SPP upgrades to energy grid to fuel $240 million in cost savings, study says

Southwest Power Pool officials on Tuesday (Jan. 26) released a study highlighting more than $240 million in fuel cost savings for utilities that provide power to many Arkansans because of recent energy grid investments and upgrades from 2012 to 2014.

The study, conducted by the Washington, D.C.-based economic consulting firm The Brattle Group, analyzed the value provided by 348 transmission upgrades that involved almost $3.4 billion of capital investment for utilities during the first year of operation of SPP’s wholesale energy market.

“Transmission does more than just keep the lights on. It’s an enabling resource that paves the way for numerous benefits to our stakeholders and their customers,” said Nick Brown, president and CEO of the Little Rock-based regional transmission organization. “A modernized transmission system increases reliability, reduces costs by providing access to a wholesale energy market and effectively integrates wind and other renewable energy to the grid.”

In addition to fuel cost savings, the study quantified other benefits associated with the transmission expansion upgrades, including reliability and resource adequacy benefits, generation capacity cost savings, reduced transmission losses, increased wheeling revenues and public policy benefits associated with more optimal wind development facilitated by the transmission upgrades.

SPP officials said the net present value of all quantified benefits is expected to exceed $16.6 billion over a 40-year period, resulting in a benefit-cost ratio of at least 3.5. This means the investments are expected to produce more than $3.50 in overall benefits for every $1 in transmission-related costs.

For example, Minneapolis-based utility giant Xcel Energy announced in September 2015 it would refund $18.6 million to Texas retail customers. The company said lower fuel and purchased power costs, all made possible by investments in SPP’s transmission system. SPP member company OG&E of Oklahoma City also announced in the fall that its Oklahoma customers would see lower bills as the result of the benefits of SPP’s Integrated Marketplace.

Previous studies by SPP projected the expected future value of transmission construction based on latest available forecast data. The Brattle study used historic operating data obtained during the first year of operation of SPP’s Integrated Marketplace to document transmission value already realized. SPP’s footprint spans almost 575,000 square miles in all or parts of 14 states in the central U.S. and includes more than 800 generating plants, nearly 5,000 substations and about 56,000 miles of high-voltage transmission lines.

Last month, the Midcontinent Independent System Operator (MISO) board of directors approved a $2.7 billion expansion plan across the grid operator’s 15-state footprint, including $170 million in investments that will go toward upgrading Arkansas’ aging electricity infrastructure.

Separately, SPP also announced Tuesday that Graham Edwards of Isle of Palms, S.C., and Bruce Scherr of Palm Beach Gardens, Fla., were elected to the nonprofit grid operator’s board of directors during a meeting in Oklahoma City. Edwards formerly served as CEO of MISO from 2006 to 2009. Scherr, an economist, previously served on the board of trustees of the North American Electric Reliability Corp. from 2002 to 2015.

The appointments are effective immediately and expand the company’s board of directors to nine members. The Federal Energy Regulatory Commission in August approved SPP’s request to revise its bylaws to expand its seven-member board of directors by up to three additional seats.