Brattle Testimony AWC 400 403

UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION
Atlantic Grid Operations A LLC Atlantic Grid Operations B LLC Atlantic Grid Operations C LLC Atlantic Grid Operations D LLC Atlantic Grid Operations E LLC
Docket Nos. EL11-____-000 ER11-____-000
DIRECT TESTIMONY OF JOHANNES P. PFEIFENBERGER AND SAMUEL A. NEWELL
ON BEHALF OF THE AWC COMPANIES
December 20, 2010
TABLE OF CONTENTS (Exhibit AWC-400)
I. II.
INTRODUCTION ......................................................................................................1 PURPOSE AND SUMMARY OF TESTIMONY....................................................5
III. BACKGROUND: STATE RPS REQUIREMENTS AND ECONOMIC BENEFITS OF OFFSHORE RENEWABLE POWER DEVELOPMENT..........19 1. 2. 3. State Renewable Energy Policy Requirements ............................................19 Production Cost, Energy Price, and Emissions Benefits ............................28 Employment and Economic Stimulus Benefits ...........................................33
IV. AWC PROJECT CONFIGURATION AND COSTS .............................................42 V. PUBLIC POLICY BENEFITS ASSOCIATED WITH THE AWC PROJECT...50
VI. RELIABILITY AND OPERATIONAL BENEFITS ..............................................62 VII. CONGESTION RELIEF AND OTHER ECONOMIC BENEFITS OF THE AWC PROJECT RELATIVE TO A RADIAL ALTERNATIVE .........................67 1. 2. 3. 4. Congestion Relief and Related Benefits.......................................................68 Capacity Value ..............................................................................................81 Reduced System Operating Costs .................................................................84 Emission Reduction Benefits........................................................................88
Qualifications of Johannes Pfeifenberger Qualifications of Samuel Newell Technical Appendix (PROMOD Simulations)
(Exhibit AWC-401) (Exhibit AWC-402) (Exhibit AWC-403)
Direct Testimony of Johannes Pfeifenberger and Samuel Newell Exhibit AWC-400 Page 1 of 89
UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION
Atlantic Grid Operations A LLC Atlantic Grid Operations B LLC Atlantic Grid Operations C LLC Atlantic Grid Operations D LLC Atlantic Grid Operations E LLC
Docket Nos. EL11-____-000 ER11-____-000
DIRECT TESTIMONY OF JOHANNES P. PFEIFENBERGER and SAMUEL A. NEWELL I. INTRODUCTION

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Q.
PLEASE STATE YOUR NAMES, EMPLOYER, TITLE, AND BUSINESS ADDRESS.
A.
My name is Johannes P. Pfeifenberger and my name is Dr. Samuel A. Newell. We are both Principals of The Brattle Group, an economic consulting firm with offices in Cambridge, Massachusetts; Washington, D.C.; San Francisco; London; Brussels; and Madrid. Our business address is 44 Brattle Street, Cambridge, Massachusetts 02138.
Q. A. Q.
ON WHOSE BEHALF ARE YOU TESTIFYING? We are testifying on behalf of The AWC Companies. MR. PFEIFENBERGER, PLEASE DESCRIBE YOUR BACKGROUND, EDUCATION, AND PROFESSIONAL EXPERIENCE AS IT RELATES TO THIS DIRECT TESTIMONY.
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A.
I am an economist with a background in power engineering and over 20 years of work experience in the areas of regulated industries, energy policy, and finance. I received a M.A. in Economics and Finance from Brandeis University and a M.S. in Electrical Engineering with a specialization in Power Engineering and Energy Economics from the University of Technology, Vienna, Austria. I lead The Brattle Groups utilities practice area and am the author and co-author of numerous articles, reports, and presentations on subject areas related to the economic benefits of transmission investment, planning, market design, and cost allocation. I have filed testimony before the Federal Energy Regulatory Commission (the Commission or FERC) and numerous state regulatory commissions on a range of subject areas, including the economic benefits of transmission investments. For example, I filed testimony with the Public Service Commission of Wisconsin on behalf of American Transmission Company LLC and ATC Management Inc. in Docket No. 137-CE-149 discussing the economic benefits of the Paddock-Rockdale Transmission Project, which was the first economic transmission project evaluated by the Wisconsin commission. On behalf of
Southern California Edison Company, I testified before the Arizona Power Plant and Transmission Line Siting Committee in Docket No. L-00000A-06-029500130, Case No. 130 regarding the economic impacts of the proposed DeversPalo Verde No. 2 (DPV2) transmission line in 2006 and conducted congestion and economic analyses in 2009 to evaluate the project under changed market conditions. On behalf of the Southwest Power Pool (SPP), I conducted the
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analysis of the economic stimulus benefits associated with the construction of proposed SPP transmission and wind generation, which SPP filed in FERC Docket No. ER10-1069 in support of the proposed Highway/Byway transmission cost allocation methodology. I also filed with the Commission (co-authored with colleagues on behalf of ourselves) comments in Docket Nos. AD09-8 and RM10-23 on regional transmission planning and cost allocation, and submitted testimonies on transmission tariff design, the costs and benefits of alternative transmission access charge methodologies, and regional transmission organization (RTO) scope and configuration issues on behalf of various clients. Exhibit AWC-401 to our testimony contains a more complete description of my qualifications and expert witness experience. Q. DR. NEWELL, PLEASE DESCRIBE YOUR BACKGROUND,
EDUCATION, AND PROFESSIONAL EXPERIENCE AS IT RELATES TO THIS DIRECT TESTIMONY. A. I am an economist and engineer with 12 years of work experience in the modeling and analysis of electricity markets and their relationship to the transmission system. I received a Ph.D. in technology management and policy from the
Massachusetts Institute of Technology, a M.S. in materials science and engineering from Stanford University, and a B.A. in chemistry and physics from Harvard College. Prior to joining The Brattle Group, I was Director of
Cambridge Energy Research Associates Transmission Service. I currently lead The Brattle Groups use of the locational marginal price (LMP) market simulation models of PJM and other North American electricity markets. I am the
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author or co-author of numerous articles, reports, and presentations on a broad range of subject areas related to wholesale electricity markets and transmission. I have submitted testimony with FERC in RTO-related cases and prepared expert reports for PJM, other RTOs, and transmission clients that have been filed with both state regulatory commissions and the FERC. For example, I was one of the co-authors of a report filed by American Transmission Company LLC with the Public Service Commission of Wisconsin in Docket No. 137-CE-149 discussing the economic benefits of the Paddock-Rockdale Transmission Project. My role was to advise staff at American Transmission Company LLC on its use of PROMOD IV simulations, to compute customer benefits, and to analyze several categories of benefits outside the scope of the model. Recently, I also testified on behalf of Connecticut Light & Power and The United Illuminating Company in their Integrated Resource Planning proceeding before the Connecticut Department of Public Utility Control. My role, as the leader of the Brattle team in that assignment, was to analyze customer impacts and policy implications of various resource strategies regarding renewables development and energy efficiency. Exhibit AWC-402 to our testimony contains a more complete description of my qualifications and expert witness experience.
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II. PURPOSE AND SUMMARY OF TESTIMONY Q. A. WHAT IS THE PURPOSE OF YOUR TESTIMONY? The purpose of our testimony is to describe and quantify some of the public policy, reliability, congestion relief, and other economic benefits associated with the Atlantic Wind Connection Project (AWC Project or Project). Q. A. WHAT IS THE AWC PROJECT? The AWC Project is a double-circuit, high-voltage direct current (HVDC) offshore transmission backbone with twelve offshore AC-DC converter stations capable of integrating at least 6,000 MW of offshore wind generation in geographic locations ranging from northern New Jersey to southern Virginia. The Project will also have onshore DC-AC converter stations at seven locations in New Jersey, Maryland, Delaware, and Virginia, where renewable power can be injected into the existing transmission grid in controlled proportions. The Project, which will be built in five phases, can also be used to transmit up to 2,000 MW of energy and capacity between interconnection points along the coast, providing an offshore reinforcement to the existing onshore grid in the congested Mid-Atlantic power market. Q. A. WHAT ARE THE AWC PROJECTS MAIN BENEFITS? The AWC Project provides a platform on which offshore wind developers can interconnect their wind farms with significantly reduced siting, permitting, and interconnection barriers. This will help meet state renewable energy requirements and other state and federal energy, environmental, and economic policy goals.
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Offshore wind generation facilitated by the AWC Project will lower CO2 emissions by reducing coal, gas, and oil usage, and it will reduce energy prices across the PJM footprint. The Project will also enhance reliability and reduce congestion in what the Department of Energy (DOE) has designated as one of the most congested National Interest Electric Transmission Corridors. Importantly, this is true of the AWC Project whether viewed without wind build out, full wind build-out, or simply in comparison to a scenario in which offshore wind is interconnected by radial transmission lines. The Mid-Atlantic region offers the most abundant and most attractive offshore wind resources in the country. The AWC Project can help the MidAtlantic and other PJM states take advantage of this resource to achieve their RPS requirements. In doing so, the Project offers significant economic benefits
compared to individual radial interconnections for each offshore wind farm. By reducing siting, permitting, and interconnection barriers to wind development, the Project will expedite the installation of offshore wind on a scale that very likely spurs the development of local industry to provide equipment and services, which will substantially lower the cost of offshore wind development. Of particular importance, the AWC Projects HVDC backbone and AC-DC converters are controllable which, unlike the typical radial transmission interconnections, allows for optimal power transfers and injections of offshore generation in real time. This enhances reliability and relieves transmission
congestion, which lowers system-wide electricity production costs. Compared to radially interconnecting individual offshore wind plants, the AWC Project is a
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more effective solution for developing Mid-Atlantic offshore wind resources. It provides significantly higher economic, reliability, congestion relief, operating, and environmental benefits to the PJM grid and to the region. Our testimony explains these public policy, reliability, congestion relief, and other economic benefits in detail. Q. PLEASE SUMMARIZE THE EXTENT TO WHICH THE AWC PROJECT WILL ENABLE STATES TO MEET THEIR RPS. A. The AWC Project helps meet states RPS policies, which require load serving entities to buy increasing amounts of energy from renewable resources, including offshore wind. PJM projects that meeting these state RPS requirements in its footprint would require up to 25,000 MW of wind by 2015 and 50,000 MW by 2025. Of the states directly interconnected by the AWC Project, New Jersey requires 22.5% renewables by 2020, Delaware 25% by 2025, Maryland 20% by 2022, and Virginia has a goal of 15% by 2025. Offshore wind power has received an increasing amount of public policy attention as a key resource for the eastern U.S. because it is abundant and located close to load centers. In contrast, other local renewable resources are scarce and remote resources (such as onshore wind in the Midwest) would require major transmission investments without much local economic development benefit to the states. The AWC Project could deliver 6,000 MW of offshore wind energy, closing approximately 75% of the gap toward the 8,000 MW of new offshore wind that would be sufficient to meet the 2020 RPS requirements of New Jersey,
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Delaware, Maryland and Virginia, and providing nearly 65% of the requirement by 2025before considering the potential demand for offshore wind from other states. Moreover, since wind conditions rarely allow entire wind farms to
simultaneously generate at their maximum rated capacity, it is more cost effective to install wind capacity in excess of the transmission capacity to maximize the value of the overall investment. In our analysis of benefits, we have assumed that 6,600 MW of nameplate wind generation would be interconnected to the AWC Project, which will result in 10% additional wind energy generated with only 0.2% in curtailments. Q. PLEASE SUMMARIZE SOME OF THE COSTS AND BENEFITS ASSOCIATED WITH THE SCALE OF OFFSHORE WIND
DEVELOPMENT SUPPORTED BY THE AWC PROJECT. A. Developing this amount of offshore wind generation will require an overall investment of approximately $30 billion. This investment has to be considered in the context of associated benefits. As shown in Table 1, integration of the
6,600 MW of offshore wind generation facilitated by the AWC Project will reduce customer locational marginal prices (LMPs) by approximately $1.6 billion per year (net of offsetting impacts on capacity market prices). Our analysis shows that this benefit is widespread: load-weighted annual average LMPs decrease by approximately $6/MWh in New Jersey, by $2-4/MWh in Delaware, Maryland and Virginia, by $2-5/MWh in Pennsylvania, and by $0.51.6/MWh in western PJM.
