y

Node X
110 MWh (input)
Losses = 10%
200 MWh 100 MWh

Load Load
200 MWh 100 MWh

MC = 3.0 c MC = 3.3 c

SR Marginal Transmission Cost: X to Y = 3.3 - 3.0 = 0.3 c

Y to X = 3.0 - 3.3 = -0.3 c
IV-4
 Workshop I
Figure 3
Congestion And Losses

2.0 c 3.0 c 4.0 c

A B C

200 MW 200 MW 200 MW

200 MWh 50 MWh 55 MWh

Node Y
Line Limit = 50 MW
Node X
50 MWh (input), 45 MWh (output)
Losses = 10%
200 MWh 100 MWh

Load Load
200 MWh 100 MWh

MC = 3.0 c MC = 4.0 c

SR Marginal Transmission Cost: X to Y = 4.0 - 3.0 = 1.0 c

Y to X = 3.0 - 4.0 = -1.0 c
IV-5
 Workshop I
Figure 4
Congestion And Demand Curtailment

2.0 c 3.0 c 4.0 c

A B C

200 MW 200 MW out of service

200 MWh 50 MWh

Line Limit = 50 MW Node Y

Node X
50 MWh
Losses = 10%
200 MWh 45 MWh

Load Load
200 MWh 100 MWh

MC = 3.0 c Load Served

45 MWh

Load Curtailed - Curtailment

55 MWh
Cost = $2.00/kWh
MC = $2.00

SR Marginal Transmission Cost: X to Y = 2.00 - 0.03 = $1.97

Y to X = 0.03 - 2.00 = -$1.97
IV-6
 Workshop I

Transmission Marginal Cost

includes more than Losses and
Congestion

• Transmission investment is made to keep

losses and congestion at economically
efficient levels.

• Additional transmission investment is

needed to make the system robust enough
to withstand multiple failures and
therefore avoid cascading outages.

IV-7
 Workshop I

Industry Structure Determines

Approach (1): Resource Cost

• Traditional structures require looking at

marginal “resource” transmission costs:
– Short-Run: marginal losses and congestion
(based on nodal or zonal estimates)
– Long-Term: Incremental transmission
investment that brings back losses and
congestion to acceptable levels and to
maintain reliability.

• Not to confuse “Long-Term” with LRMC

– LRMC assumes an optimal system
– In equilibrium, no further investment is cost-
effective, but transmission is lumpy.

IV-8
 Workshop I

Industry Structure Determines

Approach (2): Marginal Financial Cost

• The marginal transmission cost to an

unbundled distributor to supply power to
its retail customers is a “Financial” Cost
• Two components:
– losses and congestion per kWh (captured in
market prices if nodal)
plus
– Open Access Transmission Tariffs (OATT)
or RTO access charges paid for using of the
system to serve its retail load

IV-9
 Workshop I

Transmission Access Charges in the US

Typical OATT FERC formulation:

Total Revenue Requirement

Charge ($/kW/mo.):
sum of 12 monthly transmission system peaks

Billing determinant: Transmission user’s load

coincident with monthly
transmission system peak

IV-10
 Workshop I

Forecasting Financial MC
of Transmission: OATT

ƒ The specific RTO cost-allocation policy determines

the forecast of OATT:

▫ Region-wide new transmission investment for

project costs spread to all users in the region
and/or
▫ Localized transmission investment for costs
directly assigned to specific zones and in regions
with “license plate” rates

ƒ Time-differentiation depends on the OATT billing

determinant, e.g. probability that a given hour is
coincident with the ISO’s/Control Area peak

IV-11
 Workshop I

Example of Marginal Transmission Costs

based on OATT Network Charge
Summer Winter
Peak Off-Peak Peak Off-Peak

(1) Monthly OATT Charge for Network Integrated

Transmission Service (2007 $ per coincident
kW) $3.50 $3.50 $3.50 $3.50

(2) Sum of hourly probability of being the monthly

peak 0.95 0.05 0.80 0.20

(3) Average seasonal marginal cost per kW per

month (2) x (1) $3.33 $0.18 $2.80 $0.70

(4) Hours in month 210 522 252 480

(5) Marginal transmission cost per kWh (3)/(4) $0.01583 $0.00034 $0.01111 $0.00146

