By mid-2014, both Southwest Power Pool and MISO will have upgraded Arkansas’ electrical transmission systems with sophisticated “second-day” transmission markets, a move that is intended to save ratepayers millions of dollars.
But in the meantime, the utilities and the transmission operators are spending huge amounts of capital and man-hours on the upgrade process.
In particular, Arkansas Electric Cooperative Corp. of Little Rock, which serves about 500,000 mostly rural customers across 17 cooperatives, generates power through the lines of both SPP and Entergy Arkansas Inc.
And because, back in 2011, Entergy chose MISO, or the Midwest Independent Transmission System Operator Inc., as a regional transmission operator rather than Little Rock’s SPP, the cooperative group is now in the unique and difficult position of figuring out how to integrate both transmission operators’ markets.
“There are other utilities that have load or generation into two markets simultaneously,” said Keith Sugg, vice president of integration at AECC. “But the thing that makes AECC unique with respect to these markets is joining two of them, in essence, at the same time.”
The upgraded markets, essentially, are supposed to increase the efficiency of transmission markets, in which operators can purchase and use generation in real time. (See more about the market here.)
An exact dollar amount the process has cost wasn’t available, but Sugg said it’s certainly in the millions.
For a bit of perspective: Although Entergy Arkansas is only integrating MISO’s market — SPP does not operate any of Entergy’s lines — it’s still been a huge process for that company. According to Entergy testimony filed with the Arkansas Public Service Commission, the integration has so far cost Entergy $31 million over two years and will be completed in December.
So either transition job alone would have been difficult.
The two are similar but different in ways subtle enough that special training has been necessary from both groups.
“You can’t exactly interchange them,” Sugg said. “Some of the rules are a little different, but they are conceptually the same.”
‘Something of a Challenge’
Sugg said the gantlet of challenges AECC is facing in the transition can be narrowed to three categories: training, upgrading and strategizing.
“One of the challenges has been getting AECC organized internally,” Sugg said. “It affects virtually every department in the company, and coming up with a way to address this in a coordinated way has been something of a challenge.
“In each of the functional areas, there’s a significant amount of training that needs to be done.”
Both SPP and MISO, Sugg said, have been working constantly with AECC to make sure the transition is smooth.
Second, the company must also install the gargantuan amount of technology the markets need. This has required a full overhaul of the company’s computer systems to handle the data load, Sugg said.
“Because this is a completely different way of doing business, that in and of itself is the challenge,” Sugg said.
“We’re having to learn entirely new rules to operate under, having to develop entirely new work flows on how we’re doing our day-to-day business. We’re having to put in complex computer systems to help us manage the enormous volume of data that comes with this new way of doing business.”
And learning how to use that software is “not trivial,” Sugg said.
“The implementation process is extremely lengthy and very detailed,” he said.
Finally, and most difficult, is building strategy for using the markets.
“Just because I might know the rules of playing poker, that doesn’t mean I’m going to be prepared to do anything but lose against somebody who’s very good at playing,” Sugg said.
The problem here is that the transmission operators can’t help.
“If you ask them, they refuse,” he said. “They do not take a position in the market.”
But it makes sense, Sugg said — utilities can become competitors, and the operators are simply protecting their knowledge base. So AECC has sought out authorities that can help in a situation that’s largely unique. This has included both business consultants and other utilities.
For example, Sugg said some AECC workers will soon visit Dairyland Power Cooperative in Wisconsin, which joined MISO in 2010.
“We’ll spend a day with them and talk about how their MISO integration went and what their successes and failures were, and some things to watch out for in the market,” Sugg said.
Overall, Sugg said, he’s found that utilities both countrywide and in Arkansas
have been surprisingly open about the process.
“Westar, for instance, invited us out and spent time with our settlement people and discussed pros and cons,” he said, speaking of an energy company in Topeka, Kan.
“We’ve met with Entergy for market prep.”
Rob Roedel, manager of corporate communications for AECC, noted that a recent directors’ conference included a panel with officials from Entergy, MISO and AECC.
“That shows a new form of openness I’ve not seen before,” he said.
“It’s a common goal,” Sugg said. “That tends to draw people together. It’s been great working with these other companies and sharing information. It’s extremely helpful.”
But in the end, will these millions of dollars spent on integration actually benefit ratepayers?
Sugg noted that the process would have been cheaper and easier for AECC if Entergy had chosen SPP as an operator rather than MISO.
Even so: “We believe it will be an improvement.”
SPP had been using a transmission market for several years, and the Federal Energy Regulatory Commission approved in October 2012 its upgrade to a “day-ahead” market, which allows it to decide which generators should operate one day ahead of time.
Some opposition was heard from the Arkansas Public Service Commission early on in the Entergy-MISO transition process.
However, the PSC approved it in April, and it is on track for completion in December.
“It’s an expense that’s worth it,” said Kurt Castleberry, director of resource planning for Entergy Arkansas. “Its benefits more than offset the cost.”
MISO has promised to save Arkansas ratepayers $263 million over 10 years, and Castleberry backed that up.
“MISO is at a big advantage — and bigger is better in this business — because they have an enlarged geographical footprint,” Castleberry said.
“Many generators participate in the market, and that presents the opportunity to come up with a lower-cost solution to benefit all customers.”
Bruce Rew, vice president of operations for SPP, said its new market is supposed to save ratepayers, as a whole, about $10 million per month.
The budget for SPP’s upgrade of the market is $115 million, he said.
“It benefits ratepayers through the optimization of the generation and load serving within a greater footprint,” he said.
“Now we can look at the entire footprint, and that allows us to have a greater opportunity to have cheaper resources available, and that saves money for everybody.”