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In addition, the development of offshore wind will create jobs and economic stimulus for the local economy, as shown in Table 2. There are also other benefits and costs, including the capacity value of wind, wind integration costs, and the AWC Project-specific benefits discussed in Sections IV through VII of our testimony. Table 1 Electricity Market and Emissions Benefits of Integrating 6,600 MW of Offshore Wind Generation in New Jersey, Delaware, Maryland, and Virginia (relative to a Base Case without offshore wind) Type of Benefit Emission reductions Annual Value
(in 2016 $s)
20-year NPV
(in 2010 $s)
16 million tons CO2 25,000 tons SO2 11,000 tons NOx $500 million $1.1 billion $1.6 billion $5.2 billion $12 billion $17 billion
Value of CO2 emission reductions (assuming $30/ton CO2) Reduction in fossil fuel production costs in Eastern Interconnection Customer value of LMP reductions in PJM (net of $480 million/year offsetting impact on capacity prices)
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Table 2 Economic Stimulus Benefit of 6,600 MW of Offshore Wind Generation and Related Offshore Transmission (relative to a Base Case without offshore wind) Economic Activity Construction and low inregion manufacturing Construction and high inregion manufacturing Jobs (FTE-years) 130,000 to 184,000 184,000 to 263,000 Earnings ($ billions) $7.6 11.4 $11.4 17.4 Economic Activity ($ billions) $16.4 30.3 $30.3 51.5
14
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Q.
PLEASE EXPLAIN THE DIFFERENCE BETWEEN LOW IN-REGION AND HIGH IN-REGION MANUFACTURING IN TABLE 2
A.
As Table 2 shows, the overall magnitude of the economic stimulus benefits of offshore wind investments to the local economies is significant. However, the magnitude of this economic benefit also strongly depends on the extent to which wind turbines and other plant and equipment are manufactured within the MidAtlantic region (rather than being imported) and the extent to which construction services and logistical support are provided by companies and employees within the region. Achieving a high in-region provision of these equipment and services will require a scale of offshore wind power development that justifies the investment in manufacturing and logistical facilities.
Q.
DOES YOUR TESTIMONY EVALUATE THE ECONOMICS OF RPS REQUIREMENTS AND OFFSHORE WIND GENERATION RELATIVE TO OTHER POLICY OPTIONS?
A.
No.
While we recognize the above benefits and costs of offshore wind
generation, the focus of our testimony is to identify the public policy, reliability, congestion relief, and other economic benefits of the AWC Project itself. We do so primarily by comparing the Project to more conventional ways to interconnect offshore wind through radial transmission lines. The rest of this summary (and Sections IV though VII of our testimony) focuses on that comparison. Q. HOW DOES THE AWC PROJECTS CONFIGURATION AND COST COMPARE TO CONVENTIONAL RADIAL INTERCONNECTION OF OFFSHORE WIND PLANTS?
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A.
The AWC Project is able to reliably deliver 6,000 MW of offshore wind power and additionally provide a fully controllable 2,000 MW HVDC transmission path between southern Virginia and northern New Jersey at a total construction cost of approximately $5 billion. In comparison, we estimate that delivering 6,000 MW of wind power with radial transmission lines from individual wind plants to shore would incur construction costs of $3.4 billion to $5.3 billion without offering the substantial additional public policy, reliability, congestion relief, and other economic benefits we have identified and partially quantified for the AWC Project. We estimate that interconnecting offshore wind with the AWC Project provides $9-15 billion of benefits over a radial approach (including the avoided costs of radial transmission lines), in addition to reliability and operating benefits we have not quantified.
Q.
PLEASE SUMMARIZE HOW THE AWC PROJECT WOULD SUPPORT STATE POLICY OBJECTIVES.
A.
The AWC Project will support meeting the states renewable energy goals by reducing permitting and planning barriers and achieving significant economies of scale for offshore wind development. The Project creates a one-stop process for landing-point selection, state environmental siting, and PJM transmission planning. Compared to a plant-by-plant permitting and transmission planning process, this will reduce development barriers and provide a platform that increases the certainty, ramp-up, and scale of offshore wind development in the Mid-Atlantic region. The AWC Project requires fewer landing points, has a smaller environmental footprint, and allows the development of offshore wind
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locations independently of these landing points and with a greatly simplified permitting process. Q. HAVE YOU QUANTIFIED THE VALUE OF SOME OF THESE PUBLIC POLICY BENEFITS THAT THE AWC PROJECT WOULD PROVIDE? A. Yes. Increased scale and predictability of offshore wind development facilitated by the AWC Project offers the prospect of significant cost savings for almost every aspect of offshore wind development. It will facilitate investments in local manufacturing of wind turbines and related components and the development of more cost-effective construction and logistical infrastructure. We estimate that streamlined permitting and increased scale that allows local manufacturing and sourcing will reduce total offshore costs by approximately 20 percent. Based on $30 billion of offshore wind generation investment supported by the AWC Project, this results in total cost reductions of approximately $6.0 billion. In addition, promoting in-region manufacturing and sourcing results in significantly greater employment and economic development benefits, as indicated by the difference between low and high in-region manufacturing benefits in Table 2. Q. PLEASE SUMMARIZE HOW THE AWC PROJECT PROVIDES RELIABILITY AND OPERATIONAL BENEFITS. A. The AWC Project will provide significant reliability and operational benefits. The AWC Project will likely reduce the long-term need for costly enhancements to the existing onshore transmission system. This is because: (a) the Project can be designed to interconnect at the strongest onshore nodes, which is less likely to be achieved by interconnecting individual wind farms; (b) the Projects
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2,000 MW transfer capability between landing points in Virginia, Maryland, Delaware, and New Jersey reinforces the onshore grid in the constrained MidAtlantic region, reducing the need for future onshore reinforcements; and (c) the Projects controllable HVDC technology provides PJM with additional flexibility to address reliability challenges whenever they arise. The capabilities of the Projects advanced HVDC technology also provide operating benefits that enhance reliability and reduce the cost of system operations. These include: (a) the ability to redirect power flows instantaneously to address system contingencies; (b) improved system stability; (c) voltage support and improved reactive performance; and (d) blackstart capability. The Project further provides for more reliable delivery of offshore wind power than individual radial connections by being able to redirect power away from landing points with temporary reliability-related transmission constraints. We have not quantified the economic value of these reliability and operational benefits, nor have we quantified the value of the Projects specific reliability benefits. However, if the AWC Project avoids the need for even one major onshore transmission project, the savings would likely exceed $1 billion. Q. A. HOW DOES THE AWC PROJECT PROVIDE CONGESTION RELIEF? The Projects offshore backbone and controllability allows energy from offshore wind plants or onshore interconnection points to be transmitted to the interconnection points with the highest LMPs, thereby reducing congestion and overall costs compared to a radial system that simply delivers power from individual offshore wind plants irrespective of onshore grid congestion.
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We analyzed the economic value of this benefit using Ventyxs PROMOD simulation model. Working with Ventyx staff, we simulated market conditions for 2016 with the addition of 6,600 MW of nameplate offshore wind generation added in two ways: one case with the AWC Project and an alternative case with radial interconnections. These simulations showed that the AWC Project
significantly reduces congestion. Instead of simply injecting wind power at the closest onshore location, the AWC Project transfers power to the best locations along the backbone, where the LMP is the highest. It also transfers power from low-priced onshore interconnection points to higher-priced locations. These two benefits reduce system-wide congestion costs by $196 million annually compared to radial interconnections of individual wind plants. Most of the relief occurs on constraints near the wind power injection points and also on constraints from western Pennsylvania into eastern PJM. Compared to the radial interconnection of individual wind plants, the congestion relief provided by the AWC Project helps to reduce system-wide production costs by $33 million per year or by approximately $350 million over the initial 20 years of the Project. Q. WHAT IMPACT WOULD THE AWC PROJECT HAVE ON LMPS AND CUSTOMER PAYMENTS RELATIVE TO A RADIAL ALTERNATIVE? A. The LMP benefits from the AWC Project with full wind build-out (compared to a Base Case without AWC Project and without offshore wind) were described above. On average, these benefits are greater than with radially interconnecting the same amount of wind. The AWC Project will reduce LMPs, especially in the EMAAC region of PJM, compared to the radial alternative. These price
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impacts would save PJM customers approximately $126 million per year, or $1.35 billion over 20 years. However, the lower LMPs will increase capacity prices, which offsets $110 million annually ($1.2 billion over 20 years) of these LMP reductions. Q. ARE THERE ANY SIGNIFICANT FACTORS THAT ARE NOT INCLUDED IN THE ABOVE ESTIMATES OF CONGESTION-RELATED BENEFITS? A. Yes. The above estimates significantly understate the value that the AWC Project will provide under real-time system operations. This is because a number of operational factors that cause price volatility in the real-time market are not captured in PROMOD simulations, including wind generation uncertainty and forecasting errors, load forecasting errors, sudden outages of generation units, transmission outages, unexpected loop flows from neighboring regions, and ramprate limitations on generators. Analysis of historical hourly day-ahead and real-time LMP differentials among the AWC Projects interconnection points shows that the ability to control power flows in real time is worth approximately twice as much as in the dayahead market. Since PROMOD simulations are more comparable to the dayahead market than the real-time market, we estimate that the Projects real-time congestion-relief value will add at least $310 million to the simulation-based production cost savings over the initial 20 years of the Project. Q. HOW WOULD THE AWC PROJECT AFFECT CONGESTION IF LESS WIND POWER WERE DEVELOPED?
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A.
We simulated the effects of the AWC Project without any offshore wind generation. Compared to a 2016 Base Case that includes only planned
transmission and generation additions, adding the AWC Project reduces onshore congestion by transmitting power from less congested, lower-priced locations to more congested, higher-priced locations. The results of this analysis show that congestion costs would decrease by $147 million and production costs by $51 million per year. Q. WHAT OTHER CONGESTION-RELATED ECONOMIC BENEFITS DOES THE AWC PROJECT PROVIDE? A. In addition to transmitting the capacity value of 6,000 MW of offshore wind which PJM is likely to count as less than 2,000 MW for resource adequacy purposesthe AWC Project will be able to transmit 2,000 MW of capacity from unconstrained southern Virginia northward into the constrained EMAAC region of PJM. The Project also allows transmission of capacity between any
constrained subareas within EMAAC if capacity prices were to differ across these subareas again in the future. We have not forecasted future capacity market conditions and the precise impact of the Project on such future prices. However, using a scenario analysis PJM recently conducted to assess the impact of added transfer capability on 2013/14 capacity prices, and assuming that these price impacts would be realized for only five years over the entire life of the Project, we estimate that the AWC Project would reduce retail customers capacity payments by approximately $2.1 billion in EMAAC and by approximately $2.7 billion in all of PJM. Even
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without considering the capacity price benefits to all retail customers, the value of transmitting up to 2,000 MW of capacity from southern Virginia to EMAAC for five years would be worth $180 million. Q. A. WHAT EFFECTS DOES THE AWC PROJECT HAVE ON EMISSIONS? By facilitating the development of offshore wind more quickly and at greater scale than if individual wind developers had to plan, permit, and build their own interconnections, the AWC Project will give rise to major emissions reductions. As shown in Table 1, the 6,600 MW of offshore wind interconnected by the AWC Project would eliminate 16 million tons of CO2 emissions from fossil-fuel-fired generation per year. That is equivalent to taking 3 million cars off the road. Q. PLEASE SUMMARIZE YOUR MAIN CONCLUSIONS ABOUT THE AWC PROJECTS BENEFITS. A. Table 3 summarizes the benefits discussed and quantified in our testimony. As Table 3 shows, the approximately $5 billion construction cost of the AWC Project is more than offset by a number of economic benefits that the Project offers over a plant-by-plant development of offshore wind generation and the interconnection of individual wind power plants through radial HVAC transmission links to the onshore grid. Interconnecting offshore wind with the AWC Project provides $9-15 billion of benefits over a radial approach (including the avoided costs of radial transmission lines), without considering the economic value of reliability and operating benefits we did not quantify.