Marginal Energy Loss Factors For Supply at:

(6) Subtransmission 1.02 1.01 1.02 1.01

(7) Primary 1.11 1.06 1.07 1.05

(8) Secondary 1.15 1.08 1.10 1.07

Marginal Transmission Costs Including Losses:

------------------- (2007 Cents per kWh) ----------------
(9) Subtransmission $0.01620 $0.00034 $0.01130 $0.00147

(10) Primary $0.01750 $0.00036 $0.01193 $0.00153

(11) Secondary $0.01815 $0.00036 $0.01224 $0.00156

IV-12
 Workshop I

Alternatives to Estimate
Marginal Resource Transmission Cost

ƒ Average Cost per kW of Incremental

Investment (system-wide or by region)
ƒ Differential between Two Plans (system-
wide or by region)
ƒ Regression of Plant on Peak Load
ƒ Present Worth Approach

IV-13
 Workshop I

Traditional Basic NERA Approach To

Marginal Transmission Cost
(Postage Stamp or by Sub-Region)

ƒ Assume short-run is approximately equal to long-term.

ƒ Begin with budget (restated in constant $).
ƒ Include all costs for projects coming into service within the study
period.
ƒ Weed out projects not related to growth:
▫ replacements
▫ generation hook-up
▫ change in reliability standard
ƒ Match budgeted projects to transmission peak load growth in period.
ƒ Watch out for temperature effects on carrying capability of equipment.
ƒ Weather-normalize actual transmission peak load.
ƒ Watch out for joint and customer-funded projects.
ƒ Watch out for interruptible and wheeling loads.
ƒ Annualize marginal investment by applying economic carrying charge
and adding O&M and overheads.

IV-14
 Workshop I

Excerpt from: The Time-differentiated Marginal Costs of Hypothetical Power

Company’s Electric Service, NERA, October 10, 1995

IV. MARGINAL TRANSMISSION COSTS

A. Marginal Transmission Investment
HPC’s transmission system is sized to accommodate its control area peak load. Control
area loads included were native firm, native interruptible, economy energy sales served under
Rate 832.2, and the requirements under wholesale contracts. HPC transmission planning
considers interruptible and economy energy sales in sizing the transmission system due to a
history of industrial load shifting between firm, interruptible and economy energy rates. Our
approach for transmission marginal costing is to divide the appropriate planned investment for
the period 1995 through 1999 by expected load growth over the same period: i.e., the difference
between 1999 forecast load and the 1994 weather normalized peak load. The goal is to estimate
the typical incremental investment per kilowatt of peak load growth. Since the five-year period
for which incremental investment is available is quite short, we have also analyzed a
transmission budget made for forecast load growth twice the current estimate.
The appropriate marginal transmission investment was determined by analyzing the
purpose of HPC’s planned transmission expenditures on all projects scheduled for completion
from 1995 through 1999. At NERA’s request, HPC was asked to categorize projects in the
following manner:
1. projects related to growth in system or area loads;
2. projects related to increased interconnection capability to provide for added
reliability;
3. projects related to moving power from new generating stations into the
transmission grid;
4. projects related to specific large customer loads;
5. projects related to increased interconnection capability to provide greater access to
economy energy markets; and
6. other projects not related to growth in load.

IV-15
 Workshop I

Only expenditures in the first two categories are demand-related marginal costs related to all
customers.1 Transmission facilities for tying new generation into the main grid is driven by the
energy cost savings the site can provide. Thus these expenditures are energy-related and are
reflected in the marginal energy cost. Likewise transmission facilities designed to enhance
economy energy transactions are also energy-related and their costs are encompassed in the
marginal energy cost.
The total investment in growth-related projects, in constant dollars, was divided by
expected control area load growth over the same period. This marginal transmission investment is
presented in Schedule 3.

1
The projects in category four should be recovered from the specific customers involved without distorting the
marginal costs applicable to other customers.

