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Analysis Finds Net Benefit from Entergy Joining SPP, Dependent on Transmission Cost Allocation

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October 1, 2010

A decision by Entergy and Cleco Power to join the Southwest Power Pool RTO, "will yield significant economic benefits to the collective SPP/Entergy region," according to a cost-benefit analysis conducted by Charles River Associates and Resero Consulting, but the net benefits to the individual Entergy, SPP and Cleco Power regions, "is highly dependent on the allocation of regional high voltage transmission expansion costs."

"Aside from the allocation of transmission expansion costs, the benefits to the Entergy and SPP regions of joining the SPP RTO are relatively robust across the sensitivity scenarios examined," the study determined.

The net benefits for the collective SPP/Entergy region if Energy and Cleco Power join the SPP RTO is $1.29 billion over the 2013 to 2022 period, assuming no change in the allocation of transmission expansion costs.  In 2010 present value terms, the net benefit is $739 million.

Benefits by type for the entire SPP/Entergy region under this scenario of status quo transmission cost allocation are below: [millions of dollars]
(Note: Charts align when browser zoom setting is set at 100%)
                                                                                    Total $   2010 Present Value
1. Trade Benefits:
  Decrease in Adjusted Production Costs                          1,880              1,073
  "Lost" Transmission Revenue                                          (451)               (256)
  Subtotal                                                                       1,428                817
2: Administrative Costs:
  Added RTO Administrative Costs net of Avoided ICT Costs     0                   0
  Added Costs: Internal Staffing/FERC Charges                   (138)               (78)
  Subtotal                                                                         (138)               (78)
3. Transmission Cost Allocation                                             0                   0
Net Benefits (Costs)                                                        1,290               739

However, when considering transmission expansion costs that Entergy could potentially be assigned as an SPP RTO transmission owner (through cost socialization), the result of Entergy joining the RTO could be a cost of $438 million.  Under alternative scenarios, where Entergy is not assigned previously committed transmission expansion costs, a decision by Energy to join the SPP RTO could still result in a benefit, up to $387 million.  

Benefits and costs to the individual regions including ranges for different transmission cost allocation scenarios is as follows, reflecting millions of 2010 present value dollars

                                                              SPP             Cleco          Entergy     Total
Trade Benefits                                           143                 80               594          817
Admin Costs: RTO Administrative Costs
   net of Avoided ICT Charges                      189                (25)             (164)            0
Admin Costs: Internal Staff/FERC Charges      0                (12)              (65)         (78)
Subtotal Net Benefits                                 332                  43              364          739
Transmission Expansion Cost Allocation   (5) to 895     (93) to (18)    (802) to 23       0
Total Net Benefits (Costs)                     327 to 1,226    (49) to 25     (438) to 387   739

Of the $817 million of SPP/Entergy region trade benefits, the majority [$594 million] accrue to the Entergy region largely because of the greater mix of higher cost gas-fired generation in the Entergy region that is displaced in the Join SPP Case.  In addition, there are a significant number of Qualifying Facilities in the Entergy region that become firm resources in the Join SPP Case.

Charles River Associates also made note of several qualitative costs that could be incurred by Entergy and Cleco if they join SPP, including:

• Risks and costs associated with transmission system access,

• Day 2 market transitional risks, and

• The imposition of SPP's governance structure.

The cost-benefit analysis is available on the SPP website and was also filed in PUCT docket 37344.

   
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