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Table 3 Types and Approximate Magnitude of AWC Project-Related Economic Benefits Over Individual Radial Interconnections of 6,600 MW Offshore Wind Generation Type of AWC Project Benefit Avoided cost of radial HVAC transmission links to shore Economic value of ability to access better wind locations Scale-related benefits (streamlined planning and permitting): Reduced cost from higher in-region turbine manufacturing Scale-related savings for other equipment and installation Reduced planning, permitting, and siting costs/uncertainties Shoreline siting-related environmental benefits Reliability benefits: Avoided cost of on-shore reliability upgrades Reinforced existing grid through offshore backbone HVDC operational benefits (voltage support, improved reactive performance, stability, and control of AC power flows, blackstart capability) Congestion relief benefits: NPV of reduced production costs measured in PROMOD NPV of additional production cost savings in real-time or, alternatively: NPV of additional reduction in PJM Load LMP NPV of capacity price offset to LMP decreases Related (locational) capacity market benefit: Capacity value of 2,000 MW EMAAC import capability: NPV of resource cost savings*or, alternatively: NPV of reduced customer payments due to price impact* * these are order-of-magnitude estimates that are not included in the low end of total benefits below Approximate overall magnitude of AWC Project benefits over radial interconnection of individual wind plants (compared to approximately $5 billion in AWC Project cost) Estimate of Economic Value $3.4-5.3 billion
not quantified
$3.2 billion $1.2-3.0 billion $0.6 billion

not quantified not quantified not quantified not quantified
$350 million $310 million $1.35 billion -$1.2 billion
$180 million $2.7 billion
> $9-15 billion
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Q.
HOW HAVE YOU ORGANIZED THE REMAINDER OF YOUR TESTIMONY?
A.
The remainder of our testimony is organized as follows: Section III provides an overview of state renewable energy policies, the associated renewable energy requirements, and the economic impact of offshore wind generation facilitated by the AWC Project. Section IV analyzes the AWC Project configuration and costs compared with the radial interconnection of individual wind farms. Section V evaluates the public policy and scale-related benefits of the AWC Project. Section VI discusses and provides preliminary estimates of the reliability and operational benefits associated with the AWC Project. And, finally, Section VII discusses the congestion relief and related economic benefits associated with the AWC Project.
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III. BACKGROUND: STATE RPS REQUIREMENTS AND ECONOMIC BENEFITS OF OFFSHORE RENEWABLE POWER DEVELOPMENT
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1. State Renewable Energy Policy Requirements Q. WHAT ARE THE RENEWABLE ENERGY REQUIREMENTS OF STATES WITHIN THE PJM FOOTPRINT? A. Eleven of the fourteen states within the PJM footprintDelaware, Illinois, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Virginia,
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West Virginia and the District of Columbiahave renewable portfolio standards or goals ranging from 15% to 25% by 2025. PJM projects that meeting these state RPS requirements in its footprint would require up to 25,000 MW of wind by 2015 and 50,000 MW by 2025.1 Q. WHAT ARE THE RENEWABLE ENERGY REQUIREMENTS OF THE FOUR COASTAL MID-ATLANTIC STATES WITH AWC LANDING POINTS? A. All four coastal Mid-Atlantic states with AWC landing points have passed legislation or regulations establishing renewable energy requirements or goals ranging from 15 to 25 percent of total supply over the next 10 to 15 years. New Jerseys RPS requires investor-owned utilities and retail suppliers to procure 22.5% of their electricity sales from qualifying renewable resources by 2020. Qualifying resources include wind, solar, small hydro, resource recovery facilities, biomass, fuel cells, geothermal, landfill gas, and tidal energy. In-state solar generation must provide approximately 2% of the total energy supply, and approved small hydro and resource recovery facilities must provide at least 2.5% of the total energy supply. Legislation enacted in August 2010 also requires offshore wind to provide part of the renewable supply, although the details of this policy are still
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2010 RTEP Sensitivity Analysis Assumptions, PJM Transmission Expansion Advisory Committee, April 14, 2010, slide 8. Available at: http://pjm.com/~/media/committees-groups/committees/teac/20100414/20100414-reliability-analysisupdate.ashx
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under development. That legislation aims to support the development of at least 1,100 MW of offshore wind. Delawares RPS requires all utility and retail suppliers to procure 25% of their electricity sales from qualifying renewable resources by 2025, with at least 3.5% from solar generation. Solar PV and fuel cell resources sited before December 31, 2014 receive 300% credit (i.e., each MWh generated counts for three MWh). Onshore wind resources sited before December 31, 2012 receive 150% credit, and offshore wind resources sited before December 31, 2017 receive 350% credit toward meeting the states RPS requirements. Marylands RPS requires all utility and retail suppliers to procure 20% of their electricity sales from qualifying renewable resources by 2022, with at least 2% from solar generation. On November 2010, the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) accepted the planning recommendations of the Maryland Offshore Wind Task Force and issued a Request for Interest (RFI) and also a map of an offshore wind leasing area in federal waters adjacent to Maryland's Atlantic Coast (which made Maryland only the second state in the nation after Delaware to reach this point in the planning process). Virginia has not established a mandatory RPS requirement, but the legislature enacted a voluntary renewable energy portfolio goal, with a target of 15% by 2025. RPS targets are defined as a percentage of base
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year (2007) electricity sales that are supplied by non-nuclear generation.2 According to the legislation, the utilities participating in the RPS program are allowed to recover all incremental costs and also given incentives in the form of increased rate of return. In addition, utilities receive 200% credit for the energy derived from onshore wind, and 300% credit for the energy derived from offshore wind. A study by the Virginia Coastal Energy Research Consortium, which was established by the 2006 Virginia Energy Plan legislation, has now identified 25 lease blocks with 3,200 MW of potential offshore wind capacity in shallow waters beyond the visible horizon.3 Figure 1 below summarizes the projected demand for renewable energy based on these state RPS requirements and goals. As Figure 1 shows, the total demand is estimated to increase from 11,700 GWh in 2010, to more than 40,000 GWh in 2020, and approximately 54,000 GWh in 2025. Assuming an average capacity factor of 37%, this demand is equivalent to 3,600 MW of renewable power plants in 2010, more than 12,000 MW in 2020, and approximately 16,600 MW in 2025. As discussed below, however, due to RPS credit multipliers, less offshore wind generating capacity would be needed to satisfy the existing requirement.
Amount excluded from the base year sales is calculated based on average nuclear generation for calendar years 2004 through 2006. 3 Virginia Coastal Energy Research Consortium, Virginia Offshore Wind Studies, July 2007 to March 2010: Final Report, April 2010, p. ix.
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60,000
Figure 1 Renewable Demand in Mid-Atlantic Coastal States by Year
50,000
New Jersey
40,000
GWh
30,000
Delaware
20,000
Maryland
10,000
Virginia
0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Year
Sources and Notes: [1] RPS targets from DOE's Database of State Incentives for Renewables and Energy Efficiency (DSIRE). [2] Load forecasts based on EIA 2008 state electricity profiles; applied RTO-wide load growth rates from 2010 PJM Load Forecast. [3] Virginia RPS goal is defined as a percent of base year (2007) sales minus average nuclear generation between 2004-06.
4 5 6 7 8 9 10 11 12
Q.
HOW MUCH RENEWABLE CAPACITY CURRENTLY EXISTS WITHIN THESE STATES?
A.
Table 4 below summarizes renewable generation supply in the coastal MidAtlantic states based on the unit-level database compiled by Ventyx, The Energy Velocity Suite. As the table shows, approximately 1,250 MW of renewable
supply already exists, is under construction, or is at least partially permitted within states boundaries (mostly biomass and landfill gas). Assuming
appropriate technology-specific capacity factors, these resources would produce about 7,150 GWh of energy per year.
1 2
Table 4 Renewable Supply in Mid-Atlantic Coastal States by Technology

TOTAL Virginia CAPACITY (MW) (MW) 263 128 188 121 0 700 530 226 306 144 48 1,253 Assumed TOTAL Capacity GENERA Factor TION (%) (GWh) 85% 85% 32% 48% 16% 3,948 1,684 856 609 66 7,163
Status Biomass Landfill Gas Onshore Wind Small Hydro Solar TOTAL
Sources and Notes:
Delaware Maryland New Jersey (MW) (MW) (MW) 0 7 2 0 0 9 117 26 108 18 4 274 150 65 8 4 43 270
[1] Capacity calculated based on data compiled by Ventyx, The Velocity Suite (downloaded on 10/21/2010). [2] Generation estimated based on technology-specific capacity factors. [3] Includes existing units, and units that are under construction or permitted. [4] "Small Hydro" includes only the units with a nameplate capacity of less than 30 MW. [5] "Solar" does not include customer-sited generators.
[6] Bluewater's proposed 350 MW project is not included because its status is listed as "Application Pending".
4 5 6 7 8 9 10 11 12 13 14
Q.
IS THE SUPPLY DESCRIBED ABOVE SUFFICIENT TO MEET THE STATED RENEWABLE REQUIREMENTS OR GOALS OF COASTAL MID-ATLANTIC STATES?
A.
No. There is a large gap that will need to be met by additional resources. In addition to the 7,150 GWh from renewable energy plants that already exists, are under construction, or are partially permitted, approximately 47,000 GWh of additional renewable generation will be needed to meet state RPS targets by 2025. Considering that at least 6,600 GWh is required to come from solar resources, this leaves approximately 40,000 GWh in additional demand from other renewable resources. This gap substantially exceeds even the sum of all tentatively
proposed renewable projects, which add up to about 20,000 GWh, with
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
4 5
approximately 16,000 GWh from offshore wind.4 Taking the states RPS credit multipliers into account, this number goes up to more than 26,000 GWh, with approximately 22,000 GWh from offshore wind, which is only two thirds of the incremental 40,000 GWh needed for RPS compliance by 2025. Q. HOW MUCH OFFSHORE WIND POTENTIAL EXISTS IN THE MIDATLANTIC REGION? A. The Mid-Atlantic offshore region has been recognized as one of the most fertile locations for offshore wind generation. The National Renewable Energy
Laboratory (NREL) has determined that total Mid-Atlantic offshore wind energy potential is over 480,000 MW, of which 44,000 MW is located in shallow waters between 12 and 50 nautical miles off the shores of PJMs four MidAtlantic coastal states.5 Q. HOW MUCH ADDITIONAL OFFSHORE WIND CAPACITY WOULD BE NEEDED TO SATISFY ONLY THE REMAINING REQUIREMENTS IN THE FOUR MID-ATLANTIC STATES RPS TARGETS? A. If the incremental 40,200 GWh required for RPS compliance of the four states came only from onshore wind resources with an average 32% capacity factor, then approximately 12,800 MW of additional onshore wind capacity would be needed (taking into account solar carveouts and the 200% RPS credit multiplier for onshore wind in Virginia). Alternatively, if the renewable energy were to
As calculated based on data compiled by Ventyx, The Velocity Suite (downloaded on 10/21/2010). National Renewable Energy Laboratory, Large-Scale Offshore Wind Power in the United States: Assessment of Opportunities and Barriers, September 2010, pp. 56-63. The study defines the Mid-Atlantic region as the coasts of New Jersey, Delaware, Maryland, Virginia, and North Carolina. Wind potential cited is based on 8.0 m/s wind speeds or greater. Shallow water is water depth of 30 meters or less. North Carolinas offshore potential in shallow waters between 12 and 50 nautical miles is 52,000 MW.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
come only from offshore wind resources with an average 40% capacity factor, then approximately 9,200 MW of new capacity would be needed (taking into account solar carveouts and the 300% RPS credit for offshore wind in Virginia and 350% in Delaware). Thus, not even considering any potential demand for offshore wind energy in other PJM and neighboring states, the RPS requirement of the four Mid-Atlantic states with AWC landing points already significantly exceeds the 6,000 MW of offshore wind generation that can be delivered to shore by the Project. Q. HOW MUCH OF THE FOUR STATES RENEWABLE REQUIREMENT WOULD LIKELY BE IMPORTED FROM STATES OUTSIDE THE MIDATLANTIC REGION? A. That is difficult to assess at this point. Most other states demand for renewables similarly exceeds their local supply, limiting the potential for onshore wind imports by the coastal Mid-Atlantic states. Only states in the Upper Midwest have significant long-term export potential. While these Upper Midwestern states have a large amount of high-quality onshore wind that could meet some of the coastal states RPS requirements, development of these resources is also limited by severe transmission constraints. In addition, the east coast states have voiced a strong preference in favor of developing renewable resources within the region, rather than relying on imports from the Midwest.6
For example, as stated in a letter from the governors of Massachusetts, Rhode Island, Delaware, Maine, Maryland, New Hampshire, New Jersey, New York, Vermont, and Virginia to members of Congress dated May 4, 2009.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Q.