IV-16
 Workshop I
Schedule 3
Hypothetical Power Company
Derivation of Marginal Transmission Investment

(1) Total Investment in Demand-Related

Transmission Facilities, 1995-1999
(Thousands of 1995 Dollars) $14,245

(2) Additions to Peak Load,

1995-1999 (Megawatts) 239.00

(3) Total Marginal Investment in Demand-

Related Transmission Facilities per Kilowatt
(1995 Dollars) (1) / (2) $ 59.60

Source: Line (1): NERA Worksheet: HPC “Determination of Marginal

Transmission Investment Construction Budget for
Projects in Service from 1995 through 1999.” (Range
Name: TRANS BUDGT)

Line (2): NERA analysis on file NERATPK.WK4, based on HPC

file NERA.WK4 providing actual, weather normalized
and forecast monthly loads for HPC’s control area loads
for 1989-2004. Load comprises native firm, native 832.2,
native interruptible, and requirements under wholesale
contracts. Load growth based on weather normalized
peaks for 1989-1994 and forecast load for 1995.

IV-17
 Workshop I

HYPOTHETICAL POWER COMPANY

DERIVATION OF MARGINAL TRANSMISSION INVESTMENT
CONSTRUCTION BUDGETS FOR PROJECTS IN SERVICE
FROM 1995 THROUGH 1999

Growth and Change in Reliability

Project Title Maintenance of Reliability Standard and Replacement Customer
---------------(1995 $1000's)----------------

Normal Growth (2%)

Monticello Sub 71
Angola Sub 228
Oakdale Sub 74
Oakdale Sub 83
Goshen 320
Goodland 143
Bethlehem Steel 2,403
Flint Lake Sub 97
Marktown Sub 66
Roxana Sub 269
Aetna Sub 277
Northeast Sub 299
MCGS - Replace 756
Circuit 34502 & 34508 22
Lake George Sub 360
Bethlehem Steel 545
Roxana Sub 541
Liberty Park Sub 67
Dune Acres Sub 178
Circuit 34502 & 34508 220
Norway Sub 87
Oakdale Sub 71
Starke Sub 43
Monticello Sub 34
Replace Recording Devices 90
RMSGS 888
Circuit 6985 - Goshen… 82
Circuit 6985 - cr 600W 716
LTV #2 172
Inland#7-to Marktown 177
Inland#7-to Chicago Ave. 401 284
RMS
Freemont Sub 810
South Milford Sub 281
Circuit 6985 - Sw. 140 to… 189
Dune Acres Sub 176
Circuit 34506 137

IV-18
 Workshop I

HYPOTHETICAL POWER COMPANY

DERIVATION OF MARGINAL TRANSMISSION INVESTMENT
CONSTRUCTION BUDGETS FOR PROJECTS IN SERVICE
FROM 1995 THROUGH 1999

Growth and Change in Reliability

Project Title Maintenance of Reliability Standard and Replacement Customer
---------------(1995 $1000's)----------------

St. John Sub 81

Kenwood Sub 433
Wolf Lake Sub 356
Liberty Park Sub 133
Mobile 69 kV Capacitor 378
Remington/Honey Creek 360
Angola Sub - Reinsulate 105
Angola Sub - Capacitors 627
Hipple 2,318
Hartsdale 72
RMSGS - 345 kV… 114
MCGS - Reinsulate… 158
Hartsdale Sub 254
Bristol Sub 13
Circuit 6980 - La Grange… 753
Circuit 6980 - Sw. 1150… 438
Circuit 13823 2,148
MGGS - Reinsulate… 370
East Winamac Sub 190
Total (2% growth) 14,245 3,132 3,581

High Growth (4%) Additions

Ashley Sub 247
Plymouth Sub 302
Helmer Sub 281
Green Acres Sub 302
LaGrange Sub 194
Angola Sub 194
LaGrange Line 3,229
Circuit 6985 - Buttermilk… 83
Additions (4% growth) 4,832

Source: HPC table entitled "1995-1999 Transmision Capital Budget Projects - Includes
Associated Expenditures in 1994 & 2000."

