Masters G.M. Renewable and Efficient Electric Power Systems

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148 THE ELECTRIC POWER INDUSTRY

AC Generators

Breakers

Loads

Transformer

Rectifier

Inverter

DC Line

Transformer

HVDC Link

AC System

Figure 3.36 A one-line diagram of a dc link between ac systems. The inverter and

rectiﬁer can switch roles to allow bidirectional power ﬂow.

in either direction. A simple one-line drawing of an HVDC link is shown in

Fig. 3.36. HVDC lines offer the most economic form of transmission over very

long distances—that is, distances beyond about 500 miles or so. For these longer

distances, the extra costs of converters at each end can be more than offset by

the reduction in transmission line and tower costs.

3.10.2 Transmission Lines

The physical characteristics of transmission lines depend very much on the volt-

ages that they carry. Cables carrying higher voltages must be spaced further apart

from each other and from the ground to prevent arcing from line to line, and

higher current levels require thicker conductors. Table 3.5 lists the most common

voltages in use in the United States along with their usual designation as being

transmission, subtransmission, distribution, or utilization voltages.

Figure 3.37 shows examples of towers used for various representative trans-

mission and subtransmission voltages. Notice that the 500-kV tower has three

suspended connections for the three-phase current, but it also shows a fourth

connection, namely, a ground wire above the entire structure. This ground wire

not only serves as a return path in case the phases are not balanced, but also

provides a certain amount of lightning protection.

TA BLE 3.5 Nominal Standard T&D System Voltages

Transmission (kV) Subtransmission (kV) Distribution (kV) Utilization (V)

765 138 24.94 600

500 115 22.86 480

345 69 13.8 240

230 46 13.2 208

161 34.5 12.47 120

8.32

4.16

TRANSMISSION AND DISTRIBUTION 149

84′

18′

17′

12′

18′

10′

9′

48′

15′

holddown

weight

125′

58′

14′

Front view

Side view

(a) 500 kV (b) 230 kV (d) 46 kV

Ground wire

Cond-

uctor

Figure 3.37 Examples of transmission towers: (a) 500 kV; (b) 230-kV steel pole;

Inner Steel Strands

Outer Aluminum Strands

Figure 3.38 Aluminum conductor with steel reinforcing (ACSR).

Overhead transmission lines are usually uninsulated, stranded aluminum or

copper wire that is often wrapped around a steel core to add strength (Fig. 3.38).

The resistance of such cable is of obvious importance due to the i

R power losses

in the wires as they may carry hundreds of amps of current. Examples of cable

resistances, diameters, and current-carrying capacity are shown in Table 3.6.

Example 3.4 Transmission Line Losses. Consider a 40-mile-long, three-

phase, 230-kV (line-to-line) transmission system using 0.502-in.-diameter ACSR

cable. The line supplies a three-phase, wye-connected, 100-MW load with a 0.90

power factor. Find the power losses in the transmission line and its efﬁciency.

What savings would be achieved if the power factor could be corrected to 1.0?

Solution From Table 3.6, the cable has 0.7603-/mile resistance, so each line

has resistance

R = 40 mi × 0.7603 /mi = 30.41 

150 THE ELECTRIC POWER INDUSTRY

TA BLE 3.6 Conductor Characteristics

Conductor

Material

Outer

Diameter (in.)

Resistance

(/mile)

Ampacity

(A)

ACSR 0.502 0.7603 315

ACSR 0.642 0.4113 475

ACSR 0.858 0.2302 659

ACSR 1.092 0.1436 889

ACSR 1.382 0.0913 1187

Copper 0.629 0.2402 590

Copper 0.813 0.1455 810

Copper 1.152 0.0762 1240

Aluminum 0.666 0.3326 513

Aluminum 0.918 0.1874 765

Aluminum 1.124 0.1193 982

Resistances at 75

◦

C conductor temperature and 60 Hz, ampacity at

◦

C ambient, and 2-ft/s wind velocity.

Source: Data from Bosela (1997).