WHAT
IS
THE
MID-ATLANTIC
STATES
RATIONALE
FOR
SUPPORTING OFFSHORE WIND OVER ONSHORE ALTERNATIVES? A. The coastal states support the development of offshore wind resources for a number of reasons. First, the Mid-Atlantic offers attractive wind speeds and wind capacity factors that are comparable to or exceed those in the Upper Midwest. In addition, the Mid-Atlantic coast has large areas of shallow water that are well suited for deployment of offshore wind generation at lower cost than would be incurred in deep-water locations. As mentioned above, NREL estimates that the Mid-Atlantic has a very large offshore wind potential in shallow waters with attractive wind speeds (almost half of the U.S. total).7 Second, offshore wind generation can be located close to the coastal load centers, which avoids the transmission investment costs and losses associated with integrating much more distant onshore renewable resources.8 Finally, the coastal states have expressed a clear preference for offshore wind development in their efforts to create a clean-tech industry and reach a scale of offshore wind power development that would support local manufacturing of wind turbines and related equipment as well as the development of supporting infrastructure, such as specialized vessels and on-shore staging areas. The availability of such local manufacturing and other infrastructure is seen as a critical factor in reducing the
National Renewable Energy Laboratory, Large-Scale Offshore Wind Power in the United States: Assessment of Opportunities and Barriers, September 2010, p. 59. 8 Letter from the governors of Massachusetts, Rhode Island, Delaware, Maine, Maryland, New Hampshire, New Jersey, New York, Vermont, and Virginia to members of Congress dated May 4, 2009.
1 2
cost of renewable power options, in particular the still evolving offshore wind technologies.9 2. Production Cost, Energy Price, and Emissions Benefits Q. WHAT ARE THE MAIN COSTS AND BENEFITS ASSOCIATED WITH OFFSHORE WIND DEVELOPMENT? A. While developing this amount of offshore wind resources requires substantial investmentsapproximately $30 billion for 6,600 MW of installed capacity these investments have to be considered in the context of associated benefits. Some of these benefits include: (1) environmental benefits through reduced emissions of CO2 and other pollutants; (2) promotion of a strategic industry and the economic stimulus associated with manufacturing, construction, plant operations, and other economic activities; (3) electricity market benefits in the form of reduced LMPs and production costs from fossil fuel power plants. Q. A. HAVE YOU QUANTIFIED THESE BENEFITS? Yes, we have. We have analyzed the electricity market and emissions impacts of injecting 6,600 MW of offshore wind using PROMOD simulations. We have also estimated the employment and economic stimulus impact of this level of wind investment, using the Job and Economic Development Impact (JEDI) simulation tool that NREL developed to analyze wind plant investment-related benefits.
3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
See Virginia Coastal Energy Research Consortium, Virginia Offshore Wind Studies, July 2007 to March 2010: Final Report, April 20, 2010, p. viii.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Q.
PLEASE EXPLAIN HOW YOU SIMULATED THE ELECTRICITY MARKET AND EMISSION IMPACTS OF OFFSHORE WIND POWER DEVELOPMENT.
A.
As discussed further in Section VII of our testimony and Exhibit AWC-403, we directed staff of Ventyx, the vendor of the PROMOD simulation model, to simulate market conditions for 2016 with and without the addition of 6,600 MW of nameplate offshore wind generation. These simulations showed that injecting wind via the AWC Project significantly reduces LMPs, as well as the emissions and production costs from fossil fuel generating plants.
Q.
WHAT ARE THE EMISSIONS REDUCTIONS ASSOCIATED WITH 6,600 MW OF OFFSHORE WIND?
A.
The approximately 23,000 GWh of energy produced by 6,600 MW of wind will displace more than 23,000 GWh of fossil generation (the displacement is more than one-for-one because injecting power closer to the coastal load centers reduces electrical losses by approximately 1,000 GWh, or more than 100 MW on average). Approximately 61% of the displaced generation is gas-fired, 37.5% coal-fired, and 1.5% oil-fired, and all of the associated emissions are eliminated. As previously shown in Table 1, injecting up to 6,000 MW of energy from 6,600 MW of offshore wind capacity will reduce CO2 emissions from fossil fuel generation by 16 million tons each year. It will also avoid 25 thousand tons of SO2 emissions and 11 thousand tons of NOx emissions annually. At CO2 prices of $30/ton, the wind-generation-related reduction in CO2 emissions would have
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
an economic value of approximately $500 million per year.10 The present value of these emissions cost savings over 20 years from 2016 through 2035 would be $5.2 billion (expressed in 2010 dollars).11 These benefits are additive to
production cost benefits, since the production costs in the PROMOD model did not include CO2 allowance price adders, reflecting the currently poor prospects for near-term climate legislation. Q. WHAT ARE THE IMPACTS OF 6,600 MW OF WIND GENERATION ON SYSTEM PRODUCTION COSTS? A. The PROMOD simulations show that injecting up to 6,000 MW of energy from 6,600 MW of offshore wind capacity reduces system-wide production costs by $1.1 billion per year. The present value of the $1.1 billion in annual production cost savings over 20 years from 2016 through 2035 would be at least $12 billion (expressed in 2010 dollars). The savings are primarily derived from replacing fossil fuel-fired generation with zero-variable-cost generation, but also by substantially reducing congestion and losses on the prevailing west-to-east flows on the onshore system. In fact, our simulations show that annual congestion costs decrease by $410 million and losses decrease by more than 115 MW on average.
10
This is conservative compared to the recent EIA projections from its analysis of the American Power Act. Depending on the scenarios considered, EIA estimated CO2 prices to range from $40/ton to $140/ton by 2030 (in 2008 dollars). (Source: Energy Information Administration, Energy Market and Economic Impacts of the American Power Act of 2010, July 2010, page 7). In a similar analysis of the American Power Act, EPA estimated CO2 prices at approximately $38/ton by 2030 and $100/ton in 2050 (in 2005 dollars). (Source: U.S. Environmental Protection Agency, EPA Analysis of the American Power Act in the 111th Congress, June 2010, page 26). 11 All NPV calculations assume 50% debt, with a 6% debt rate, 11% equity rate, 40% tax rate, and 2% inflation rate.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Q.
HOW MUCH WOULD ADDING 6,600 MW OF OFFSHORE WIND CAPACITY SAVE CUSTOMERS BY REDUCING ENERGY PRICES?
A.
The PROMOD simulation results also show that this amount of offshore wind energy will reduce energy prices paid by customers by approximately $6/MWh in New Jersey, by $2-4/MWh in Delaware, Maryland and Virginia, by $2-5/MWh in Pennsylvania, and by $0.5-1.6/MWh in western PJM, with effects outside of PJM as well. These price impacts, which are shown in Table 5, would reduce customer payments by $2.2 billion per year in PJM alone, without counting reductions in other regions. Net of reduced loss refunds in the AWC Wind casebecause system losses and LMPs are lower, which reduces marginal-loss-related refunds by $79 millionthe customer savings are only $2.1 billion, as described in the Technical Appendix report filed as Exhibit AWC-403 with this testimony. However, lower energy prices can be expected to increase capacity prices. As energy prices decrease, so do the energy margins earned by generators, which will induce them to bid commensurately more in the capacity market. For
example, the potential developer of a new combustion turbine in EMAAC would anticipate $9/kW-yr lower energy margins and thus would bid that much higher for capacity in order to be willing to enter the market. Assuming new combustion turbines set the capacity prices when new supply is needed, we estimate that capacity prices would increase by $9 to $10 per kW-year in EMAAC and SWMAAC, about $2/kW-year in the rest of MAAC, and $0.4/kW-year in the rest of PJM RTO. Such a capacity price increase applied to all demand in PJM areas would increase customer payments by $480 million
1 2 3 4 5 6 7 8
Region
per year ($5 billion NPV), offsetting some of their savings from reduced LMPs. This yields a $1.6 billion annual net benefit in terms of customer wholesale power purchase costs, calculated as $2.2 billion in annual LMP reductions net of reduced marginal loss refunds ($79 million) and capacity price increases ($480 million).
Table 5 Impacts of the AWC Project with Wind on PJM Load LMPs Compared to the Base Case (without AWC and without Offshore Wind)
State PJM Area Annual Load (GWh)
[1]
Base AWC Case Wind LMP LMP ($/MWh) ($/MWh)

[2] [3]
AWC Wind AWC Wind vs. Base Case vs. Base Case LMP Load Payments ($/MWh) ($m/yr)
[4]= [3]-[2]
[5]= [1][4]
AWC States AWC States AWC States AWC States AWC States AWC States AWC States AWC States Other PJM-E Other PJM-E Other PJM-E Other PJM-E Other PJM-E PJM-W PJM-W PJM-W PJM-W PJM TOTAL AWC States Other PJM-E PJM-W
DE NJ NJ NJ NJ VA MD MD PA PA PA PA PA IL OH OH WV
DPLC AE JCPL PSEG RECO VP BGE PEPCO METED PECO PENN Elec PPL UGI COMED AEP FE OHIO APS
20,517 13,978 29,004 54,250 1,751 114,406 39,503 36,283 18,518 47,010 21,574 47,100 1,159 125,253 188,533 78,361 55,414 892,613 309,692 135,361 447,561
$55.4 $58.2 $62.5 $60.4 $64.6 $53.2 $54.3 $54.8 $55.8 $57.7 $48.0 $56.1 $57.6 $43.1 $44.4 $43.9 $48.7 $50.2 $56.1 $55.3 $44.5
$51.7 $52.2 $56.2 $53.7 $61.6 $50.9 $50.9 $51.2 $51.3 $52.1 $46.0 $51.1 $52.1 $42.5 $43.9 $43.4 $47.0 $47.7 $52.1 $50.7 $43.8
($3.7) ($6.0) ($6.3) ($6.8) ($3.0) ($2.2) ($3.4) ($3.6) ($4.5) ($5.6) ($2.0) ($5.0) ($5.5) ($0.6) ($0.5) ($0.5) ($1.6) ($2.4) ($4.0) ($4.7) ($0.7)
($76) ($84) ($182) ($367) ($5) ($254) ($136) ($132) ($84) ($262) ($43) ($237) ($6) ($73) ($97) ($36) ($91) ($2,165) ($1,236) ($632) ($297)
* Based on PROMOD simulations for 2016.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Employment and Economic Stimulus Benefits Q. A. WHAT ARE ECONOMIC STIMULUS BENEFITS? The development of offshore wind and associated transmission infrastructure will provide economic stimulus benefits for the Mid-Atlantic region through growth in employment, earnings by employees, and overall economic activity (i.e., the total revenues associated with sales and re-sales of goods and services stimulated). These employment and economic activity benefits arise as direct, indirect, and induced impacts associated with the investment. Direct impacts capture the jobs, earnings, and economic activity generated by the direct construction activities and spending on transmission infrastructure and wind generation facilities. Indirect impacts arise as in-region suppliers to the transmission and wind generation industries, as well as other upstream producers, benefit from the increased investment in infrastructure and generation. Finally, induced impacts are created when the increased income from jobs supported by the transmission and offshore wind construction is spent on products and services in other industries, generating a ripple effect throughout the regional economy. Q. HOW DID YOU ESTIMATE THE ECONOMIC STIMULUS BENEFITS PROVIDED BY THE 6,600 MW OF WIND AND ASSOCIATED TRANSMISSION INVESTMENT? A. The economic stimulus benefits associated with offshore wind development and operations were quantified with the Department of Energys Job and Economic
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Development Impact (JEDI) Model.12
The economic stimulus benefits
associated with the transmission infrastructure build-out was estimated based on a recent study that quantified transmission investment benefits for the Southwest Power Pool (SPP) based on analysis conducted using the Minnesota IMPLAN Group Model.13 JEDI and IMPLAN are widely-used by economists and policy analysts to estimate how specific investments affect a regional economy. Q. FOR WHAT LEVEL OF WIND AND TRANSMISSION INVESTMENT AMOUNTS HAVE YOU ANALYZED ECONOMIC STIMULUS
BENEFITS TO THE MID-ATLANTIC REGION? A. The investment assumptions we used for this analysis are summarized in Table 6 below. As the table shows, these investments consist of approximately
$23 billion of investments in wind turbines and their foundations, approximately $2.8 billion in lower voltage AC transmission cables to connect the turbines to the offshore substations, and $5 billion in HVDC-related transmission expenses (the AWC Project) to interconnect these offshore wind farms to shore.
