Chapter 5.1: Economic Analysis Introduction

Chapter 5.1: Economic Analysis Introduction

The MISO Value-Based Planning Process ensures transmission expansion plans minimize the total electric costs to consumers, maintain an efficient market, and enable state and federal public energy policy — all while maintaining system reliability. The Multi-Value Project Portfolio, approved in MTEP11, demonstrates the success of the Value-Based Planning Process. The Multi-Value Projects will save Midwest energy customers more than $1.2 billion in projected annual costs and enable 41 million MWh of wind energy to meet renewable energy mandates and goals. The objective of MISO’s value-based planning approach is to develop cost-effective transmission plans while maintaining system reliability. Cost-effectiveness considers not only the capital cost of transmission projects but also the projected cost of energy (production cost) and generation capacity.

MISO’s Value-Based Planning Process ensures the benefits of an economically efficient energy market are available to customers by identifying transmission projects that provide the highest value

During the Regional Generator Outlet Study (RGOS), extensive analysis was performed to determine an optimal balance point between transmission investment and generation production costs. The RGOS,determined that expansion plans that minimized transmission capital costs, but had high production costs through the use of less-efficient local generation resources, yielded the highest total system cost. RGOS found the same high cost was present with expansion plans that minimized generation costs by siting generation optimally, but away from load centers, and invested heavily in regional transmission development. The bottom-up, top-down planning approach evaluates both locally identified transmission projects (bottom-up) and also regional transmission development opportunities (top-down) to find the dynamic balance that minimizes both transmission capital costs and production costs (Figure 5.1-1).

Figure 5.1-1: The goal of the MISO Value-Based Planning Process

Figure 5.1-1: The goal of the MISO Value-Based Planning Process

Since MTEP06, the MISO planning process has used multiple future scenarios to model out-year policy, economic and social uncertainty. While MISO’s analysis may influence market participants’ out-year resource plans, MISO is not a regional resource planner. Instead MISO’s futures provide multiple reasonable resource forecasts based on probable out-year conditions including, but not limited to: fuel costs; fuel availability; environmental regulations; demand and energy levels; and available technology. Regional resource forecasts are developed based on a least-cost methodology. Generation and demand-side management resources are geographically sited based on a stakeholder resource planner vetted hierarchy. MISO regional resource forecasts include consideration of thermal units, intermittent resources, demand-side management and energy efficiency programs. These regional forecasts ensure that out-year planning reserve margins are maintained.

Policy assessment requires a continuing dialogue between MISO, local entities and regulatory bodies. This dialogue must identify new and existing policies and discuss how local entities intend to comply with them. It should also identify any potential regional needs or solutions to policy-driven issues. State and federal energy policy requirements and goals are the primary drivers and first step of MISO’s Value-Based Planning Process.

Value-Based Planning Process

The objective of MISO’s Value-Based Planning Process is to develop the most robust plan under a wide variety of economic and policy conditions as opposed to the least-cost plan under a single scenario. While the best transmission plan may be different in each policy-based future scenario, the best-fit transmission plan — or most robust — against all these scenarios should offer the most value in supporting the future resource mix.

A planning horizon of at least 15 years is needed to accomplish long-range economic transmission development, since it is not uncommon for large projects to take 10 years to complete. Performing a credible economic assessment over this time is a challenge. Long-range resource forecasting, powerflow and security-constrained economic dispatch models are required to extend to at least 15 years. Since no single model can perform all of the functions for integrated transmission development, the Value-Based Planning Process integrates multiple study techniques using the best models available, including:

  • Energy Planning – PROMOD and PLEXOS
  • Reliability Planning – PSS/E, PSLF and TARA
  • Decision Analysis – GE-MARS, PROMOD and EGEAS
  • Strategic Planning – EGEAS
  • Generation Portfolio Development – EGEAS

MISO’s Value-Based Planning Process is also known as the Seven-Step Planning Process (Figure 5.1-2). While the Value-Based Planning Process is chronologically sequenced, not all projects must start at Step 1 and end at Step 7. For example, depending on scope, a project may begin with pre-existing assumptions or plans and therefore start in Steps 3, 4, 5 or 6. Generally, Steps 1 and 2 are performed only annually. The Value-Based Planning Process is cyclical, and therefore the outputs and project approvals from one cycle are used as inputs in the next cycle. Additionally, the Step 7 to Step 1 link serves as the bridge between planning and operations to refresh assumptions based on approved projects.

Figure 5.1-2: MISO’s Value-Based, Seven-Step Planning Process

Figure 5.1-2: MISO’s Value-Based, Seven-Step Planning Process

Step 1: Futures Development and Regional Resource Forecasting

Scenario-based analysis provides the opportunity to develop plans for different future scenarios. A future scenario is a postulate of what could be, which guides the assumptions made about a given model. The outcome of each modeled future scenario is a generation expansion plan, or generation portfolio. Generation portfolios identify the least-cost generation required to meet reliability criteria based on the assumptions for each scenario.

Future scenarios and underlying assumptions are developed annually and collaboratively with stakeholders through the Planning Advisory Committee. The goal is a range of futures, linked to likely real-life scenarios, that provides an array of outcomes that are significantly broad, rather than a single expected forecast.

A more detailed discussion of the assumptions and methodology around the MTEP15 future scenarios is in Chapter 5.2: MTEP Future Development.