IV-19
 Workshop I

Excerpt from: Public Service Company of New Mexico, Test Year Ending March
31, 1984, "Compliance Filing Pursuant to the December 12, 1984
Order in NMPSC Case 1804," NMPSC Docket No. 1916.

PUBLIC SERVICE COMPANY OF NEW MEXICO

Derivation of Marginal Investment in

Load-Related Transmission Facilities

Line
No.

1
1 Investment in Load-Related Transmission Facilities $41,929,243
(1985 Dollars) (1984-1993)

2
2 Additions to Transmission Level Firm Peak Load (kW) 281,000

3 Marginal Investment in Load-Related Transmission 149.21

Facilities per Kilowatt (1984 Dollars) (1) / (2)

4 Investment in Load-Related Subtransmission 10,710,111

1
Facilities (1985 Dollars) (1984-1993)

2
5 Additions to Subtransmission Level Peak Load (kW) 105,000

6 Marginal Investment in Load-Related Subtransmission 102.00

Facilities per kW (4) / (5)

7 Total Marginal Investment in Load-Related 251.22

Transmission/Subtransmission Facilities per kW
(3) + (6)

1
Source: Public Service Company of New Mexico Improvement Authorization
Budget.

2
Source: Public Service Company of New Mexico Load Growth Document
(10/83).
IV-20
 Workshop I

Alternate NERA Approach To Marginal

Transmission Cost: Differential Method

ƒ Prepare two transmission budgets, one for high

load growth and one for low.

ƒ Convert both to constant $.

ƒ Divide the difference in the two budgets by the

difference in the two load forecasts.

ƒ Annualize marginal investment by applying

economic carrying charge and adding O&M and
overheads.

IV-21
 Workshop I

Illustration of Differential Investment Method

of Estimating Marginal Transmission Investment
Growth at 1% Growth at 3%
Year Ten-Year Year Ten-Year
Project Cost Needed Budget Needed Budget
(2000 $)

Sect. 77 Sectioning $125,000 2000 $125,000 2000 $125,000

Rebuild S11 and S12 Caps $540,000 2000 $540,000 2000 $540,000
Upgrade Section 31 & 55 $99,000 2000 $99,000 2000 $99,000
Replace Section 77 Cable $60,000 2006 $60,000 2001 $60,000
Second Metro 115/34 kV subst. $2,400,000 2009 $2,400,000 2003 $2,400,000
Upgrade Section 46 $120,000 2006 $120,000
Add Warner 115/34 Substation $4,000,000 2008 $4,000,000

(1) Ten-Year Budget $3,224,000 $7,344,000

(2) Ten-Year Load Growth (MW) 12.5 41.25

(3) Investment per kW (1)/(2) $258 $178

(4) Incremental Investment per kW

difference of (1) / difference of (2) $143

IV-22
 Workshop I

Regression Approach To
Marginal Transmission Costs

cumulative . cumulative
investment = a + b load growth

slope = MC of transmission

ƒ Can use other formulations

ƒ Relies on history to obtain enough points

ƒ Has technology or reliability standard changed?

IV-23
 Workshop I

Regression Approach To Marginal

Transmission Investment

Time-Series Data
1970-2010

. slope = MC
. .
Total . .
. .
Transmission . .
Investment . .
.
(constant $) . .
. .
.
.
.
.
.

load
forecast
Peak Transmission Load

IV-24
 Workshop I

Present Worth Approach To

Marginal Transmission Cost

ƒ Compute real levelized savings per kW from

shifting a nine-year transmission expansion plan
for one area by one year.
ƒ Repeat for two more (overlapping) nine-year
periods and average the three results.
ƒ Uses some historical investment to get the three
nine-year overlapping periods.
ƒ Assumes that entire expansion plan is shiftable
(marginal).
ƒ Assumes that a load reduction equal to the
average annual growth for the region will shift
the expansion plan by exactly one year.
ƒ Assumes that the load reduction will have no
impact on future replacements of the projects in
the expansion plan.

