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April 1, 2024 |  By: Robert Zullo - Missouri Independent

In the central U.S., an electric grid bottleneck persists

electricity

By Robert Zullo - Missouri Independent

Forty-five million people live in the area managed by the Midcontinent Independent System Operator, the organization that runs a massive portion of the North American electric grid running from Manitoba, Canada, to the Gulf of Mexico.

Inside that footprint are all or parts of 15 states, 75,000 miles of transmission lines and nearly 3,000 electric generating units: coal, nuclear, natural gas, wind, solar and hydroelectric plants.

But where the northern part of the system meets the southern end — a narrow corridor that traverses a corner of southeast Missouri and northeastern Arkansas — there’s a bottleneck that can hurt electric customers and create major inefficiencies on both sides of the divide.

“It’s definitely a problem,” said Dan Scripps, chairman of the Michigan Public Service Commission and former president of the Organization of MISO States, which represents utility regulators in MISO territory. “The price separation you see between the regions is concerning.”

The limited ability to shift power between the regions has been a longstanding concern. But a paper published earlier this year by an energy economist says a major utility company in MISO’s southern region, Entergy, has big financial incentives to resist better transmission connections which the company has been repeatedly accused of doing.

The analysis by Catherine Hausman, an associate professor at the Gerald Ford School of Public Policy at the University of Michigan, says two Entergy subsidiaries, Entergy Louisiana and Entergy Arkansas, would have “seen profits lowered by $930 million in 2022 under market integration.”

The report was published in January by the National Bureau of Economic Research as a working paper, which is circulated prior to peer review. Though complaints about the north-south constraint have been longstanding, Hausman’s paper for the first time quantifies potential losses to power plant revenue if it gets fixed.

In a statement to States Newsroom, Entergy said Hausman’s paper presents “a false and misleading narrative about Entergy and its approach to new transmission investment.” The company added that, per the regulatory models it operates under, “profits do not depend on how often its generators run.”

A MISO spokesman said the organization had no comment on Hausman’s paper. However, MISO does plan to upgrade the connection in the years to come as part of its long range transmission planning process.

The beginnings of the bottleneck 

The MISO chokepoint is a product of both the limited connectivity between MISO’s northern regions and the southern part and a contractual agreement, the regional directional transfer limit, which throttles the amount of power that can flow between them because of the effects on neighboring systems. Those include Southwest Power Pool, the grid operator to MISO’s west, and the Tennessee Valley Authority to the east. The north-to-south limit is 3,000 megawatts and the south-to-north limit is 2,500 megawatts, though those thresholds can be “temporarily increased or decreased to avoid a system emergency,” MISO says.

“It is a contractual limitation designed frankly to protect SPP and TVA from Entergy free riding on their transmission lines to move power back to the north,” said Simon Mahan, executive director of the Southern Renewable Energy Association, an industry group. Also, Mahan said, it protects Entergy from cheaper power flows into its service area.

The limit’s roots stem from Entergy being prodded into joining a regional transmission organization in 2012 as part of a deal with the U.S. Department of Justice, which was investigating the company over anti-competitive behavior in how it managed its transmission system.

Instead of joining SPP, which some observers thought made the most sense because of the number of transmission connections it had with Entergy, the company chose MISO, “which put the utility effectively on an island with limited ability to move power back and forth,” wrote Daniel Tait, a research and communications manager with the Energy and Policy Institute, a pro-renewable energy nonprofit focused on utilities.

After Entergy’s merger into MISO in 2013, MISO began sending power between the regions in excess of the 1,000 megawatt direct physical connection between the regions, creating “significant incremental power flows” onto SPP’s system, per a complaint filed with the Federal Energy Regulatory Commission.

“MISO should not be permitted to be a free rider on the SPP system,” Southwest Power Pool transmission owners wrote in the FERC filing. “SPP transmission customers are paying for the SPP system, and will continue to pay for it, and should not be forced to subsidize MISO’s transmission customers.” A subsequent settlement agreement reached between the organizations in 2016 set the current constraints. The deal allows “MISO to purchase additional system capacity in exchange for compensation,” a MISO spokesman said.

Why it matters

So, more than a decade since integrating with MISO, Entergy’s territories remain on an island, and that’s no accident, Tait and others say.

Why? Critics of the company point to “load pockets,” areas with high demand but limited ability to bring in electricity from elsewhere. A transmission line could be a potential fix, as could new power plants. And while Entergy says its profits aren’t affected by how often its power plants run, monopoly utilities like Entergy do make considerable money on building new ones, since the utility gets state-approved profit margins and is incentivized to build the most expensive project it can get regulators to go along with. (It’s a move Entergy has employed in East Texas that has drawn considerable criticism and lots of litigation).