The phase voltage from line to neutral is given by (2.67)

phase

line

√

230 kV

√

= 132.79 kV

The 100 MW of real power delivered is three times the power delivered in each

phase. From (2.72)

P = 3 V

phase

line

× PF = 100 × 10

Solving for the line current gives

line

100 × 10

3 × 132,790 × 0.90

= 278.9A

Checking Table 3.6, this is less than the 315 A the cable is rated for (at 25

◦

C).

The total line losses in the three phases is therefore

P = 3I

R = 3 × (278.9)

× 30.41 = 7.097 × 10

W = 7.097 MW

The overall efﬁciency of the transmission line is therefore

Efﬁciency =

Power delivered

Input power

100

100 + 7.097

= 0.9337 = 93.37%

That is, there are 6.63% losses in the transmission line. The ﬁgure below sum-

marizes the calculations.

THEREGULATORYSIDEOFELECTRICPOWER 151

Load Load Load

30.41 Ω

278.9

0° A

132.79 kV

230 kV

230 kV132.79 kV

132.79 kV

278.9

120° A

278.9

−120° A

I = 0 A

40-mile transmission line

100 MW

If the power factor could be corrected to 1.0, the line losses would be reduced to

P = 3 ×



100 × 10

3 × 132,790 × 1.0



× 30.41 = 5.75 MW

which is a 19% reduction in line losses.

As wires heat up due to high ambient temperatures and the self-heating asso-

ciated with internal losses, they not only expand and sag, which increases the

likelihood of arcing or shorting out, but their resistance also increases. For

example, the resistance of both copper and aluminum conductors increases by

about 4% for each 10

◦

C of heating. Resistance also depends on the ac frequency

of the current ﬂowing. Due to a phenomenon called the skin effect, the resistance

at 60 Hz for a transmission line is about 5–10% higher than its dc resistance.

The skin effect is the result of induced emfs that oppose current ﬂow by a greater

amount at the center of a conductor than at its edge. The result is that current

ﬂows more easily through the outer edge of a c onductor than at its center. Recent

interest in dc transmission lines is partly based on the lower resistance posed by

the wires when carrying dc.

3.11 THE REGULATORY SIDE OF ELECTRIC POWER

Edison and Westinghouse launched the electric power industry in the United

States, but it was Insull who shaped what became the modern electric utility

by bringing the concepts of regulated utilities with monopoly franchises into

being. The economies of scale that went with increasingly large steam power

152 THE ELECTRIC POWER INDUSTRY

plants led to an industry based on centralized generation coupled with a complex

infrastructure of transmission lines and distribution facilities.

In the last two decades of the twentieth century, however, cheaper, smaller

turbines, the discovery of the customer’s side of the meter, and growing interest in

renewable energy systems led to increasing pressure for change in the regulatory

structure that guides and controls the industry.

A basic background in both electric power technology and the electricity

industry regulatory structure are essential to understanding the future of this most

important industry. What follows is a brief historical sketch of the evolution of

the regulatory side of the business.

3.11.1 The Public Utility Holding Company Act of 1935 (PUHCA)

In the early part of the twentieth century, as enormous amounts of money were

being made, utility companies began to merge and grow into larger conglom-

erates. A popular corporate form emerged, called a utility holding company.A

holding company is a ﬁnancial shell that exercises management control of one

or more companies through ownership of their stock. Holding companies began

to purchase each other and by 1929, 16 holding companies controlled 80% of

the U.S. electricity market, with just three of them owning 45% of the total.

With so few entities having so much control, it should have come as no surprise

that ﬁnancial abuses would emerge. Holding companies formed pyramids with

other holding companies, each owning stocks in subsequent layers of holding

companies. An actual operating utility at the bottom found itself directed by

layers of holding companies above it, with each layer demanding its own proﬁts.

At one point, these pyramids were sometimes ten layers thick. When the stock

market crashed in 1929, the resulting Depression drove many holding companies

into bankruptcy, causing investors to lose fortunes. Insull became somewhat of a

scapegoat for the whole ﬁnancial ﬁasco associated with holding companies, and

he ﬂed the country amidst charges of mail fraud, embezzlement, and bankruptcy

violations, charges for which he was later cleared.