JEDI Model from July 2009, model number W1.09.04e. Available at: http://www.nrel.gov/analysis/jedi/about_jedi_wind.html 13 Pfeifenberger, Chang, Hou, and Madjarov, Job and Economic benefits of Transmission and Wind Generation Investment in the SPP Region, Report prepared for the Southwest Power Pool, The Brattle Group, March 2010.
12
1 2 3
Table 6 Estimated Wind Plant, AC Collector System, and AWC Project Investment Summary
Total Cost (2010$) ($ Billion) Percentage of Total Investment Unit Cost (2010$) ($/kW)
Components
6,600 MW Wind Plant Investment Offshore AC Collector System Investment AWC Project Investment Total
Sources & Notes:
23.0 2.8 5.0 30.8
75% 9% 16% 100%
3,485 419 758 4,661
Wind Plant Investment includes turbines, blades, towers, foundations, and additional labor and development, and permitting costs. AWC Project Investment includes HVDC system components: off- and onshore
4 5 6 7 8 9 10 11 12 13 14 15 16 17
converters and HVDC backbone and lateral cables.
Q.
HOW HAVE YOU USED THESE INVESTMENT ASSUMPTIONS IN YOUR ANALYSIS?
A.
For the purposes of this analysis, the JEDI model was used with predefined settings for the state of New Jersey (as a proxy for the region), but the cost of turbines, blades, towers, and foundations were adjusted to reflect offshore equipment and construction costs as summarized in Table 6. To derive a
preliminary estimate of transmission-related benefits, we simply scaled the benefits per billion dollar of investments derived from the SPP study to the necessary investment in the offshore collector system that connects the various wind turbines to the offshore substation and the cost of the AWC Project, consisting of the offshore converter substations, the offshore grid, and the onshore converter substations.
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Q.
HAVE YOU ANALYZED TO WHAT EXTENT THE ECONOMIC STIMULUS BENEFITS OF OFFSHORE WIND PLANT AND RELATED TRANSMISSION INVESTMENT DEPENDS ON THE DEGREE TO WHICH THE WIND GENERATION AND TRANSMISSION
COMPONENTS ARE MANUFACTURED WITHIN THE MID-ATLANTIC REGION? A. Yes, we have. To analyze the extent to which economic stimulus benefits depend on the degree of in-region manufacturing of wind plant and transmission components, we analyzed the impact of three cases: Low, Medium, and High inregion manufacturing. Table 7 summarizes the in-region manufacturing
assumptions associated with each of these three cases. Table 7 Local Manufacturing Share Assumptions for the Economic Analysis Impact
Share of In-Region Manufacturing Low Medium High 0% 0% 0% 0% 82% 26% 0% 0% 100% 100% 100% 93% 55% 50% 100% 100% 100% 100% 93% 98% 100%
Wind Farm
Equipment Turbines Blades Towers Transportation Balance of Plant Total Wind Farm Local Manufacturing Share
Offshore AC Collector System

Wires and electrical equipment
AWC Project
Off- and onshore converters and HVDC backbone and lateral cables 0% 19% 50% 54% 100% 98%
Overall Share
15
Note: Shares are cost-based.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
For the wind farm construction-related analysis, these in-region manufacturing assumptions were analyzed with the JEDI model. For the
transmission-related analysis, we relied on the SPP study, which similarly analyzed transmission build-out scenarios for a Low in-region manufacturing case (assuming all transmission equipment would be imported from out-of-region suppliers) and a Medium case (assuming that 50% of transmission wires and related electrical equipment facilities would be manufactured within the region). These SPP investment levels and economic stimulus results were used to calculate normalized ratios for the amount of jobs, earnings, and overall economic activity stimulated by the transmission investment for both the Low and Medium in-region manufacturing cases. These ratios were then applied to the transmission
investments associated with the AWC Project. The difference between the Low and the Medium in-region manufacturing case was then applied to derive an estimate of the High in-region manufacturing case. Q. A. WHAT ARE THE RESULTS FROM THIS ANALYSIS? The results from our preliminary economic stimulus analysis are summarized in Table 8 below. As Table 8 shows, the combination of the offshore wind and associated transmission investment are estimated to support a total of 130,000 to 263,000 full-time equivalent (FTE) years of employment during the construction period. For example, if construction activities were spread out
evenly over 10 years, this level of offshore wind and transmission investment would support 13,000 to 26,000 full-time jobs in each of the ten years. These employment impacts encompass the direct, indirect, and induced economic
1 2 3 4 5 6 7 8 9 10 11 12
benefits as described earlier. Of the approximately 120,000 FTE-years in the Medium in-region manufacturing case for wind plant construction, approximately 39,000 (33%) are directly supported by on-site construction, engineering, and design work; approximately 62,000 (52%) are supported indirectly at suppliers of wind power generation components and construction materials; and around 18,000 (15%) are induced by the additional spending (food, housing, services, etc.) of employees supported by the direct and indirect economic activities. As Table 8 also shows, the total earnings by employees working in construction-period jobs supported by the wind and associated transmission investment range from $7.6 to $17.4 billion, depending on the level of in-region manufacturing. The estimated overall economic activity stimulated by these
investments during the construction period ranges from $16.4 to $51.5 billion.
1 2
Table 8 Analysis of Jobs, Earnings, and Economic Activity

Full-Tme Equivalent Years (FTE-Years) Total Earnings (2010$) ($ Billion) Total Economic Activity (2010$) ($ Billion)
Low In-Region Manufacturing (19% of All Equipment) Wind Plant Construction (6,600 MW) Offshore AC Collector System Construction AWC Project Construction Total Medium In-Region Manufacturing (54% of All Equipment) Wind Plant Construction (6,600 MW) Offshore AC Collector System Construction AWC Project Construction Total High In-Region Manufacturing (98% of All Equipment) Wind Plant Construction (6,600 MW) Offshore AC Collector System Construction AWC Project Construction Total
79,000 18,000 33,000 130,000
$5.0 $0.9 $1.6 $7.6
$9.8 $2.4 $4.3 $16.4
120,000 23,000 41,000 184,000 184,000 28,000 51,000 263,000
$8.2 $1.1 $2.1 $11.4 $13.3 $1.5 $2.6 $17.4
$20.6 $3.5 $6.3 $30.3 $37.2 $5.1 $9.2 $51.5
NREL (Musial, 2007)* Wind Plant Construction (Scaled to 6,600 MW) Wind Farm Operation Over 20 years Ontario Offshore Wind Study (2010)** Base Case (55% Local Sourcing of Development Costs) Wind Plant Construction (Scaled to 6,600 MW) High Case (63% Local Sourcing of Development Costs) Wind Plant Construction (Scaled to 6,600 MW)
Sources & Notes:
* "Large-Scale Offshore Wind Power in the United States: Assesment of Opportunities and Barriers," NREL , Sepetember 2010. "Offshore Wind: Viable Option for Coastal Regions of the United States", Marine Technology Society Journal , 2007
257,000 145,000
NA NA
NA NA
166,551 191,080
3 4
** "Employment and Economic Impacts of Ontario's Future Offshore Wind Power Industry", The Conference Board of Canada, December 2010
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Q.
HOW MUCH OF THE ECONOMIC STIMULUS BENEFIT OF THE OFFSHORE WIND INVESTMENT IS DEPENDENT ON THE EXTENT TO WHICH COMPONENTS CAN BE MANUFACTURED WITHIN THE MID-ATLANTIC REGION?
A.
As Table 8 documents, the extent to which these investments benefit the MidAtlantic region depends to a considerable extent on how much of the plant and equipment can be manufactured within the region. For example, the Low inregion manufacturing case (in which only 19% of all equipment is sourced locally) supports only 130,000 FTE-years of employment while the Medium case (with 54% of all equipment manufactured sourced locally) supports over 180,000 FTE-years, an increase of almost 50%. As we discuss further in Section V of our testimony, this means developing offshore wind at a pace and scale that can support the creation of local supply-chain industries should be an important public policy goal that provides significantly greater economic benefits for the region.
Q.
WHAT ARE THE EMPLOYMENT BENEFITS THAT CONTINUE AFTER THE CONSTRUCTION OF OFFSHORE FACILITIES HAS BEEN COMPLETED?
A.
Once construction of the AWC Project and the 6,600 MW of offshore wind plants has been completed, employment and related benefits to the local economy will continue in two ways. First, there will be employment and associated economic benefits related to the operations and maintenance of the equipment. As shown in Table 8, NREL has estimated the operating-period employment benefit for 6,600 MW of offshore wind plants at approximately 145,000 FTE-years spread
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
over a 20-year operation period.
Second, the development of 6,600 MW of
offshore wind generation in the Mid-Atlantic region will create a manufacturing base and local supply chain for logistical services that can support the further expansion of offshore wind generation beyond the 6,600 MW facilitated by the AWC Project. If additional offshore facilities are added at a steady rate, these employment and associated economic benefits would continue to last. Considering the enormous offshore wind generation potential of the Mid-Atlantic region, this is a plausible outcome. Q. IS THE MAGNITUDE OF YOUR PRELIMINARY ESTIMATE OF THESE ECONOMIC STIMULUS BENEFITS OF OFFSHORE WIND DEVELOPMENT CONSISTENT WITH THE MAGNITUDE OF THESE BENEFITS FOUND BY OTHER STUDIES? A. Yes. As shown in Table 8, NRELs research has found employment impacts to be close to the upper bound of the benefits we estimated.14 The table also shows that results from a recent study for Ontario offshore wind development are very similar to our estimates.15
Musial, W. Offshore Wind: Viable Option for Coastal Regions of the United States. Marine Technology Society Journal. Vol. 41, Number 3, Fall 2007 and National Renewable Energy Laboratory, Large-Scale Offshore Wind Power in the United States: Assessment of Opportunities and Barriers, September 2010. 15 Conference Board of Canada, Employment and Economic Impacts of Ontarios Future Offshore Wind Power Industry, December 2010.
14
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
IV.
AWC PROJECT CONFIGURATION AND COSTS
Q.
PLEASE
SUMMARIZE THE CONFIGURATION OF THE AWC
PROJECT. A. As explained in the testimony of Mr. Paul McCoy, the AWC Project is configured as a double-circuit HVDC offshore transmission backbone with twelve offshore AC-DC converter stations interconnected at seven existing substations of the onshore grid. As shown in Figure 2, each circuit will be able to transmit 1,000 MW of energy and capacity between interconnection points along the coast, accommodate six 500 MW offshore AC-DC converter stations to interconnect offshore wind plants, and interconnect a total of 3,000 MW of onshore AC-DC converter stations at four locations. As also shown in Figure 2, both circuits interconnect with 1,000 MW converter stations at PJMs Fentress substation in southern Virginia. The other interconnection points are: 500 MW at Piney Grove (MD), 500 MW at Larrabee (NJ), and 1,000 MW at Hudson (NJ) for one of the circuits, and 1000 MW at Indian River (DE), 500 MW at Cardiff (NJ), and 500 MW at Sewaren (NJ) for the other circuit. In addition to facilitating the interconnection of offshore wind power plants, this configuration provides an offshore reinforcement to the existing onshore grid in the congested Mid-Atlantic power market. A line diagram
showing the configurations of these two circuits is also included in Exhibit AWC403. As explained in the testimony of Mr. McCoy, the Project will be built in five phases.
