January 26, 2016

Transmission upgrades delivering substantial value for Southwest Power Pool members

New study finds more than $240 million in annual fuel cost savings realized due to transmission investments during 2012-2014; Overall benefits expected to exceed $16.6 billion over 40 years

LITTLE ROCK, Ark. – Construction of electric transmission upgrades in the Southwest Power Pool (SPP) from 2012 to 2014 resulted in more than $240 million in fuel cost savings for utilities during the first year of operation of the company’s wholesale energy market, according to a new study from the regional power grid operator.

The study analyzed the value provided by 348 transmission upgrades that involved almost $3.4 billion of capital investment.

Previous studies by SPP projected the expected future value of transmission construction based on latest available forecast data. This study used actual historical operating data obtained during the first year of operation of SPP’s Integrated Marketplace to document transmission value already realized.

In addition to fuel cost savings, the study quantified other benefits associated with the transmission expansion upgrades, including reliability and resource adequacy benefits, generation capacity cost savings, reduced transmission losses, increased wheeling revenues and public policy benefits associated with more optimal wind development facilitated by the transmission upgrades. The net present value of all quantified benefits is expected to exceed $16.6 billion over a 40-year period, resulting in a benefit-cost ratio of at least 3.5. This means the investments are expected to produce more than $3.50 in overall benefits for every $1 in transmission-related costs.

“Transmission does more than just keep the lights on. It’s an enabling resource that paves the way for numerous benefits to our stakeholders and their customers,” said Nick Brown, president and CEO of SPP. “A modernized transmission system increases reliability, reduces costs by providing access to a wholesale energy market and effectively integrates wind and other renewable energy to the grid.”

“The SPP Value of Transmission study is a path-breaking effort,” noted Johannes Pfeifenberger, Judy Chang and Onur Aydin of the Brattle Group in a letter accompanying the study. Compared to transmission planning studies, “it provides a more accurate estimate of the total benefits that a more robust and flexible transmission infrastructure provides to power marketers, market participants and, ultimately, retail electric customers.”

The Brattle Group letter also added: “the estimated present value of the production cost savings in the SPP study likely is understated” due to several factors, including the fact that many of the major transmission projects evaluated were not yet in service during most of the period analyzed.

Read the study and the Brattle Group review at www.spp.org/value-of-transmission.

About Southwest Power Pool, Inc.

Southwest Power Pool, Inc. manages the electric grid and wholesale energy market for the central United States. As a regional transmission organization, the nonprofit corporation is mandated by the Federal Energy Regulatory Commission to ensure reliable supplies of power, adequate transmission infrastructure and competitive wholesale electricity prices. Southwest Power Pool and its diverse group of member companies coordinate the flow of electricity across 56,000 miles of high-voltage transmission lines spanning 14 states. The company is headquartered in Little Rock, Ark. Learn more at www.spp.org.

Derek Wingfield, 501-614-3394, dwingfield@spp.org