In response to these abuses, Congress created the Public Utility Holding Com-

pany Act of 1935 (PUHCA) to regulate the gas and electric industries and prevent

holding company excesses from reoccurring. Many holding companies were dis-

solved, their geographic size was limited, and the remaining ones came under

control of the newly created Securities and Exchange Commission (SEC).

While PUHCA has been an effective deterrent to previous holding company

ﬁnancial abuses, recent changes in utility regulatory structures, with their goal of

increasing competition, have led many to say that it has outlived its usefulness

and should be modiﬁed or abolished. The main issue is a provision of PUHCA

that restricts holding companies to business within a single integrated utility,

which is a major deterrent to the modern pressure to allow wholesale wheeling

of power from one region in the country to another.

THEREGULATORYSIDEOFELECTRICPOWER 153

3.11.2 The Public Utility Regulatory Policies Act of 1978 (PURPA)

With the country in shock from the oil crisis of 1973 and with the economies

of scale associated with ever-larger power plants having pretty much played

out, the country was drawn toward energy efﬁciency, renewable energy systems,

and new, small, inexpensive gas turbines. To encourage these systems, President

Carter signed the Public Utility Regulatory Policies Act of 1978 (PURPA).

There are two key provisions of PURPA; both of these relate to allowing inde-

pendent power producers, under certain restricted conditions, to connect their

facilities to the utility-owned grid. For one, PURPA allows certain industrial

facilities and other customers to build and operate their own, small, on-site gen-

erators while remaining connected to the utility grid. Prior to PURPA, utilities

could refuse service to such customers, which meant that self-generators had to

provide all of their own power, all of the time, including their own redundant,

back-up power systems. That had virtually eliminated the possibility of using

efﬁcient, economical on-site power production to provide just a portion of a

customer’s needs.

PURPA not only allowed grid interconnection, but also required utilities to

purchase electricity from certain qualifying facilities (QFs) at a “just and rea-

sonable price.” The purchase price of QF electricity was to be based on what

it would have cost the utility to generate the power itself or to purchase it on

the open market (referred to as the avoided cost ). This provision stimulated the

construction of numerous renewable energy facilities, especially in California,

since PURPA guaranteed a market, at a good price, for any electricity generated.

PURPA, as implemented by the Federal Regulatory Commission (FERC),

allows interconnection to the grid by Qualifying Small Power Producers or Quali-

fying Cogeneration Facilities; both are referred to as QFs. Small power producers

are less than 80 MW in size and use at least 75% wind, solar, geothermal,

hydroelectric, or municipal waste as energy sources. Cogenerators are deﬁned as

facilities that produce both electricity and useful thermal energy in a sequential

process from a single source of fuel, which may be entirely oil or natural gas.

To encourage competition, ownership of QFs by investor-owned electric utilities

(IOUs) was limited to 50%.

PURPA not only gave birth to the electric side of the renewable energy indus-

try, but also enabled clear evidence to accrue which demonstrated that small,

on-site generation could deliver power at considerably lower cost than the retail

rates charged by utilities. Competition had begun.

3.11.3 The Energy Policy Act of 1992 (EPAct)

The Energy Policy Act of 1992 (EPAct) created even more competition in the

electricity generation market by opening the grid to more than just the QFs

identiﬁed in PURPA. A new category of access was granted to exempt wholesale

generators (EWGs), which can be of any size, using any fuel and any generation

technology, without the restrictions and ownership constraints that PURPA and

PUHCA impose. EPAct allows EWGs to generate electricity in one location and

154 THE ELECTRIC POWER INDUSTRY

sell it anywhere else in the country using someone else’s transmission system

to wheel their power from one location to another. The key restriction of an

EWG is that it deals exclusively with the wholesale wheeling of power from the

generator to a buyer who is not the ﬁnal retail customer who uses that power.

