American Transmission Co., not yet three years old, is the granddaddy of “transmission-only” companies. Indeed as the nation’s first and now largest such entity, many experts feel it represents the best strategy for fast fixing the grid. Simply put, place large swaths of transmission into a for-profit entity that make moving power about its core business. Then let the capital investments and efficiencies flow.

Jose M. Delgado, the colorful president and CEO of American Transmission, is an industry veteran with 27 years experience at Wisconsin Electric Power Co. He has a lot to say about the crisis in the energy delivery system and what steps must be taken to fix it.

ROSENBERG: What would you say is the biggest problem with the electric transmission grid?

DELGADO: The grid was designed to operate for integrated utilities with very limited trading. It was not designed for original market. And then in 1996, we opened up the original market on a network that was not designed for it. The fact that it was designed for integrated companies means that there are some very significant gaps in the network from a regional perspective. They impede the operation of the system. It makes a lot of the local portions of the transmission system inadequate that were once perfectly adequate.

ROSENBERG: There have been some estimates that as much as $100 billion needs to be spent on the grid. Do you agree?

DELGADO: Well, let me put it this way. American Transmission Co. is planning to spend $2.8 billion in the next 10 years. So, if you were to extrapolate my impression is that it certainly can be that big. But before you go wild on that number, find out what is the fuel bill for the electric utilities in the U.S. of America.

ROSENBERG: What is it?

DELGADO: Well, it’s in the trillions of dollars each year. So, put 100 billion over two or three trillion and you can see that it’s not a very large number. Transmission is the mechanism by which the market operates. If you improve transmission so that no one gains market power, that should reduce the cost of energy, which is a huge.

ROSENBERG: What do you think Congress needs to include in new energy legislation?

DELGADO: The Congress can do several things. The reliability rules must be obligatory. The other issue is that I think we have demonstrated to ourselves, and I think we have demonstrated to our customers, that having transmission-only companies does make a big difference. And the difference is that we’re totally focused on a single service, which is transmission.

ROSENBERG: Can Congress spur creation of transmission companies?

DELGADO: There are two basic things that I think Congress can do. I would say the very first one is to minimize the impact, the tax impact, of divestiture of assets. There is a very significant penalty, because of the mismatch between depreciated value at the regulatory level and depreciated value at the tax level. There is a proposal in the House bill to take care of that. We think that Congress should be pretty aggressive about that because that would encourage people to divest.

ROSENBERG: Do you support the repeal of the Public Utility Holding Company Act?

DELGADO: Yes. There is a potential problem with PUHCA if the transmission companies are multi-state. And that is likely to complicate the operation of transmission-only companies. We think the transmission companies should be multi-state. We’re in three states and if we were to grow any further, it’s likely to make us a registered company, PUHCA, is likely to complicate this.

ROSENBERG: How do you spur construction of needed transmission?

DELGADO: We are spending a lot of money and time and advertising to sell the concept to the public. You might think that this is triviality. This is not a triviality. This is, in fact, the secret of getting transmission done, because the biggest difficulty happens to be the public’s opposition to construction, landowners’ opposition and local elected officials’ opposition. The point we make with all these people is that we cannot afford to go and fight everybody on a route in order to build one project.

ROSENBERG: You have said that it takes nine years to complete or make the transmission line. How long should it take?

DELGADO: Five years.

ROSENBERG: Why such a speed up?

DELGADO: It has to be within the range of building a base loaded unit. Anybody can connect a gas turbine here and there. But to connect a base loaded unit you have to build mega transmission. You can build a 1,200-megawatts coal-fired base load plant in four years. I have to be able to connect it to the grid. So five years is basically where we have to be. And we’re working with basically everybody in the states here and in the government to improve on that.

ROSENBERG: What do you think are some of the problems that are still facing the grid, though?

DELGADO: We have gaps. We in fact have used up margins. When we follow the North American Electric Reliability Council rules, we are confident that we will stay out of trouble. But the fact that you are burning those margins, particularly on some peak days, means that you can take fewer and fewer multiple contingencies, and that it becomes easier and easier for you to get in deep trouble as a transmission operator. On August 14, the Midwest and the area that we serve was not stressed at all. It survived quite well even though it was shaken very hard.

ROSENBERG: Why?

DELGADO: It was not stressed because we didn’t have the high loads, because we didn’t have a lot of transactions. It just happened to be a good time to have a problem.

But if we had been near the margins because there were a lot of transactions going through us or because the loads are very high everywhere, it would have been different in the Midwest. If you don’t have margins, you’re in trouble. The system is running out of margins. We have to look how to expand those margins.

