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Straight Talk on Reliability and Congestion Costs

May 3, 2009

People who are fighting PATH in central MD and the MAPP line on the eastern shore of MD recently did this short analysis of PJM’s claims about reliability and congestion costs.  The testimony they quote comes from engineers who testified in the east VA TrAIL case at the east VA State Corporation Commission hearings last year.  The footnote includes a link to that testimony.

Here is the analysis:

Reliability and High-Voltage Transmission

Several long-distance, high-voltage transmission projects are planned for the states served by PJM Interconnection, a regional transmission organization. These costly, massive power lines would criss-cross Pennsylvania, West Virginia, Maryland, Virginia, Delaware, and New Jersey. PJM says that, under its Regional Transmission Expansion Plan (RTEP), the reliability of the grid is at risk if all of the lines are not built.

1. In general, the expansion of long-distance transmission in any electric grid will increase the share of local load that is served by distant generation. While only a qualified engineer can criticize PJM’s claims about reliability in the RTEP, it is clear that more long-distance transmission means a less-resilient grid — more difficulty for operators struggling to stabilize the grid during disruptions and more challenges in recovery following a major outage.


“Long distance transmission is not reliable. Given the complexity of the modern electrical system, and what we know about the role reactive power has played in recent outages, relying on longer transmission lines to wheel greater amounts of real power is perhaps the worst strategy for ensuring system reliability. Large and long transmission lines lose reactive power the larger and longer they become, requiring the system to compensate in ways that increase the likelihood of systems collapse….” (See Sovacool testimony.)

2. A US-Canada Commission concluded that operator error was the cause of the August 2003 Northeast blackout, not inadequate transmission or generation.

3. PJM’s reliability claims can and should be questioned by state utility regulators. PJM’s reliability studies involve (1) private data, (2) model assumptions that are not fully disclosed, and (3) different standards than other U.S. grid managers. (See Merrill testimony.)

4. Rate-payers do not pay “congestion costs.” “The effect of PJM’s real-time pricing mechanism is to raise prices – dramatically – when congestion occurs. This is intended to send a price signal to encourage more generation and demand side savings in congested areas. However, to protect ratepayers from huge price increases due to congestion, PJM created a hedging mechanism. PJM captures a portion of the congestionrelated price increase, which it calls “Congestion Costs.” PJM then rebates these increased costs to the ratepayers through the FTR [Financial Transmission Rights] mechanism… These are bookkeeping procedures carried out within the market accounting and billing system…. When [PJM witnesses] refer to congestion costs of $1.2 billion in a single year, for example, they are referring to ratepayer rebates, not to costs paid by ratepayers.” (See Merrill testimony.)

Testimony of Merrill and Sovacool from the TrAIL case before the Virginia State Corporation Commission can be found here: http://www.pecva.org/anx/index.cfm/1,341,0,44,html/SCC-Testimony.

This summary gives us a clear picture of why AEP/Allegheny and PJM are just wrong when they use the scary words “reliability” and “congestion.”

As the high voltage transmission grid gets larger, reliability for consumers goes down without even larger investments in equipment to stabilize larger, longer power flows.  When the system goes down, large transmission flows are much more difficult to bring back on line.

That is the lesson we should learn from the 2003 blackout.  It was the interdependence of the grid that caused the blackout, not the failure of conductors or equipment.  The inter-connected northeast grid was also much more difficult to start up again, because large power flows across the system had to be monitored and controlled.

The new bigger transmission system created by 1980s deregulation was less reliable, not more reliable.  The 2003 blackout was the first big failure of the “big transmission” grid that PJM and AEP/Allegheny are pushing.  Far from preventing these kinds of failure, PATH and TrAIL will make them more likely.

The “congestion cost” argument, as the analysis above indicates, is a misrepresentation of how PJM works.  Consumers do not pay these costs.  PJM and the power companies absorb them through PJM’s FTR system.  In effect, by eliminating the need to use PJM’s FTR mechanism, PATH, TrAIL and MAPP will be transferring those costs to consumers through the FERC transmission incentive system.  Once the power lines are built, power companies will no longer have to absorb the FTR costs, and we will be paying for the power lines.

Remember also that PJM’s market pricing mechanism is based on the economic dispatch system.  When PJM and AEP/Allegheny complain about congestion costs, what they are really saying is that during periods of high congestion, utilities are forced to buy electricity from local east coast suppliers instead of from distant coal fired power plants owned by AEP/Allegheny.  The higher congestion prices are actually an incentive for investment in local east coast generating capacity.  If AEP/Allegheny get their power lines, this incentive will disappear and they will enjoy an even greater monopoly advantage under PJM’s economic dispatch system.

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