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Transmission Benefit Quantification, Cost Allocation, and Cost Recovery

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Transmission Benefit Quantification, Cost Allocation, and Cost Recovery Arnold Schwarzenegger Governor TRANSMISSION BENEFIT QUANTIFICATION, COST ALLOCATION AND COST RECOVERY REPORT PROJECT FINAL Prepared For: California Energy Commission Public Interest Energy Research Program PIER Prepared By: Lawrence Berkeley National Laboratory Prepared By: Vikram Budhraja, John Ballance, Jim Dyer, and Fred Mobasheri Electric Power Group, LLC Pasadena, California Joseph Eto, Lawrence Berkeley National Laboratory Principal Investigator Commission Contract No. 500-05-001 Commission Work Authorization No: MR0606/MR-051 Prepared For: Public Interest Energy Research (PIER) California Energy Commission Jamie Patterson Contract Manager Mike Gravely Program Area Lead ENERGY SYSTEMS INTEGRATION Mike Gravely Office Manager ENERGY SYSTEMS RESEARCH Martha Krebs, Ph.D. PIER Director Thom Kelly, Ph.D. Deputy Director ENERGY RESEARCH & DEVELOPMENT DIVISION Melissa Jones Executive Director DISCLAIMER This report was prepared as the result of work sponsored by the California Energy Commission. It does not necessarily represent the views of the Energy Commission, its employees or the State of California. The Energy Commission, the State of California, its employees, contractors and subcontractors make no warrant, express or implied, and assume no legal liability for the information in this report; nor does any party represent that the uses of this information will not infringe upon privately owned rights. This report has not been approved or disapproved by the California Energy Commission nor has the California Energy Commission passed upon the accuracy or adequacy of the information in this report. ACKNOWLEDGMENTS The PIER Research Manager for this project was Virgil Rose. A Technical Advisory Committee (TAC) was established to review research results and offer guidance to the research team. Two in-person TAC meetings were held along with other written and oral communications as needed and appropriate. The Technical Advisory Committee consisted of: o Dede Hapner, Vice President, FERC and ISO Relations, Pacific Gas & Electric. o Les Starck, Director of T & D Business Unit, Southern California Edison. o Caroline Winn, Director of T&D Asset Management, San Diego Gas & Electric. o Sean Gallagher, Director of Energy Division, California Public Utilities Commission. o Steve Ellenbecker, Energy Advisor to Wyoming Governor Freudenthal. o Jim Bushnell, Research Director, UC Energy Institute. The research team and key areas of research responsibilities were as follows: o Project Management and Outreach – Joe Eto and Vikram Budhraja. o Review of Technologies – John Ballance, Jim Dyer, and Jim Terpening. o Industry and Regulatory Changes – Vikram Budhraja, John Ballance and Jim Dyer. o Review of other Regions and Industries – Alison Silverstein. o CA ISO Transmission Planning Process and Comparison of ISO’s -- John Ballance and Jim Dyer. o Benefit Quantification, Cost Allocation, Cost Recovery – Vikram Budhraja and Fereidoun (Fred) Mobasheri. The research team wishes to thank the Virgil Rose, PIER Project Manager for his guidance, support and encouragement throughout the project and the TAC members for their useful insights to sharpen the research focus. Budhraja, Vikram, John Ballance, Jim Dyer, and Fred Mobasheri, (Electric Power Group, LLC), 2008. Transmission Benefit Quantification, Cost Allocation and Cost Recovery. California Energy Commission, PIER Energy-Related Environmental Research Program. CEC-xxx-xxxx-xxx Preface The Public Interest Energy Research (PIER) Program supports public interest energy research and development that will help improve the quality of life in California by binging environmentally safe, affordable, and reliable energy services and products to the marketplace. The PIER Program, managed by the California Energy Commission (Energy Commission), conducts public interest research, development, and demonstration (RD&D) projects to benefit California. The PIER Program strives to conduct the most promising public interest energy research by partnering with RD&D entities, including individuals, businesses, utilities, and public or private research institutions. PIER funding efforts are focused on the following RD&D program areas: Buildings End-Use Energy Efficiency Energy Innovations Small Grants Energy-Related Environmental Research Energy Systems Integration Environmentally Preferred Advanced Generation Industrial/Agricultural/Water End-Use Energy Efficiency Renewable Energy Technologies Transportation Benefit Quantification and Cost Allocation/Recovery Research Project for Transmission is the final report for the Cost Allocation Research project Contract Number 500-05-001, work authorization number MR0606/MR-051 conducted by Consortium for Electric Reliability Technology Solutions/Electric Power Group, LLC. The information from this project contributes to PIER’s Energy Systems Integration Program. For more information about the PIER Program, please visit the Energy Commission’s website at www.energy.ca.gov/pier or contact the Energy Commission at 916-654-5164. i Table of Contents Executive Summary ........................................................................................................................... 1 1.0 Introduction .......................................................................................................................... 5 2.0 Research Goals and Objectives .......................................................................................... 9 3.0 Review of Other Industries, Regions, Transmission Technologies, Industry and Regulatory Changes ............................................................................................................ 11 3.1. Review of Other Industries ........................................................................................... 11 3.2. Lessons Learned From Other Regions ........................................................................ 11 3.3. Transmission Technologies ........................................................................................... 12 3.4. Industry and Regulatory Changes. .............................................................................. 12 3.5. Implications for Transmission Projects ....................................................................... 13 3.5.1. Transmission as a Public Good .................................................................................... 13 3.5.2. Present Value of Future Benefits—Social Rate of Discount ..................................... 13 3.5.3. Application of Social Discount Rate ............................................................................ 14 3.5.4. Recommendation For Social Rate of Discount For Transmission Projects ............ 17 4.0 Current Methodologies For Benefit Quantification ........................................................ 19 4.1. Types of Projects ............................................................................................................. 19 4.2. Types of Benefits ............................................................................................................ 19 4.3. Benefits Assessment Approaches in Use .................................................................... 22 4.4. Review Of Benefit Analysis Of Some Recent Projects .............................................. 23 4.4.1. Devers-Palo Verde No. 2 ............................................................................................... 23 4.4.2. Tehachapi Transmission Project .................................................................................. 27 4.4.3. Frontier Line .................................................................................................................... 29 4.5. Benefit Analysis Observations And Conclusions ...................................................... 31 5.0 Benefit Quantification Methods ........................................................................................ 35 5.1. Assessment of Current Methods .................................................................................. 35 5.2. Methods to Improve Benefit Quantification of Transmission Projects................... 37 6.0 Application Of New Methods For Benefit Quantification ............................................ 41 6.1. Public Good – Long Asset Life Benefit—Use of Social Rate of Discount ............... 41 6.2. Fuel Diversity Benefit .................................................................................................... 42 6.3. Quantification of Reliability Improvement ................................................................ 44 6.4. Benefit of Market Risk Mitigation ................................................................................ 45 6.5. Dynamic Analysis .......................................................................................................... 46 ii 6.6. Delphi Method ................................................................................................................ 46 6.7. Resource Portfolio Analysis .......................................................................................... 47 6.8. Recommendation on Use of Research Results ........................................................... 49 6.9. Use of Improved Benefit Quantification Methods .................................................... 50 6.10. Recommendation on Additional Research ................................................................. 50 7.0 Cost Allocation And Cost Recovery ................................................................................
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