1 2
Figure 2 Preliminary AWC 2-Circuit Design
1000 Hudson
500 Sewaren
500 500 Larrabee Cardiff
1000 500 Indian Piney River Grove
1000 Fentress2 1000 Fentress1
500MWOffshorePlatform,ConverterandSwitches DCSwitch
1000MWOnshoreConverter 500MWOnshoreConverter
3 4 5 6 7 8 9 10 11 12
Q.
WHAT IS THE TOTAL INSTALLED NAMEPLATE CAPACITY OF THE OFFSHORE WIND FARMS FACILITATED BY THE AWC PROJECT?
A.
Considering the transmission capability to inject 6,000 MW, we have assumed 6,600 MW of installed offshore nameplate wind generation capacity would be interconnected to the AWC Project. Building slightly more wind capacity lowers the overall cost of renewable power. For example, National Grid, the United Kingdoms regulated transmission company, has estimated that the optimal ratio between installed offshore wind and transmission capacity is 112%.16
16
National Grid, Round 3 Offshore Wind Farm Connection Study: Version 1.0, p. 3.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Q.
DOES
BUILDING
WIND
CAPACITY
IN
EXCESS IN
OF
THE
TRANSMISSION
CAPABILITY
RESULT
SIGNIFICANT
CURTAILMENT OF WIND GENERATION? A. No, not if the wind capacity exceeds the transmission capacity by only 10%, as we have assumed. Analyzing the NREL data for the AWC sites, we found that only 0.2% of the potential energy generated from 6,600 MW of offshore wind would have to be curtailed to avoid exceeding the 500 MW output limit on any of the 12 offshore converters. This minimal curtailment was incorporated into our market simulations. Q. HOW DO THE AWC PROJECTS COSTS COMPARE TO
CONVENTIONAL RADIAL INTERCONNECTION OF INDIVIDUAL OFFSHORE WIND PLANTS? A. The AWC Project is able to reliably deliver 6,000 MW of offshore wind power and additionally provide a fully controllable 2,000 MW HVDC transmission path between southern Virginia and northern New Jersey at a total cost of approximately $5 billion. In comparison, we estimate that delivering 6,000 MW of wind power with radial high-voltage alternating current (HVAC) transmission lines from individual wind plants to shore would cost between $3.4 and $5.3 billion without offering the substantial additional public policy, reliability, congestion relief, and other economic benefits we have identified and partially quantified for the AWC Project. A more detailed discussion of the Project configuration and its unique capabilities is presented in the testimonies of Mr. Paul McCoy and Mr. Donald P. Jones.
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Q.
YOU NOTED THAT IT WOULD COST BETWEEN $3.4 BILLION AND $5.3 BILLION TO INTERCONNECT OFFSHORE WIND FARMS WITH INDIVIDUAL RADIAL HVAC TRANSMISSION LINES. HOW DID YOU ESTIMATE THESE COSTS?
A.
We have estimated these costs by analyzing the installed costs of the individual transmission elements needed to interconnect individual offshore wind farms to the onshore grid. These transmission elements include: (1) an offshore substation consisting of switchgear, transformation, and platform; (2) several HVAC cables from the offshore substation to shore; and (3) an onshore substation without transformation (as a conservative assumption). These cost estimates are based on publicly-available information on the costs and project configuration from a variety of sources, including actual project proposals. They do not include the cost of wind turbines, turbine foundations, and the transmission collector system that connects the individual turbines of a wind farm to the offshore substation, because these cost elements will be identical or approximately the same irrespective of whether the individual wind farms are integrated through individual HVAC lines to shore or through the AWC Project.
Q.
HOW MANY INDIVIDUAL WIND FARMS DID YOU ASSUME WOULD BE DEVELOPED TO DELIVER 6,000 MW OF OFFSHORE WIND CAPACITY IF THESE PLANTS WERE TO BE INTERCONNECTED INDIVIDUALLY THROUGH RADIAL HVAC TRANSMISSION LINES?
A.
We evaluated two scenarios. In the first, we evaluated the costs of twelve radial HVAC transmission lines, each capable of delivering 500 MW of offshore wind.
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The second scenario we evaluated consisted of twenty radial HVAC transmission lines with a capacity of 300 MW each. Either of these radial transmission
scenarios can thus deliver 6,000 MW of offshore wind generation similar to the capability of the AWC Project. Q. WHAT VOLTAGE LEVELS AND HOW MANY INDIVIDUAL CABLES WOULD BE NEEDED TO ACHIEVE THESE 500 MW AND 300 MW TRANSFER CAPABILITIES TO INTERCONNECT INDIVIDUAL WIND FARMS TO THE ONSHORE GRID? A. We evaluated two configurations to achieve 500 MW transfer capability: (1) a 230 kV HVAC submarine cable system consisting of two parallel circuits; and (2) a 138 kV HVAC cable system consisting of three parallel circuits. For the 300 MW transfer scenario, we developed the costs for a 138 kV HVAC cable configuration with two parallel circuits. Q. WHAT ARE THE OVERALL COSTS AND INDIVIDUAL COST ELEMENTS ASSOCIATED WITH EACH OF THESE THREE HVAC RADIAL OFFSHORE TRANSMISSION CONFIGURATIONS? A. Our estimates of the overall costs and cost elements of these three HVAC radial transmission configurations are summarized in Table 9.
1 2 3
Table 9 Estimated Costs of Radial HVAC Transmission Lines Interconnecting Individual Wind Power Plants to the Onshore Grid
Description of Illustrative HVAC Systems Interconnection of 12 Interconnection of 12 Interconnection of 20 offshore wind farms based offshore wind farms based offshore wind farms based on two 230 kV cables laid on three 138 kV cables on two 138 kV cables laid in parallel trenches laid in three parallel in parallel trenches trenches Category
[A] [1]
(2010$ Billion)
[B]
(2010$ Billion)
[C]
(2010$ Billion)
[D]
Offshore substations and platforms Offshore radial cables Onshore landing and radial cables Onshore substations Total HVAC System Cost
$1.0 $1.6 $0.5 $0.2 $3.4
$1.0 $1.9 $0.6 $0.2 $3.8
$1.6 $2.5 $0.7 $0.4 $5.3
[2]
[3]
[4] [5]
[1A]:
[1B]: [1C]: [1D]: [2]:
Sources and Notes: All systems assume 6,600 MW of installed wind generation capacity which is equivalent to a 10% overbuild for 6,000 MW of transfer capability. Each illustrative HVAC system has equally sized wind farms (i.e., 12 wind farms = 550 MW of installed capacity each). Offshore substation costs based on onshore substation (with transformer) costs based on estimates from Electric Reliability Organzation of Texas ("ERCOT"), "CREZ Transmission Optimization Study," April 2, 2008, p. 5. Offshore platforms based on cost estimates from National Grid, "2010 Offshore Development Information Statement: Appendix," September 2010, p. A-69. 12 offshore substations and platforms. 12 offshore substations and platforms. 20 offshore substations and platforms. Cable cost estimates based on similar technology from National Grid, "2010 Offshore Development Information Statement: Appendix," September 2010, pp. A-67-68. All cable costs are based on 3-core cross-linked polyethelene (XLPE) technology. Each offshore wind farm is 25 miles from the shoreline. A total of 55 miles of additional cabling was assumed from the shoreline to the onshore substation. Includes cable installation costs based on variable installation costs per mile (excludes materials, ancillary vessels, and surveys) from National Grid, "2010 Offshore Development Information Statement: Appendix," September 2010, p. A-70. Fixed installation costs per radial interconnection for surveys, engineering, mobilization/demobilization based on estimates from Green, J., Bowen, A., Fingerish, L.J., Wan, Y., "Electrical Collection and Transmission Systems for Offshore Wind Power," March 2007, p. 3.
[3]: Landing costs based on horizontal directional drills for submarine cable landing and underground to aerial transition based on separate estimates for HVDC and HVAC technology for the Mid-Atlantic Power Pathway ("MAPP") project as cited in PJM Transmission Expansion Advisory Committee, 2008 RTEP - Reliability Analysis Update," TEAC Meeting, October 15, 2008, p. 7. Cable and installation costs the same as in [2]. [4]: Onshore substation costs without transformation based on estimates from Electric Reliability Organzation of Texas ("ERCOT"), "CREZ Transmission Optimization Study," April 2, 2008, p. 5. Assumed same number of onshore and offshore substations. See [1].
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Q.
WHICH
OF
THESE
THREE
RADIAL
HVAC
TRANSMISSION
CONFIGURATIONS WOULD MOST LIKELY GET BUILT? A. Assuming 6,600 MW of offshore wind could actually get developed solely through radial interconnections without an offshore backbone, we believe the most likely outcome would be a mix of these three configurations depending on a number of factors, including the availability of onshore interconnection points (e.g., existing 138 kV and 230 kV facilities close to shore), the ability of the onshore grid to accommodate injections of wind generation in the 300 MW to 500 MW range, and the size of wind farms that individual developers are able to finance through individual power purchase agreements. While the actual
configurations of radial cable system interconnecting individual wind farms can certainly differ from the three configurations we evaluated, total costs of all such radial cable systems to interconnect individual wind farms with the onshore grid will very likely be within the $3.4 to $5.3 billion range of our cost estimate. These costs of interconnecting individual wind farms with their own radial transmission cables will be avoided if this amount of offshore wind generation is integrated by means of the AWC Project. Q. HAVE YOU VERIFIED THAT YOUR COST ESTIMATES FOR SUCH RADIAL INTERCONNECTIONS OF INDIVIDUAL WIND FARMS IS CONSISTENT WITH THE ESTIMATED $5 BILLION COST OF THE AWC PROJECT?
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A.
Yes. We have used the same approach to estimate the cost of the AWC Project. This yielded cost estimates ranging from $4.9 to $5.6 billion, which is very much consistent with the $5 billion estimate from the Project sponsors.
Q.
YOU MENTIONED THAT THERE ARE ADDITIONAL BENEFITS THAT THE AWC PROJECT OFFERS OVER RADIAL INTERCONNECTIONS OF INDIVIDUAL WIND PLANTS WITH THE ONSHORE GRID. WHAT ARE THESE BENEFITS?
A.
As we discuss in the next three sections of our testimony, the additional benefits offered by the AWC Project over the individual radial interconnection of offshore wind power plants with the onshore grid includes a number of public policy, reliability, and congestion relief-related economic benefits. As the analyses
presented in Sections V, VI, and VII show, the modest incremental cost of an offshore transmission backbone over the cost of radial interconnections is more than offset by the cost savings and economic benefits associated with scale economies, reduced siting and permitting uncertainties, and the reliability and congestion relief advantages offered by the AWC Project compared to radial interconnections of individual offshore wind power plants.