“Entergy makes a lot more money by building a power plant under a state-regulated model compared to the lower return on equity from a federally regulated transmission project,” Tait said. Transmission lines that bring in cheaper power from elsewhere, like the wind-rich regions in northern MISO, can also make it harder to make the case for building new plants.

“Entergy joined MISO, but has since been accused of stalling the MISO transmission process, again to protect its fossil plants,” Hausman’s paper says. “The incentives to have power plants dispatched a large portion of the year to still appear used and useful are likely to still be large.”

Rob Gramlich, a former FERC economic adviser and president of Grid Strategies, a consulting firm, said there’s “some generator protectionism going on in MISO South.” He added that there’s no good economic reason why upgrades to the north-south constraint to allow more power to flow can’t happen quicker.

“It’s just politics and certain companies’ interest,” he said.

Entergy, however, rejects the notion that it has fought new transmission to protect profits and says that revenues from operating Entergy’s plants are “credited 100% to customers” on their bills.

“Simply put, there is no incentive, profit or otherwise, for Entergy to oppose new transmission that is beneficial to our customers,” the company told States Newsroom.

Rather, Entergy pointed at renewable developers, who often build power generation far from areas of high electric demand and may need considerable transmission to get their power to market. (Per Hausman’s analysis, wind generators in MISO North would have seen a gain of about $800 million in 2022 if transmission constraints were fixed.)

“There is every profit incentive for renewable developers to pursue new transmission regardless of its merit or whether it reduces the delivered cost of electricity to utility customers,” the company said. “Unlike Entergy, such developers do benefit from increasing the dispatch of their generation, and the resulting costs are borne not by them but by utility customers.”

Bringing in cheaper power only makes sense for utility customers when the savings are greater than the cost of the new transmission projects needed to provide it, the company said.

“It is one thing to be able to import more wind generation, but if the cost of the transmission necessary to import that wind generation makes the total delivered cost of electricity more expensive, then it is not in our customers’ interests to pursue that project,” Entergy said.

Bill Booth, an energy attorney who works for developers, utilities and state commissions in the MISO region, said several areas in MISO have transmission constraints, not just the North-South connection.

“Two critical issues are cost allocation and the belief by a state commission that the facilities built are going to benefit the state,” he said. “You can drive on a two-lane highway or you can drive on a six-lane highway. … There would have to be a business case to justify the expense.”

Making connections

Scripps, the Michigan utility regulator and the former president of the Organization of MISO States, says he’s unsure why the limitations between MISO’s regions persist but added that it causes real headaches. Among the biggest is the inability to move the cheapest power to customers in the region, which is one of the main reasons regional transmission organizations like MISO exist in the first place. It can likewise be a problem during severe weather, when moving electricity between the regions is crucial to compensate for plant outages or other emergencies.

“The whole idea of these regional markets and interconnections is you can draw from a broader pool, you can drive down prices and you can increase reliability,” Scripps said. “We are clearly losing out on both the reliability benefit and the opportunity to lower prices by having the RDT continue to exist as a significant constraint on the MISO system.” The constraint also presented problems during a recent MISO capacity auction, Scripps said. That’s when utilities purchase excess electric capacity to ensure they can meet electric demand at all times. Prices were significantly higher in MISO’s northern regions than in the south, Scripps noted. “If that constraint didn’t exist we would not have seen the price spike in the capacity market that we did,” he said.

Mahan, with the Southern Renewable Energy Association, pointed out that during Winter Storm Elliott in 2022 the power flow along the north-south connection was reduced to alleviate strain on the grid. There were also blackouts in Entergy territory during Winter Storm Uri in 2021.

“MISO South had rolling blackouts in part because we couldn’t import enough power from the north,” Mahan said. “Being able to move power back and forth helps lower the cost of the system for everyone.”

During Winter Storm Heather in January, wholesale electric prices exceeded $900 per megawatt hour in one part of MISO South while they were as low as $9 per megawatt hour in other parts of the system. As the storm moved on, the problem reversed to some degree, with prices in MISO North climbing.

“The economics of the system flipped and now all of a sudden MISO South had way more generation than we needed,” Mahan said.

As of now, MISO contemplates fixing the RDT constraint as part of the fourth phase (called Tranche 4) of its long range transmission planning process. The organization just laid out proposals for the second tranche, which involve additional transmission projects in MISO North. The third tranche envision fixes for MISO South. “The MISO South grid is too weak to import lower-cost electricity, which is increasing consumers’ bills unnecessarily,” said Lauren Azar, an energy attorney working for the Natural Resources Defense Council and former Wisconsin utility commissioner, at a MISO meeting in February.

But there’s a battle under way over who should pay for what. That means an upgrade for the north-south constraint is likely still years away.

“The vision for melding MISO North and South together on this rolling time frame has really lagged behind,” said Beth Soholt, executive director of the Clean Grid Alliance, based in St. Paul, Minnesota. “It’s in the ratepayers’ best interest to find the political will to solve this.”