By Amanda Durish Cook
MISO says it saved its members upward of $3 billion last year, but some stakeholders are questioning whether the RTO is overstating some of the benefits it provides.
The grid operator last week released a 2017 Value Proposition study showing that its members reaped net benefits ranging from $3 billion to $3.7 billion over the year, after accounting for the RTO’s $278 million in operating costs.
MISO estimates overall benefits increased by $366 million, or 12%, when compared to 2016, when the benefit ranged from $2.6 billion to $3.3 billion.
“Again in 2017, our value proposition demonstrates the value members receive through improved reliability, market efficiencies and footprint and resource diversity,” CEO John Bear said in a statement.
During a Jan. 31 special conference call, RTO staff said the value propositions represent a range of savings because of the many variables in estimating total savings.
“An exact benefit for each of these would be extremely difficult to pinpoint,” business adviser Leonard Ashley said. The RTO excludes savings that are difficult to quantify, including energy price transparency and seams management efforts with other balancing authorities.
MISO estimates that it has provided about $20.8 billion worth of cumulative net benefits since 2007.
“Our work helps members evaluate the impact of environmental regulations, improve coordination with neighboring systems and develop new products and services to adjust to a transitioning grid,” said Wayne Schug, vice president of strategy and business development.
Ashley said the MISO South region experienced “meaningful benefit” throughout 2017, with RTO membership providing Entergy and other generators anywhere from $800 million to $900 million, accounting for $67 million in region-specific operating costs. South’s benefit increased $60 million, or 3%, over the previous year, according to MISO.
Ashley said those amounts are better than MISO’s 2013 projections, prepared when Entergy was in the process of integrating into the RTO.
Indiana Utility Regulatory Commission staffer Dave Johnston asked if MISO has ever performed a study evaluating the administrative costs for Midwest members since the addition of South. He said he remembered the RTO promising to reduce costs for its Midwest membership during a 2011 meeting. Staff responded that they might conduct more research to isolate those costs.
Show Me the Benefits
MISO attempted to break down exactly what factors contributed to the $3 billion-plus in benefits.
In terms of increased transmission availability and reliability, the RTO estimated it saved its membership $234 million to $261 million last year through avoidance of blackouts. Each likely saved megawatt was valued between $11,000 and $13,000.
MISO touted that its centralized dispatch system and modeling software resulted in a cost savings between $229 million and $259 million from improved unit commitment among the RTO’s 30 balancing authorities.
Use of the RTO’s ancillary service market reduced regulation needs by 1,162 MW, resulting in a $53 million to $58 million in savings. Ashley said each single megawatt decrease equated to about $40,000 in savings.
MISO also said its control of spinning reserves saved local balancing authorities $25 million to $27 million, compared with what BAs would have spent carrying their own reserves. Ashley said the use of spinning reserves resulted in a 530-MW reduction, with each megawatt worth $45,000 to $50,000 in production costs.
Northern Indiana Public Service Co.’s Bill SeDoris asked if MISO might be inflating the benefit of centralized spinning and contingency reserves, as many local balancing authorities had already engaged one another in a reserve sharing group prior to MISO’s creation.
Ashley said MISO could look into that, but he warned it is often difficult to unearth statistics on such collaborative efforts among utilities before the RTO’s creation.
“A footnote on the facts of life before MISO would be appreciated, so it doesn’t look like you’re trying to take credit for something you shouldn’t,” Indianapolis Power and Light’s Lin Franks added.
MISO also monetized a wind integration benefit, derived from its studies to model and pinpoint the most economic placement of wind generation to meet state renewable goals. The RTO said its economic studies avoided the construction of 9,300 MW of excess wind generation, preventing $348 million to $413 million in additional spending.
The RTO also estimated it saved members about $104 million to $132 million in compliance work throughout 2017 based on the average compliance needs for its small, medium and large generators. MISO keeps pace with about 4,000 Tariff requirements and 1,000 NERC requirements.
Customized Energy Solutions’ Ted Kuhn asked MISO to consider balancing those compliance cost savings with the money and man-hours member companies spend to attend stakeholder meetings and follow the RTO’s FERC filings. Kuhn said several members have hired dedicated employees to monitor and report on MISO’s activities and projects.
“We do have a cost of engagement,” Franks said. “You might want to talk with stakeholders to get an idea of how much is spent. … In our case, we actually hired people.”
Footprint Diversity
MISO said the single biggest financial benefit from membership stems from the RTO’s footprint diversity, which enables load-serving entities to carry just enough supply to meet its peak one-day-in-10 standard, instead of the peak estimates for each balancing area, saving customers $2 billion to $2.5 billion in avoided costs for building new generation.
Using the avoided costs of building an average combustion generator, MISO valued each avoided megawatt at $13,200 to $15,200. If LSEs went it alone, MISO estimated that they would have to carry an average 22.15% planning reserve margin instead of the 15.8% requirement the RTO used in 2017.
But some stakeholders again asked if MISO’s footprint benefit was based on the assumption that each utility would function as a complete island, rather than considering the pre-MISO tendency to share resources. Wisconsin Public Service’s Chris Plante said that prior to MISO’s formation, some utilities created planning reserve sharing programs to create some measure of peaking diversity.
MISO also estimated $135 million to $142 million in benefits for members through generator availability improvements in a networked system versus LSEs going it alone, based on the value of deferred generation construction. The RTO said last year it delayed the need for 882 MW of new capacity.
Franks asked if MISO’s estimates accounted for the RTO’s more nuanced dispatch method, which calls for increased stops and starts that increase wear on generators — and for the monetary penalties that unit owners incur for not responding to dispatch instruction.
“There are some downsides to this increased performance. We’ve always been ready to provide generation. With this so-called generator availability improvement comes some wear and tear on the generator,” Franks said.
MISO staff promised to consider factoring maintenance costs and penalties into the benefit calculation.
Finally, MISO said its demand response management efforts yielded anywhere from $97 million to $163 million in savings.