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V. PUBLIC POLICY BENEFITS ASSOCIATED WITH THE AWC PROJECT Q. WHAT ARE THE PUBLIC POLICY BENEFITS THAT THE AWC PROJECT PROVIDES COMPARED TO INTERCONNECTING
OFFSHORE WIND VIA CONVENTIONAL RADIAL LINES? A. The AWC Project will facilitate meeting the coastal Mid-Atlantic states renewable energy policy requirements and goals. It will do so in a way that substantially reduces the barriers, uncertainties and costs of developing offshore wind generation, and that attracts more in-region manufacturing. It will also reduce the environmental shoreline impact of siting the needed transmission. Q. HOW DOES THE AWC PROJECT REDUCE THE UNCERTAINTIES AND OVERALL COSTS OF DEVELOPING OFFSHORE WIND
GENERATION? A. The AWC Projected reduced the uncertainties and overall costs of developing offshore wind generation in several important ways. First, it significantly reduces environmental permitting barriers and associated uncertainties with offshore wind developments. Second, it greatly streamlines the PJM transmission planning and interconnection process for developing significant amounts of offshore wind generation in the region. Third, the Project allows for a decoupling of the
selection and optimization of the locations for onshore landing points and offshore wind power plants. This combination of factors reduces investment risk and project development costs and allows a faster ramp-up and larger scale of
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offshore wind developments, leading to reduced costs and increased local supply of wind turbines, plant components, and logistics services. Q. PLEASE EXPLAIN HOW THE AWC PROJECT REDUCES
ENVIRONMENTAL PERMITTING BARRIERS AND UNCERTAINTIES ASSOCIATED WITH OFFSHORE WIND DEVELOPMENT. A. Environmental permitting of any transmission project, large or small, is costly, time consuming, and uncertain. The Department of Energys Electricity Advisory Committee, for example, noted that the fragmented nature of transmission permitting and siting is exacerbated by a lack of coordination which may further delay the already lengthy siting process, add to the cost of transmission projects, and increase the financial risk to a transmission developer. As the decade-old Cape Wind permitting process has shown, permitting constraints and environmental sensitivities create costly barriers and significant delays in the siting process. A major advantage of the AWC Project is that it provides both coordination and economies of scale for the permitting process: it replaces the many individual offshore-to-shore permitting efforts with a single onshore permitting process for all 6,600 MW of offshore plants supported by the Project. The value of a coordinated and streamlined single shoreline permitting process for 6,600 MW of wind power plants is likely to be accentuated by the plethora of competing uses and jurisdictions along the Mid-Atlantic coast. The Mid-Atlantic coast has environmentally sensitive and otherwise restricted areas, including environmentally protected shorelines, military installations, radar usage,
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tourist and residential areas, aviation routes, fishing zones, and shipping lanes.17 These constraints will limit the number of viable sites for both offshore wind farms and associated onshore landing points. In fact, because of such overlapping shoreline and offshore constraints, the Maryland Offshore Wind Development study found that there may be only a few locations where wind farms could be interconnected.18 In short, in addition to offering a smaller environmental footprint, the single streamlined permitting process of the AWC Project will greatly reduce the uncertainties and costs of offshore wind development. Q. PLEASE EXPLAIN HOW THE PROJECT STREAMLINES THE PJM TRANSMISSION PLANNING AND INTERCONNECTION PROCESS. A. Similar to streamlined environmental permitting, the AWC Project also offers a substantially streamlined PJM transmission planning process compared to the interconnection of individual wind power projects. The AWC Project can be evaluated in the PJM interconnection and transmission planning effort as a single project for injecting up to 6,000 MW from 6,600 MW of offshore wind nameplate capacity into the onshore grid. Evaluating the interconnection of this amount of offshore wind generation as a single transmission project and interconnection
17
See, for example: Center for Integrative Environmental Research (CIER), University of Maryland, Maryland Offshore Wind Development: Regulatory Environment, Potential Interconnection Points, Investment Model, and Select Conflict Areas, October 2010; and Virginia Coastal Energy Research Consortium, Virginia Offshore Wind Studies, July 2007 to March 2010: Final Report, April 20, 2010. 18 The Study estimates that there may be as few as four optimal points of interconnection along the Delmarva Peninsula coastline given the limited landing points without environmental conflicts and close proximity to an onshore substation. See Center for Integrative Environmental Research (CIER), University of Maryland, Maryland Offshore Wind Development: Regulatory Environment, Potential Interconnection Points, Investment Model, and Select Conflict Areas, October 2010, p. 31.
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request avoids a lengthy iterative transmission planning and interconnection process for many individual projects. Given that individual wind power proposals may be delayed or withdrawn, PJM would constantly have to re-evaluate different combinations of wind plant and on-shore locations in its interconnection queue. For the AWC Project, a single planning effort can identify the best landing points for all 6,000 MW of potential injections from the offshore wind plants. Not only will this single planning step save time and effort, it will also result in a more optimal configuration for both onshore and offshore transmission. Q. YOU NOTED THAT THE AWC PROJECT ALLOWS FOR A DECOUPLING OF THE SELECTION AND OPTIMIZATION OF LOCATIONS FOR ONSHORE LANDING POINTS AND OFFSHORE WIND PLANTS. HOW DOES THE PROJECT ACHIEVE THAT? A. Unlike individual radial transmission interconnections from offshore wind farms to shore, the AWC Project is able to decouple the landing point and wind plant locations so that each can be separately optimized. In the case of transmission, the AWC Project does not require a straight radial interconnection from the offshore wind farm to shore. Instead, the Project allows for the selection of the best locations for submarine cables to come on shore and interconnect with the onshore grid, while offshore wind plant locations can be developed along the 250 mile offshore HVDC transmission backbone at locations that can be largely independent of the onshore landing points. In other words, the Project allows the developers of wind farms to select their offshore plant locations along the entire
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HVDC backbone stretching from northern New Jersey to southern Virginia almost independently from the selected landing points. Q. DOES THIS DECOUPLING ALSO SIMPLIFY THE PERMITTING PROCESS FOR WIND DEVELOPERS? A. Yes, very much so. The fact that onshore permitting and PJM interconnection processes are resolved through the AWC Project greatly simplifies the remaining permitting requirements for wind plant developers by limiting the additional permitting needs to federal waters at locations that are mostly beyond the visible horizon from shore. Once these offshore permits are obtained, the project
developers can simply interconnect their plants with the AWC Project at the various offshore locations. This expedited and simplified siting process is what the Dutch grid operator, TenneT, referred to as a plug and play solution in a 2009 position paper evaluating a proposed offshore transmission grid. The paper further noted that: [The] availability of offshore cables, grids and connections enables wind farm operators to plug in directly in order to supply electricity to the grid. This provides developers and financial backers with more assurances in advance, allowing national and international objectives to be achieved more quickly.19 Q. ARE OFFSHORE GRIDS SIMILAR TO THE AWC PROJECT UNDER DEVELOPMENT ELSEWHERE? A. Yes. Several offshore grid development efforts are taking place in Europe
including: Kriegers Flak (connecting Sweden, Germany, and Denmark and up to
19
TenneT, Position Paper: Offshore Wind Energy, Reference CDV 09-076, February 17, 2009, p. 2.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
1,600 MW of offshore wind);20 TenneTs North Sea analysis to interconnect 6,000 MW of offshore wind capacity;21 and the Irish Scottish Links on Energy Study (connecting Scotland, Ireland, and Northern Ireland).22 Moreover, ten
European countries recently signed a memorandum of understanding to study offshore grid networks in the North Sea to interconnect 150,000 MW of wind capacity by 2030.23 With over 2,000 MW of installed offshore wind capacity and much more under construction and planned, Europe currently has the most offshore wind development experience. This has evolved from embracing the idea of offshore grids as an infrastructure priority to help meet renewable energy targets in the most cost effective and efficient manner.24 The AWC Project would allow the nascent U.S. offshore wind experience leapfrog past individually interconnecting single offshore wind farms and bring offshore wind power development in the U.S. more on par with that in Europe. Q. HAVE YOU QUANTIFIED THE POTENTIAL ECONOMIC VALUE OF THE AWC PROJECTS ABILITY TO INCREASE THE CERTAINTY, RAMP-UP, AND SCALE OF OFFSHORE WIND DEVELOPMENT IN THE MID-ATLANTIC REGION?
20
Energinet.dk, Svenska Kraftnt, and Vattenfall Europe Transmission, An Analysis of Offshore Grid Connection at Kriegers Flak in the Baltic Sea: Joint Pre-feasibility Study, May 2009, p. 3. 21 TenneT, Position Paper: Offshore Wind Energy, Reference CDV 09-076, February 17, 2009, p. 1. 22 Irish-Scottish Links on Energy Study (ISLES) announcement available at: http://www.islesproject.eu 23 Paul Magnette: 10 States sign the North Seas Counties Offshore Grid Initiative, Belgian Presidency of the Council of the European Union, December 3, 2010. 24 Klein, Markus, Europe signs historic MOU for North Sea offshore grid, GlobalEnergy Magazine, December 9, 2010.
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A.
Yes, we have. By increasing scale and promoting faster industry ramp-up times, the AWC Project can reduce procurement and construction costs, in part by making it economic to develop a local supply chain. According to a study by the Virginia Coastal Energy Research Consortium (VCERC), [t]he greatest upside opportunity for reducing the cost of offshore wind energy... is to attract major elements of a Mid-Atlantic offshore wind supply chain to the state.25 VCERC estimates that local manufacturing of offshore wind components rather than importing (primarily from Europe) would decrease the capital cost of an offshore wind project: [i]f the turbine and tower package were manufactured in Virginia, we estimate the project capital cost would decrease by $480 per kilowatt.26 The VCERC study shows that these savings from local
manufacturing of turbines and towers reduce costs by 22% below the costs of importing the equipment from Europe.27 Saving $480/kW in wind turbine and tower costs on 6,600 MW of installed wind turbines would save almost $3.2 billion in total offshore wind plant costs. In addition to lowering equipment costs, the AWC Project would help achieve economies of scale in the construction of support structures as well as logistics and installation. Based on data compiled by the National Renewable Energy Laboratory (NREL), 20% to 50% of the total cost of offshore wind is
25
Virginia Coastal Energy Research Consortium, Virginia Offshore Wind Studies, July 2007 to March 2010: Final Report, April 20, 2010, p. viii. 26 Id. 27 Id., p. 18, noting that domestically manufactured offshore wind turbines are estimated to cost $1,680/kW while the cost of turbines imported from Denmark or Germany is estimated at $2,160/kW. The VCERC study also points out that [d]omestic turbine manufacturing reduces costs associated with dollar devaluation relative to the euro, and minimized shipping costs and delays.
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attributed to a combination of support structures (20% to 30%) and logistics and installation (as high as 20%). If we assume that the reduced uncertainty, faster ramp-up, larger scale and local supply facilitated by the AWC Project will help save 20% on that portion of total offshore wind generation costs, these savings will reduce the overall costs of developing 6,600 MW of offshore wind plants by between $1.2 billion to $3.0 billion.28 Finally, the streamlined environmental permitting and PJM transmission planning and interconnection process will reduce the costs and time of project development efforts. If we assume a coordinated effort in streamlined permitting, development, and transmission planning and interconnection process will save 20% of the total project development and permitting costs, the associated savings for 6,600 MW of wind development would be approximately $600 million based on estimates by NREL that approximately 10% of total installed offshore wind generation costs are attributable to project development and permitting efforts.29 The combination of these scale-related cost savings on offshore wind development$3.2 billion lower wind turbine costs, $1.2 to 3.0 billion in lower construction, logistics, and installation costs, and $0.6 billion in project development and permitting costsamounts to $5.0 billion to $6.8 billion or
28
As noted earlier, a total of 6,600 MW of installed offshore wind generation, including transmission, would cost approximately $30 billion, of which 20% to 50%, or $6 to $15 billion, would be for support structures, logistics, and installation. A 20% savings on these costs would be worth $1.2 billion to $3.0 billion. 29 National Renewable Energy Laboratory, Large-Scale Offshore Wind Power in the United States: Assessment of Opportunities and Barriers, September 2010, p. 110. At approximately $30 billion in total project costs for 6,600 MW of installed offshore wind generation, if total project development and siting costs account for 10% of the total cost, or $3.0 billion, a 20% reduction in such costs would save approximately $600 million.
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approximately 20% of a total $30 billion investment need. These cost savings alone have the potential to offset the entire cost of the AWC Project, even before considering that the Project offers substantial reliability and energy market benefits and avoids between $3.4 billion and $5.3 billion in transmission costs that would be associated with radial interconnections of individual wind farms. Q. IS THE ESTIMATED 20% SCALE AND COORDINATION-RELATED REDUCTION IN OFFSHORE WIND PLANT COSTS CONSISTENT WITH THE SAVINGS ESTIMATED BY OTHERS? A. Yes. For example, Steve Holliday, the Chief Executive Officer of the United Kingdoms National Grid (the countrys regulated transmission company), recently noted in the context of planning an offshore grid to interconnect offshore wind plants that [u]nless we get coordination between offshore and onshore right, the investment overall will be much higher than it needs to be.30 He further stressed that [a]n uncoordinated approach may cost 25 percent more overall, past the end of the 2020s. And [we] will have to pay in our electricity bills more for unnecessary investments.31 Similarly, and as already noted earlier, the Virginia Coastal Energy Research Consortium has estimated that local manufacturing of wind turbines and towers would reduce the costs by approximately 22%.
30
Steve Holliday as quoted in Williams, Selina, UK Offshore Wind-Grid Coordination Would Save Billions-National Grid, Dow Jones Newswires, November 2, 2010. 31 Steve Holliday as quoted in Reuters, UK Power Market Reforms Needed by End of 2011-Nat Grid, November 2, 2010 (emphasis added).
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Q.
