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The Newest Player In Electricity Trading

The future of electricity took a new turn last month with the formal launch of an organization intended to manage the way power moves through America’s vast energy grid.

The Midwest Independent Transmission System Operator (known as MISO), based in Carmel, Indiana, will affect the flow of electricity through a wide swath of states and into Canada. As a regional transmission organization (RTO), this new entity adds yet another layer to an already complex system. Understanding its effect on Kentucky’s electric co-ops requires a look at the past.

Mike Core, CEO of Big Rivers Electric Corporation, a generation and transmission cooperative that serves three distribution co-ops in Kentucky, says, “For almost 100 years, the electric utility industry operated on the idea of putting generating facilities close to the load. Big Rivers has three generating facilities to provide electricity to people in 22 counties here in Kentucky.”

Core continues, “At any given moment we might be able to generate more electricity than our customers need. So our generating facilities, high-voltage transmission lines, and the substations within our service area are known as a ‘control area.’ We literally do have to control how much electricity we generate to match the load at any particular time within our area.”

Core notes that it often happens that one control area has more generating capacity during certain times of the day or year than a neighboring control area. In that case, friendly agreements allowed neighboring control areas to send and receive electricity across their boundaries to match capacity to load. The parties involved agreed on a way to value the electricity (perhaps by trading equal amounts over a fixed period of time) and set standards for reliability (perhaps by scheduling maintenance ahead of time).

The Energy Act of 1992 and the Federal Energy Regulatory Commission (FERC) changed that. Now, instead of sending electricity to a physically close area, it’s possible to buy and sell electricity among very distant control areas. While these new rules opened up control areas around the country to more trading of wholesale electric power among utilities, problems arose as this increased movement of electricity ran right into the laws of physics.

“To move power from our generating plants in central Kentucky to a control area in northern Indiana,” Core explains, “means that we have to ‘wheel’ it through many of our neighbors’ grids in between. But the existing distribution lines might not have been designed for such loads.”

Then there’s the matter of money. How should such transfers of electricity across greater distances be valued? In addition to the cost of generating the electricity, should there be a transportation fee added by each of the utility systems that the transfer “wheels” through? If transmission grids must be improved, who will pay for the construction or maintenance costs?

These unanswered questions mean that Big Rivers has not yet decided to join MISO, although it will continue to buy and sell electricity within the region.

“MISO now has two functions,” Core says. “Not only will it operate the system, constantly monitoring the physical aspects of moving electricity in and among dozens of utilities, it will also operate a market where power can be bought and sold.” But determining prices in this new market will be a difficult challenge.

East Kentucky Power Cooperative (which generates and transmits electricity to 16 distribution co-ops) is also not yet a member of MISO, or any other RTO. CEO Roy Palk says, “We are keeping a vigilant watch on what MISO does to see how it may affect our future. First, we need to know how its activities may affect our plans for future generation and distribution construction in our service area. Second, we are watching to see how MISO’s operation will affect our costs.”

An important third concern for both East Kentucky and Big Rivers is the boundaries between various RTOs. Kentucky’s geography puts it at the edge of three RTOs, so membership in MISO might not necessarily be the best choice for the state’s co-ops.

Palk mentions another important concern. “Kentucky’s Public Service Commission already has a great deal to say about so many details of the electric utility industry. Would membership in MISO or any other RTO cause jurisdictional problems? Right now, the future of electricity is full of many unknowns.”

To learn more about MISO and other RTOs, visit this Web site: http://www.midwestiso.org/about_us.shtml.

Next month: Global electrification

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