ROSENBERG: Do you think the outage, in retrospect, will prove to be a good thing if it gets us to do what we need to do?

DELGADO: Well, you know, I will never say that, because, you know, the cost and the risk to such a large number of people losing power is unacceptable to me. And, in fact, this is the nightmare of every operator. Like Michehl Gent, I feel ashamed because frankly none of us thought that we would let this happen, I don’t like it. However, it has been highly instructive. A lot of people thought a grid failure would resemble the rolling blackouts in California. Now they realize that in a cascading outage, there’s no time for planning, nobody gets told and it is a total, indiscriminate outage of everybody. People kept saying, “You’re too conservative.” I heard that a lot in the last five, 10 years. “You guys are leaving a lot of transmission capacity out there, just because of your stupid rules.” Well, those are the margins that prevent this from happening. And you know what? We like it this way. Now the public will understand. We can have greater credibility.

ROSENBERG: Should we end vertically integrated utilities and should utilities be encouraged to get rid of their transmission assets?

DELGADO: The transmission-only companies are a significant advantage. I hope that we can demonstrate that we’re a better investment than an integrated company – that the assets that are better invested are valued more. There are 29 companies that divested assets. I have told a lot of boards of directors and heads of companies that we will provide them better service, eventually at a lower cost and earn more on the assets. And I said, “Now, you want me to repeat that?”

ROSENBERG: These 29 companies have divested their assets to you?

DELGADO: Yes.

ROSENBERG: And you, in fact, are providing service at lower cost and a better return?

DELGADO: Well, you know, our rates have gone up, but I’m providing a hell of a lot better service. We had very low rates because the system was not adequate. The system could not do what the people needed. So, our rates have gone up. Each project that I do, I can show you that we have done it more economically, because we’re looking at the whole thing. With a single project we have the ability to solve many more problems, which makes the project more economic. We are in a bigger footprint and we are able to spread the cost of a larger project to all those who benefit. And as a consequence, the impact per customer is much less. I would say that there are a lot of integrated companies that cannot afford the transmission system they need, because they cannot afford the shock to the retail customer.

ROSENBERG: Will the grid be fixed fast, or are we in for a long haul?

DELGADO: Something will come out of Congress but only the Lord knows what that is. Everybody’s going to try to intervene to make sure things work out well.

ROSENBERG: Low-cost power regions like the South and the Northwest – won’t they want to block the emergence of a strong national grid?

DELGADO: Oh, I think they’ll throw big obstacles. But let me tell you something. Trade will always reduce fuel costs. Inability to trade will increase fuel costs. The states or the regulators that think they can put a fence around themselves are kidding themselves. What they should be doing is building the transmission to increase access, so that when their so-called cheap units have to be shut down for a variety of reasons they will have access to a market that assures both reliability and price.

ROSENBERG: Summing up, will long-term planning prevail?

DELGADO: Let me give you another point, which actually is like a bumper sticker. I told this to several regulators. Energy planning thinking is short-term thinking. And energy solutions are always long-term solutions. So you have short-term thinking against long-term solutions, and that’s a bad combination. You know, you have to look 20 years down the road and say, what’s going to happen to me? What’s going to happen to this area? Where are the loads going to be? Where’s the generation going to be from? When people do that they realize that whatever advantage they have today, unless they take action, they won’t have it in 20 years. And if you’re responsible for the supply of energy 20 years from now, you’d better start thinking because sometimes it takes that much time to get the appropriate construction done to take care of what happens 20 years from now.