Retail wheeling, in which generators wheel power over utility power lines and

then sell it directly to retail customers, is the next step, still underway, in the

process of creating effective competition for traditional utility generation. PURPA

allows retail wheeling for QFs. Other independent power producers (IPPs) can

also take advantage of retail wheeling if states allow it, but they continue to be

regulated under the rules of FERC and PUHCA.

3.11.4 FERC Order 888 and Order 2000

While the 1992 EPAct allowed IPPs to gain access to the transmission grid, prob-

lems arose during periods when the transmission lines were being used to near

capacity. In these and other circumstances, the investor-owned utilities (IOUs)

that owned the lines favored their own generators, and IPPs were often denied

access. In addition, the regulatory process administered by the Federal Energy

Regulatory Commission (FERC) was initially cumbersome and inefﬁcient. To

eliminate such deterrents, the FERC issued Order 888 in 1996, which had as

a principal goal the elimination of anti-competitive practices in transmission

services by requiring IOUs to publish nondiscriminatory tariffs that applied to

all generators.

Order 888 also encouraged formation of independent system operators (ISOs),

which are nonproﬁt entities established to control operation of transmission facil-

ities owned by traditional IOUs. Later, in December 1999, FERC issued Order

2000, which broadens its efforts to break up vertically integrated utilities by call-

ing for the creation of regional transmission organizations (RTOs). R TOs can

follow the ISO model in which ownership of the transmission system remains

with the utilities, with the ISO being there to provide control of the system’s oper-

ation, or they would be separate transmission companies (TRANSCOs), which

would actually own the transmission facilities and operate them for a proﬁt.

3.11.5 Utilities and Nonutility Generators

With PURPA and EPAct regulating certain categories of generators that are not

owned and operated by traditional utilities, a whole new set of deﬁnitions has

crept into the discussion of the electric power industry. Before addressing the

emergence of competition, it is worth clarifying the players. The industry is now

divided into utilities and nonutility generators (NUGs), and each has its own

subcategories.

Recall that utilities are categorized as being investor-owned (IOUs), federally

owned, such as the Bonneville Power Administration, publicly owned municipal

and state utilities, and local rural cooperatives owned by the members they serve.

THE EMERGENCE OF COMPETITIVE MARKETS 155

Utility

Nonutility Generator NUG

Investor

Owned

Federally

Owned

Publicly

Owned

Co-op

QF IPP

Cogeneration Renewable EWG Other

Figure 3.39 The electric power industry is now divided into utilities and nonutilities,

with each having its own subset of categories and distinctive features.

Nonutilities, or NUGs, have their own somewhat confusing nomenclature.

Qualifying facilities (QFs) meet certain ownership, operating, and efﬁciency

requirements as deﬁned by PURPA. They may be cogenerators that sequentially

produce thermal and electrical energy, or they may be small power producers

that rely mostly on renewable energy sources. Utilities must purchase QF power

at a price based on the utility’s avoided cost.

Independent power producers (IPPs) are non-PURPA-regulated NUGs. A

major category of IPP is deﬁned by EPAct as exempt wholesale generators

(EWGs). EWGs are exempt from PUHCA’s corporate and geographic restric-

tions, but they are not allowed to wheel power directly to retail customers.

Non-EWG IPPs are regulated by PUHCA, but they are allowed to sell to retail

customers.

Figure 3.39 summarizes these various categories of utilities and nonutilities.

3.12 THE EMERGENCE OF COMPETITIVE MARKETS

Prior to PURPA, the accepted method of regulation was based on monopoly

franchises, vertically integrated utilities that owned some or all of their own gen-

eration, transmission, and distribution facilities, and consumer protections based

on strict control of rates and utility proﬁts. In the ﬁnal decades of the twentieth

century, however, the successful deregulation of other traditional monopolies such

as telecommunications, airlines, and the natural gas industry provided evidence

that introducing competition in the electric power industry might also work there.