IV-25
 Workshop I

Table 1
Simplified Ilustration of PG&E's PW Method Using
San Francisco Near-Term Substation Reinforcement Project
(Actual Method Uses a Three-Year Moving Average Of This Computation)

Annual Scaled PV of
2
Division Investment Revenue Requirement Difference in
Annual System Load Shifted Shifted Present Value
1
Investment Peak Growth One Year One Year Streams
---(MW)--- -----($000)----- (1991 $000)
(A) x 2.356 (D) x 2.356 (E) - (F)
(A) (B) (C) (D) (E) (F) (G)
(1) 1990 1,097
(2) 1991 $640 1,110 13 1,508 0
(3) 1992 4,800 1,123 13 $669 11,309 1,576
(4) 1993 840 1,136 13 5,016 1,979 11,818
(5) 1994 0 1,149 13 878 0 2,068
(6) 1995 0 1,162 13 0 0 0
(7) 1996 0 1,175 13 0 0 0
(8) 1997 0 1,188 13 0 0 0
(9) 1998 0 1,201 13 0 0 0
(10) 1999 0 1,214 13 0 0 0
(11) 2000 0
(12) Average 13
(13) Present Value @ 11% 3 (1991 000$): $13,302 $12,523 $779
(14) PV Difference per kW of Load Growth (1991$) (13)/(12) $59.92
(15) Real Levelized Annual Cost 4 (1991$/kW) $9.29
(16) Real Levelized Annual Cost (1993$/kW) (15) x (1+ I)^2 $10.15

Assumptions:
Inflation Rate (i) 4.50%
Discount Rate (r) 11.00%
Annualized Period 9 years

Area Transmission Scaler

For Substations 2: 2.356

Notes:
1 Values from columns (1) and (2) shifted one year forward with inflation added.
2 Scaling converts investment to present valued revenue requirement including return, depreciation,

Taxes, O&M, and general plant and A&G loaders.

3 First year is not discounted.
4 (14) x (r-i) x {1/[1-{(1+ i) / (1+ r)}^9]} – first year is discounted.

Source: Based on PG&E 1993 Test Year General Rate Case Workpapers, Application,
Exhibit (PG&E.16), Chapter 4, pages 1-4 to 1-6.

IV-26
 Workshop I

Next: Exercise – Growth-Related Transmission Projects

Transmission Time-Differentiation

IV-27
 Workshop I

Alternatives For
Time-Differentiating
Marginal Transmission Costs

ƒ Probability of system peak or peaks used for

charging OATT (adjusted for wheeling,
interruptible loads, as appropriate)

ƒ Weighted average of probabilities of transmission

substation peaks

▫ Weight by load.
▫ Caution excess capacity at some
substations might bias results.

With either method it may be

important to adjust for reduced
carrying capability in hot weather

IV-28
 Workshop I

Estimating Probability Of Peak For A Given

Hour, Day-Type And Month

frequency Normalized
peak load**

0 Normalized* load for a given

hour, day-type and month
Estimated Probability Peak
* Load/Average hourly load for the year.
** Average for all years of data used.

Adjust summer loads upward to account for reduced carrying capability in hot periods.

Watch out for shifts to and from daylight savings time – a zero load value distorts the
distribution of hourly loads.

IV-29
 Workshop I

Excerpt from: The Time-differentiated Marginal Costs of Hypothetical Power

Company’s Electric Service, NERA, October 10, 1995

IV. MARGINAL TRANSMISSION COSTS

C. Time-Differentiation of Transmission Costs

The marginal investment and O&M analysis described above provides the basis for
estimates of annual transmission costs. The next step is to assign those annual costs to the hours of
the year. We assigned the annual costs to hours based on an estimate of the probability that any
given hour will be the peak hour. This probability of peak analysis, whose results are listed in
Schedule 5, takes into account the reduced carrying capability of transmission facilities in periods
of high temperature.