At First Glance, Transmission Capacity Appears to be Adequate. But is it Really? By Dr. Eric Hirst, Oak Ridge, TN From a study entitled Expanding U.S. Transmission Capacity, funded by the Edison Electric Institute. U.S. transmission capacity increased slowly from 1978 to 1998, from 89 to 132 thousand GW-miles, or from 107 to 149 thousand miles. However, that increase was lower than the growth in peak demand. (To the extent that transmission is built to serve growing loads, peak demand is an appropriate normalizing factor for transmission capacity.) The normalized transmission capacity (either MW-miles of transmission per MW of summer peak demand or miles of transmission per GW of summer peak demand) increased between 1978 and 1982 and then declined for the subsequent 16 years. For example, the MWmiles per MW-demand indicator increased by 3.5 percent per year between 1978 and 1982 and then declined by 1.2 percent per year between 1982 and 1998. To the extent that transmission is built to connect new generators to load centers, generating capacity is an appropriate normalizing factor for transmission capacity. Because generating capacity increased more slowly than did load during this two-decade period, the trend in transmission capacity normalized by generating capacity is less clear than when transmission capac-ity is normalized by peak demand. Normalized by generating capacity, transmission capacity increased at about 2 percent per year between 1978 and 1984 and then remained essentially unchanged from 1984 through 1998. EEI also collects data on annual construction expenditures, including transmission, for investor-owned utilities. In addition, EEI (2000) reports projections of construction expenditures for the next three years. These data show that transmission investments (in constant, inflation-adjusted dollars) have been declining for almost 25 years at an average rate of $115 million per year. However, utility projections of expenditures on new transmission show an increase for the next few years to an average level about 5 percent higher than the 1998 expenditure. Utility reports to NERC (1999) are consistent with the EEI data. NERC also provides data for each of the ten regional reliability councils. Between 1989 and 1998, transmission capacity normalized by summer peak demand declined in each of the reliability regions. The amount of transmission capacity per MW of peak demand varies by a factor of almost four among regions, presumably because of differences in population density and the distances between generators and load centers. For example, the West and the Plains states (WSCC and MAPP) have 300 to 400 MW-miles per MW of peak demand. On the other hand, the densely populated mid-Atlantic region (MAAC) has barely more than 100 MW-miles per MW. The overall decline in normalized transmission capacity for the U.S. was 16 percent between 1989 and 1998. Declines were more rapid in ECAR, ERCOT, FRCC, and SPP, and less rapid in the other six regions. Utility projections of future transmission-capacity additions show continued declines between 1998 and 2008, although at a slightly lower rate (-1.3 percent per year from 1998 to 2008 vs -2.0 percent per year from 1989 to 1998). Planned transmission additions are less than expected load growth in each of the ten regions. Regions with the greatest projected declines in normalized transmission capacity are ECAR, MAAC, MAPP, NPCC, and SERC. Interpreting these data and projections is not obvious. The way the data is presented suggests a growing problem – perhaps even a looming crisis – in U.S. transmission capacity. Had the data been plotted as MW of peak demand per unit of transmission capacity, however, one might conclude that the electricity industry is becoming more efficient in its use of transmission, better able to pump more power through the existing system. The truth likely lies between the two extremes. On the one hand, technological advances in data metering, communications, and computing permit system operators to run transmission grids closer to their thermal, voltage, and stability limits. For example, system operators using dynamic ratings of transmission equipment, based on current temperatures and wind speeds, to operate equipment closer to their physical limits. And the construction of small gas-fired generators close to load centers reduces the need for new transmission. On the other hand, transmission congestion and the consequent cancellation of transactions suggest that additional transmission capacity is sorely needed in several locations. NERC’s (2000) winter and summer reliability assessments provide interesting details. The 1999/2000 winter assessment shows planned transmission system additions and upgrades of 140 miles (230 kV and above) between October 1999 and March 2000. The 2000 summer assessment shows additions of 1070 miles for the following six months. Thus, the latest data show a total of about 1200 miles of new transmission during the current year, an increase of less than 1 percent. The regional reports in the 2000 summer assessment paint a mixed picture. Transmission capacity is adequate in several regions, including FRCC, MAAC, MAPP, and SERC. For example, FRCC notes that its “bulk transmission system is expected to perform adequately over various system operating conditions.” The other regions report problems such as: “the transmission system could become constrained;” “If these conditions occur ..., Transmission Loading Relief [TLR] will need to be invoked to maintain transmission system security;” “MAIN’s import capability from ECAR is ... significantly lower than recent historical levels, which is a concern;” “Import capability into the WUMS subregion is inadequate;” “Some MAPP transfers are becoming more susceptible to voltage limitations;” “NEPOOL concern about phase-angle regulator failing ... may affect the voltage in the local northern Vermont area, which may not support full operation of the Highgate HVDC interconnection during peak conditions [and] may restrict NE-NY inter-Area transfer capability;” “loss of the[se] transmission facilities ... will add more flow to an already heavily loaded transmission system, limiting the ability of the NY system to facilitate the delivery of emergency energy from PJM or Ontario to New England and deliveries to New York City;” “Heavy line loadings in adjoining regions are occurring more often, which results in regions invoking the NERC TLR procedure;” “SPP has found many of its interfaces restricted, which limits the scheduling of power into and out of SPP;” “several synchronous condensers are unavailable for voltage support;” “overloads could occur on some transmission lines;” “may be subject to voltage instability ... during periods of high demand;” and “the transmission path between southeastern Wyoming and Colorado often becomes heavily loaded.” These data and reliability assessments point to the following conclusions: Existing transmission systems are strained, system operators are struggling to operate these systems closer to their physical limits, and new transmission facilities must be built soon to improve reliability margins and expand regional electricity trade. 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