While the disadvantages of multiple systems of wires to transmit and distribute

power continue to suggest they be administered as regulated monopolies, there

is no inherent reason why there shouldn’t be competition between generators

who want to put power onto those wires. The whole thrust of both PURPA and

156 THE ELECTRIC POWER INDUSTRY

EPAct was to begin the opening up of that grid to allow generators to compete

for customers, thereby hopefully driving down costs and prices.

3.12.1 Technology Motivating Restructuring

Restructuring of the electric power industry has been motivated by the emer-

gence of new, small power plants, especially gas turbines and combined-cycle

plants, that offer both reduced ﬁrst cost and operating costs compared with

almost all of the generation facilities already on line. The economies of scale

that motivated ever-larger power plants in the past seem to have played out,

as illustrated in Fig. 3.40. By 2000 the largest plants being built were only

a few hundred megawatts, whereas in the previous decade they were closer

to 1400 MW. Table 3.7 shows the dramatic shift anticipated in power plant

1930

1950

1970

1980

1990

Gas turbine

Thermal plants

Installed cost of new plants ($/MW)

Plant size (MW)

50 200 600 1000

Figure 3.40 The era of bigger-is-better that dominated power plant construction for most

of the twentieth century shifted rather abruptly around 1990. From Bayliss (1994).

TA BLE 3.7 Total Projected Additions of

Electricity Generating Capability, in units of

Thousand Megawatts (GW), 1999–2020

Technology Capacity Additions

Coal steam 21.1

Combined cycle 135.2

Combustion turbine/Diesel 133.8

Fuel cells 0.1

Renewable sources 9.7

TOTAL 300

Source: EIA (2000).

THE EMERGENCE OF COMPETITIVE MARKETS 157

construction away from the workhorse, coal-ﬁred steam turbines that now supply

more than half of all electricity generated in the United States. In the projection

shown, new coal-ﬁred plants make up only 7% of the 300 GW of new power

plant generation anticipated by 2020.

The emergence of small, less capital-intensive power plants helped indepen-

dent power producers (IPPs) get into the power generation business. By the early

1990s the cost of electricity generated by IPPs was far less than the average

price of power charged by regulated utilities. With EPAct opening the grid, large

customers began to imagine how much better off they would be if they could just

bypass the regulated utility monopolies and purchase power directly from those

small, less expensive units. Large customers, with the wherewithal, threatened

to leave the grid entirely and generate their own electricity, while others, when

allowed, began to take advantage of retail wheeling to purchase power directly

from IPPs.

Not only did small power plants become more cost effective, independent

power producers found themselves with a considerable advantage over traditional

regulated utilities. Even though utilities and IPPs had equal access to new, less

expensive generation, the utilities had huge investments in their existing facilities,

so the addition of a few low-cost new turbines had almost no impact on their

overall average cost of generation.

To help utilities successfully compete with IPPs in the emerging competitive

marketplace, FERC included in Order 888 a provision to allow utilities to speed

up the recovery of costs on power plants that were no longer cost-effective.

The argument was based on the idea that when utilities built those expensive

power plants, they did so under a regulatory regime that allowed cost recovery

of all prudent investments. To be fair and to help assure utility support for a

new competitive market, FERC believed it was appropriate to allow utilities to

recover those stranded asset costs even if that might delay the emergence of a

competitive market. FERC then endorsed the concept of charging customers who

chose to leave the utility system a departure fee to help pay for those stranded

costs left behind.

3.12.2 California Begins to Restructure

With the grid opening up, a number of states began to develop restructuring

programs in the 1990s. It is no surprise that the states that took the initiative

tended to be those with higher utility costs.

While Fig. 3.7 showed average electricity prices, of greater importance to

understanding the driving force behind restructuring is the price of electricity for

large industrial customers. It is those customers who are most likely to threaten to

purchase power from an IPP, generate their own electricity, or move the location

of their operations to a state with lower electricity prices. Figure 3.41 shows

the state-by-state average revenue per kWh for the industrial sector. States with

the highest prices include California and much of New England. Both are areas

where restructuring began.