IV-30
 Workshop I
Schedule 5
Hypothetical Power Company
Transmission Assignment Factors Estimated Relative
Probability of Peak by Costing Period

Percent of Annual
Probability of Peak
(1)
Summer
(1) Peak 86.7%
(2) Off-Peak 13.3%
(3) Subtotal 100.0%

Shoulder
(1) Peak 0.0%
(2) Off-Peak 0.0%
(3) Subtotal 0.0%

Winter
(4) Peak 0.0%
(5) Off-Peak 0.0%
(6) Subtotal 0.0%

Note: Costing periods are defined as follows:

Summer: June - September.
Peak: Monday - Friday, hours
ending 12 noon to 5 pm.
Off-peak: All remaining hours.

Shoulder: March - May, October - November.

Peak: Saturday, hours ending 9 am to 9 pm.
Off-peak: All remaining hours.

Winter: December - February.

Peak: Monday - Saturday, hours ending
9 am to 11 pm, and Sunday, hours
ending 6pm-11pm.
Off-peak: All remaining hours.

Source: Based on NERA file TPRPK4B.WK3 derived

from the NERA's SAS program PRPK.PGM which used
control area loads provided by HPC in the files
YR93CNTL.EEI and CNTL8993.DAT.
IV-31
 Workshop I

Transmission O&M Expense

By Voltage Level

ƒ Use historical average expense / kW of transmission

peak load (weather-normalized) as starting point

ƒ Normalize unusual levels

ƒ Exclude non-marginal expenses

(Rents and wheeling costs are substitutes for past
investment)

ƒ Split by voltage level, if necessary

IV-32
 Workshop I

Excerpt from: The Time-differentiated Marginal Costs of Hypothetical Power

Company’s Electric Service, NERA, October 10, 1995

IV. MARGINAL TRANSMISSION COSTS

B. Transmission O&M Expenses

Transmission O&M expenses depend on the amount of plant in service. The addition of
transmission facilities to meet increments in load gives rise to increased O&M expenses as well.
Transmission O&M expenses are, therefore, marginal costs.
Because detailed O&M budgets for future years are not available, our method for
estimating marginal transmission O&M expense is to calculate transmission O&M per kilowatt
of weather normalized system peak (including native firm load, native interruptible load, rate
832.2 load, as well as the requirements under wholesale contracts) for recent historical years.
Expenses for wheeling and transmission rents were excluded, as they are not expected to grow
with load. As shown in Schedule 4, we used the average level of expense per kilowatt for the
historical period that HPC felt best represented future marginal transmission expenses.

IV-33
 Workshop I

Hypothetical Power Company

Transmission O&M Expenses
Acct
No. Account 1989 1990 1991 1992 1993
----------(Thousand Dollars)----------
(1) (2) (3) (4) (5)
Transmission Operation
(1) 560 Operation Supervision
and Engineering 1,429 1,501 1,281 1,291 1,030
(2) 561 Load Dispatching 1,041 1,060 1,164 1,371 1,035
(3) 562 Station Expenses 2,484 2,513 2,347 2,380 2,623
(4) 563 Overhead Line Expenses 459 407 524 733 978
(5) 564 Underground Line Expenses 0 0 0 0 0
(6) 565 Transmission of Electricity
by Others 2,715 1,051 212 208 204
(7) 566 M isc. Transmission Expenses 443 542 444 375 353
(8) 567 Rents 47 72 142 62 35
(9) Total Operation 8,618 7,146 6,114 6,420 6,258

Transmission Maintenance
(10) 568 M aintenance Supervision
and Engineering 1,185 1,301 1,272 1,368 1,039
(11) 569 M aintenance of Structures 210 171 304 108 166
(12) 570 M aintenance of Station
Equipment 2,240 2,126 1,955 2,131 2,234
(13) 571 M aintenance of Overhead
Line 1,675 1,838 1,583 1,471 1,333
(14) 572 M aintenance of Underground
Line 0 0 0 0 0
(15) 573 M aintenance of M isc. Trans.
Plant 221 5,605 185 227 273
(16) Total M aintenance 5,531 11,041 5,299 5,305 5,045

(17) Total Transmission Expense (9) +(16) 14,149 18,187 11,413 11,725 11,303

(18) Total Transmission Expense Excluding

Accounts 565 and 567 11,387 17,064 11,059 11,455 11,064

Note: Detail may not equal total due to rounding

Source: HPC FERC Form No. 1: Annual Report of M ajor Electric Utilities, Licenses and Others, p.321.