Step 2: Siting of Regional Resource Forecast Units

Generation resources forecasted from the expansion model for each of the future scenarios are specified by fuel type and timing; however, these resources are not site-specific. Future generation units must be sited within all planning models to provide an initial reference position five to 20 years into the future. Completing the process requires a siting methodology tying each resource to a specific bus in the powerflow model. A guiding philosophy and rule-based methodology, developed in conjunction with industry expertise, is used to site forecasted generation. The siting of regional resource forecast units is reviewed annually by the Planning Advisory Committee. A more detailed discussion of the siting methodology around each MTEP15 future is in Chapter 5.2: MTEP Future Development.

Step 3: Design Conceptual Transmission By Future

With initial forecasts developed in Steps 1 and 2, economic potential outputs from the planning models become a road map to design conceptual transmission for each future scenario. Economic potential information identifies both the location and the magnitude of effective transmission expansion potential. Economic potential information includes but is not limited to:

  • Source and sink plots
  • Locational marginal price forecasts
  • Historical and forward-looking congestion reports
  • Optimal incremental interface flows

 

Conceptual transmission designs by future consider both MISO-identified regional projects as well as local projects identified by Transmission Owners. Combining regional and local projects, transmission expansion plans can be designed and analyzed to find the optimal balance point between local and regional development for each MTEP future scenario.

The conceptual transmission design process using economic potential information is shown in Chapter 5.3: Market Congestion Planning Study.

Step 4: Test Conceptual Transmission For Robustness

Through Step 3 of the process, transmission plans are developed for each future scenario in isolation of other future scenarios or plans. The ultimate goal of Step 4’s robustness testing is to develop one transmission expansion plan capable of accommodating the various uncertainties inherent to potential policy outcomes and that can perform reasonably well under a broad set of future scenarios. To perform robustness tests, each preliminary transmission plan is assessed under all of the future scenarios. The plan emerging from this assessment with the highest value, most flexibility and lowest risk will be selected to move forward as the best-fit solution.

Step 5: Consolidate and Sequence Transmission

Once robustness testing has been conducted, it may be necessary to develop appropriate portfolios of transmission projects to complete the overall, long-term plan. One key consideration in consolidating and sequencing plans is the need to maintain flexibility in adapting to future changes in energy policies. In order to create a transmission infrastructure that will support changes to generation and market requirements with the least incremental investment and rework, a comprehensive plan, which offers the most benefit under all outcomes, is developed from elements of the best-performing preliminary plan.

Step 6: Evaluate Conceptual Transmission For Reliability

Detailed reliability analysis is required to identify additional issues that may be introduced by the long-term transmission plans developed through economic assessment. These plans may need to be adjusted to ensure system reliability. Additionally, the reliability assessment determines the reliability-based value contribution of the long-term plans. As value-driven regional expansions are justified, traditionally developed intermediate-term reliability plans may be affected. The combined impact of both reliability and value-based planning strategies must be fully understood in order to further the development of an integrated transmission plan.

Step 7: Cost Allocation

MISO employs a collection of cost allocation mechanisms that seek to match the costs of transmission investment to those who benefit from that investment (Table 5.1-1). In general, the cost allocation method is dependent on whether the transmission is needed to maintain reliability, improve market efficiency, interconnect new generation, and/or support energy policy mandates and goals. Cost allocation mechanisms are developed and revisited in a collaborative and open stakeholder process through the Regional Expansion Criteria and Benefits (RECB) Task Force.

Allocation Category Driver(s) Allocation to Beneficiaries
Participant Funded (“Other”) Transmission Owner-identified project that does not qualify for other cost allocation mechanisms; can be driven by reliability, economics, public policy or some combination of the three Paid by requestor (local zone(s))
Transmission Delivery Service Project Transmission Service Request Generally paid for by Transmission Customer; Transmission Owner can elect to roll-in into local zone rates
Generation Interconnection Project Interconnection Request Primarily paid for by requestor; 345 kV and above 10 percent postage stamp to load
Baseline Reliability Project NERC Reliability Criteria 100 percent allocated to local Pricing Zone
Market Efficiency Project Reduce market congestion when benefits exceed costs by 1.25 times Distributed to Local Resource Zones commensurate with expected benefit; 345 kV and above 20 percent postage stamp to load
Multi-Value Project Address energy policy laws and/or provide widespread benefits across footprint 100 percent postage stamp to load and exports other than PJM
Table 5.1-1: Summary of MISO cost allocation mechanisms

MISO’s Value-Based Planning Process continues to evolve to better integrate different planning functions, take advantage of new technology and meet stakeholder needs, in both scope and complexity. Enhancements to the existing value-based planning process to accommodate new Order 1000 requirements have been identified and implemented through a robust stakeholder process, including:

  • Identification and selection of transmission issues through a multifaceted needs assessment upfront, encompassing both public policy needs and economic congestion issues/opportunities
  • Open and transparent transmission solution idea solicitation with a formalized solution idea request form to document and track solution ideas
  • Development of an integrated transmission development process to categorize issues identified, screen solution ideas, refine solution ideas and formulate most-cost-effective projects

 

In MTEP15, MISO’s Value-Based Planning Process is exemplified in the MTEP Future Development (Chapter 5.2), Market Congestion Planning Studies (Chapter 5.3), MTEP 2015 MVP Limited Review (Chapter 7.5), and PJM and SPP Interregional Studies (Chapters 8.1 and 8.2).