IV-34
 Workshop I

Schedule 4

Hypothetical Power Company

Transmission O&M Expenses Per Kilowatt of System Peak Demand
1989 - 1993

Weather
Transmission Normalized Weighted
Operation and System Expense Per Labor and Expense Per
Maintenance Peak kW of System Materials kW of System
Year Expenses ^1 Demand Peak Demand Cost Index Peak Demand
(Thousand (MW) (Dollars) (1995=1.0000) (1995 Dollars)
Dollars) (1) / (2) (3) / (4)
(1) (2) (3) (4) (5)

(1) 1989 $11,387 2,760 $4.13 0.7563 $5.46

(2) 1990 17,064 2,604 6.55 0.8137 8.05

(3) 1991 11,059 2,661 4.16 0.6771 6.14

(4) 1992 11,455 2,707 4.23 0.8639 4.90

(5) 1993 11,064 2,860 3.87 0.9006 4.30

(5) Estimated Annual Transmission O&M Expense for the Planning Period ^2 $5.20

^1 Transmission O&M expenses exclude Rents (Account 567)

and Transmission of Electricity by Others (Account 565).
^2 Average of 1989, 1991, 1992, and 1993

Source: ^2: Per HPC.

Col. (1): NERAworksheet HPC "Transmission O&M Expenses," line (18).

(Range Name: TRANOM)
Col. (2): Peaks values are taken from NERATPK.WK4, NERA analysis based on
HPC file NERA.WK4. The weather normalized (W/N) peaks used here
are the sum of HPC'S control area loads including native firm, native
interruptible, rate 832.2, and requirements under wholesale contracts.
Col. (4): NERA worksheet HPC Computation of Weighted Labor and Material
Cost Indexes, 1988 - 1995," column (8). (Range Name: LAB&MAT)

Next: Exercise – Transmission O&M IV-35

 Workshop I

Ancillary Services

IV-36
 Workshop I

Types of Ancillary
Services

ƒ Regulation – generation that is available and running,

that can be used to maintain real-time energy balance
(“load following”)
ƒ Spinning Reserves – generation that is running with
additional capacity available
ƒ Non-spinning Reserves – generation that is available
Supplemental
but not running
Reserves
ƒ Replacement Reserves – generation that is capable of
starting up
ƒ Reactive power support & voltage control-
compensation for loads and equipment that use or
create vars
ƒ Black-start capability – needed to restart generators in
the event of a complete system shut-down

IV-37
 Workshop I

Ancillary Services Issues

With Tentative Answers
ƒ Which can be supplied competitively?
▫ Operating reserves
▫ Load following

ƒ Which can be acquired/self-supplied by

customers or retailers?
▫ Reactive power
▫ Operating reserves

ƒ Which must be acquired by ISO?

▫ Operating reserves
▫ Load following
▫ Blackstart capability
▫ Scheduling and dispatch

ƒ How should suppliers be compensated?

▫ At their opportunity cost – may be captured
in ancillary services market price

IV-38
 Workshop I

Fixed compensation
(opportunity cost)
$/Mwh
for providing non-spinning
reserve @ BidS

Energy Bid
BidS for non-spinning
reserve (paid only
when called to run)

Energy Market
Price curve

Hours
of day
Expected no. of
hours when generator would be called
to supply non-spinning reserve

IV-39
 Workshop I

Estimates of Marginal Costs of Ancillary

Services Need to be Based on New Approaches

Traditional Approach (Vertically- ISO Markets for Ancillary Services

Integrated Utility, no regional bid-market)

Marginal costs of ancillary − Regulation & Frequency

services generally not Response, Spinning Reserve and
specifically computed when Supplemental Reserve: Forecast
utility is vertically integrated. of ancillary service market prices
in each hour.
− Reactive Supply and Voltage
Control: Forecast of regulated
RTO charges.

IV-40