SOME OF THE ESTIMATED COST REDUCTIONS ARE ASSOCIATED WITH LOCAL MANUFACTURING AND LOGISTICS SERVICES. HOW WOULD THE AWC PROJECT HELP DEVELOP SUCH A LOCAL SUPPLY CHAIN?
A.
Attracting local manufacturing and logistics services requires that offshore wind development has sufficient predictability and annual scale so that suppliers can justify the upfront investments needed for building up the local industry for manufacturing and investing in the necessary supporting infrastructure. For local manufacturing of wind farm components, VCERC notes that: [The] one-time investment to build a turbine manufacturing plant (including a foundry for large castings, and separate facilities for blade fabrication, tower fabrication, and nacelle assembly) is estimated to be at least $500 million. Review of trade publications and conversations with turbine manufacturers suggest that a demand of 100 to 150 turbines per year (or 500 to 800 MW per year) for a minimum of 5 years is required to justify such an investment.32 Similarly, investments will be needed in supporting infrastructure such as harbor facilities and specialized vessels to erect offshore wind turbines, install offshore platforms, and lay submarine cables. NREL estimates that the initial capital outlay for vessels alone would be more than $100 million and therefore construction of the initial dedicated offshore wind vessel might require either a large-scale wind project with sufficient capital investment to offset the upfront costs for a specialized vessel or evidence of a large, probable U.S. development
32
Virginia Coastal Energy Research Consortium, Virginia Offshore Wind Studies, July 2007 to March 2010: Final Report, April 20, 2010, p. 28.
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pipeline.33 Without such supporting local infrastructure, offshore wind projects will be more expensive and may also be delayed by the limited availability. As a recent Ontario study of offshore wind development noted: The [local] supply potential for offshore wind will depend critically on the pace at which specialized construction, manufacturing, assembly and staging facilities can be developed. These factors will be far more important than the availability of suitable sites in determining how fast the industry can be established and the extent to which it can grow As a result, the industry must address a critical mass issue.34
The AWC Project can spur local manufacturing by creating the predictability, ramp-up, and scale needed to overcome these initial investment hurdles to achieve cost reductions and facilitate timely project completion and avoid supply bottlenecks. Q. WHAT IS THE ADDITIONAL EMPLOYMENT AND ECONOMIC DEVELOPMENT BENEFIT OF INCREASED LOCAL
MANUFACTURING AND SUPPLY OF LOGISTICS SERVICES? A. As discussed in Section III of our testimony, an increase of local manufacturing, local construction, and other services substantially magnify the employment and economic stimulus benefits of the offshore wind investment to the Mid-Atlantic region. As we estimated in Section III of our testimony, increased local
manufacturing and supply of logistics services can easily increase employment benefits by 50%. Our analysis shows that the low in-region manufacturing case
33
National Renewable Energy Laboratory, Large-Scale Offshore Wind Power in the United States: Assessment of Opportunities and Barriers, September 2010, pp. 42-43. 34 The Conference Board of Canada, Employment and Economic Impacts of Ontarios Future Offshore Wind Power Industry, December 2010, p. 8.
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(in which only 19% of all equipment is sourced locally) supports only 130,000 full-time-equivalent years of employment while the medium case (with 54% of all equipment manufactured or sourced locally) supports over 180,000 FTE-years, an increase of almost 50%. As our analysis showed, the increase would be even larger if more than 54% of all equipment would be manufactured or sources locally. This means that developing offshore wind at a pace and scale supported by the AWC Project not only reduces overall costs but also provides significantly greater economic benefits for the region. Q. YOU MENTIONED THAT THE AWC PROJECT WILL REDUCE THE ENVIRONMENTAL IMPACTS OF SITING OFFSHORE WIND
GENERATION. PLEASE EXPLAIN. A. The AWC Project allows for a single, coordinated environmental permitting effort focusing on the best onshore interconnection points that avoid nature preserves and other sensitive coastal areas. The Project makes this possible by dint of its high capacity and the offshore backbone, which enables the selection of landing points to be largely independent of the wind farms offshore locations. This coordinated landing point selection benefit has also been recognized in Europe, where several offshore grids are under development. For example, the Dutch grid operator TenneT noted that: [c]ompared with separate private connections to the landside grid, a centralised approach yields significant advantages in terms of
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spatial planning. For instance, there is less disruption to sea and coastal locations because transsections of dykes and dunes are kept to a minimum.35 In addition, the Projects HVDC technology allows for the transmission of 6,000 MW of offshore power with fewer cables than AC technology and, therefore, narrower right-of-ways. This smaller environmental footprint of
HVDC technology has also been recognized by PJM in its analysis of the MidAtlantic Power Pathway (MAPP) project, where it found that the HVDC option requires less space for the same power transfer, reducing the disturbed area by 40% compared to an HVAC solution.36 Finally, the environmental impact of offshore wind is reduced further by the fact that the AWC Projects offshore interconnection points for wind farms are located approximately 20 miles from shore beyond the horizon, which means that the wind turbines will not be visible from the shore.
VI. RELIABILITY AND OPERATIONAL BENEFITS Q. PLEASE SUMMARIZE HOW THE AWC PROJECT PROVIDES RELIABILITY AND OPERATIONAL BENEFITS. A. The AWC Project will provide significant reliability and operational benefits. Compared to radial interconnections of individual plants, the AWC Project will (1) likely reduce the need for future upgrades to the existing onshore transmission
35 36
TenneT, Position Paper: Offshore Wind Energy, Reference CDV 09-076, February 17, 2009, p. 2. PJM, 2008 RTEP - Reliability Analysis Update, TEAC Meeting, October 15, 2008.
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system and (2) provide system operational benefits that enhance reliability and reduce the cost of grid operations. Q. PLEASE EXPLAIN HOW THE AWC PROJECT WILL LIKELY REDUCE THE NEED FOR ONSHORE ENHANCEMENTS? A. The AWC Project will likely reduce the need for upgrades to the onshore transmission system compared to a system based on radial interconnections of individual offshore wind power plants. This is achieved in three ways. First, the Project can be designed to interconnect at the strongest onshore nodes, which is less likely to be achieved by interconnecting individual offshore wind farms with radial transmission lines. In fact, four of the seven proposed interconnection points are the same nodes that PJM has chosen in its preliminary simulations to be capable of interconnecting 10,000 MW to 30,000 MW of offshore wind plants.37 Second, the Projects 2,000 MW transfer capability between landing points in Virginia, Maryland, Delaware and New Jersey reinforces the onshore grid in the constrained Mid-Atlantic region, thereby providing the existing system with an additional transmission path that will reduce the long-term need for future onshore reinforcements in eastern PJM as load grows and many of the aging existing power plants retire. And finally, as broadly recognized in the industry, including by both the American and European Wind Energy Associations (AWEA and EWEA), the HVDC technology used by the AWC Project allows the independent control of
37
Off-Shore Wind Conceptual Study Initial Results in Transmission Expansion Advisory Committee presentation, October 6, 2010, pp.43-59.
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real and reactive power flows, which allows the HVDC system to interconnect with the onshore grid at both electrically strong and weak points.38 Thus, even if the AWC Projects interconnection points are strong initially, that part of the system may become stressed in the future as more offshore wind is added beyond the 6,600 MW connected to AWC. As a result, AWCs controllability will likely become increasingly valuable for maintaining system reliability. Q. HAVE YOU QUANTIFIED THE LIKELY ONSHORE UPGRADE COSTS THAT THE AWC PROJECT WOULD HELP AVOID? A. No, we have not studied the extent to which the AWC Project would reduce the number and costs of onshore grid upgrades compared to the radial interconnection of individual offshore wind power plants. However, because the AWC Project also provides a fully controllable 2,000 MW transmission path from Virginia to Maryland, Delaware, and New Jersey, the Project will likely be able to avoid major future onshore transmission investments that might become necessary to address load growth, plant retirements, or the interconnection of additional offshore wind generation. Considering that the cost of individual recent upgrades has been in the order of $1 billion each,39 it is likely that the AWC Project would
38
As noted in several sources including: (1) Center for Integrative Environmental Research (CIER), University of Maryland, Maryland Offshore Wind Development: Regulatory Environment, Potential Interconnection Points, Investment Model, and Select Conflict Areas, October 2010, p. 51; (2) European Wind Energy Association, Oceans of Opportunity: Harnessing Europes Largest Domestic Energy Resource, September 2009, p. 27; (3) Siemens, HVDC PLUS (VSC Technology): Benefits. Available from: http://www.energy.siemens.com/us/en/power-transmission/hvdc/hvdc-plus/#content=Benefits. Accessed November 24, 2010; and (4) Wright, S.D., Rogers, A.L., Manwell, J.F., Ellis, A., Transmission Options for Offshore Wind Farms in the United States, American Wind Energy Association, 2002. 39 Of the seven major backbone projects approved by PJM, five are in the $1 billion range: (1) BranchburgRoseland-Hudson at $700 million; (2) Mid-Atlantic Power Pathway at $1.1 billion; (3) PotomacAppalachian Transmission Highline at $2.1 billion; (4) Susquehanna Roseland at $1.2 billion; and (5) Trans Allegheny Line at $1.0 billion. Branchburg-Roseland-Hudson cost reflects revised 230 kV buildout
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be able to avoid at least one onshore transmission project with costs of that order of magnitude. In addition to these potentially significant cost savings associated with avoided onshore upgrades, the offshore solution also avoids the many barriers, uncertainties, and perhaps unavoidable delays associated with permitting and siting major onshore upgrades. Q. HOW DOES THE AWC PROJECT PROVIDE SYSTEM OPERATIONAL BENEFITS? A. As explained in the testimony of Robert Burton, the advanced HVDC technology of the AWC Project can provide a number of reliability benefits related to system operations, including operational flexibility, blackstart capability, faster load restoration, and a host of HVDC-technology-specific benefits such as voltage control and improved dynamic system stability.40 These operational benefits, which in large part stem from the Projects voltage source converters (VSC) technology, are also broadly recognized in the industry. For example, various authors note that the technology can be used to (1) provide dynamic voltage support to the AC system, thereby increasing its transfer capability;41 (2) supply voltage and frequency support;42 (3) improve transient stability43 and reactive
based on costs reported by PJMs Transmission Expansion Advisory Committed, presented September 8, 2010, page 34. All other costs based on PJMs Backbone Project Construction Status Database. Available at: http://pjm.com/planning/rtep-upgrades-status/backbone-status.aspx. Accessed December 2, 2010. 40 Testimony of Robert S. Burton, Exhibit AWC-200, pp.13-17. 41 Bahrman, M.P., VDC Transmission Overview, 2008, p. 5. 42 Wang, S., Zhu, J., Trinh, L., and Pan, J., Economic Assessment of HVDC Project in Deregulated Energy Markets, April 2008, p. 19. 43 Trans Bay Cable presentation, March 16, 2005, p. 75.
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performance;44 (4) provide AC system damping;45 (5) serve as a firewall to limit the spread of system disturbances;46 (6) decouple the interconnected system so that faults and frequency variations between the wind farms and the AC network or between different parts of the AC network do not affect each other;47 and (7) provide blackstart capability to re-energize a 100% blacked-out portion of the network.48 By being able to control flows on the HVDC lines, the AWC Project can also be used to control real power flow on the AC grid similar to phase angle regulators, but at a much faster response rate. In fact, during AC system
contingencies, the HVDC VSC technology can be used to redirect power flows
As noted in several sources including: (1) Center for Integrative Environmental Research (CIER), University of Maryland, Maryland Offshore Wind Development: Regulatory Environment, Potential Interconnection Points, Investment Model, and Select Conflict Areas, October 2010, p. 51; (2) European Wind Energy Association, Oceans of Opportunity: Harnessing Europes Largest Domestic Energy Resource, September 2009, p. 27; (3) Siemens, HVDC PLUS (VSC Technology): Benefits. Available from: http://www.energy.siemens.com/us/en/power-transmission/hvdc/hvdc-plus/#content=Benefits. Accessed November 24, 2010; and (4) Wright, S.D., Rogers, A.L., Manwell, J.F., Ellis, A., Transmission Options for Offshore Wind Farms in the United States, American Wind Energy Association, 2002, p. 5. 45 Trans Bay Cable presentation, March 16, 2005, p. 75. 46 Siemens, HVDC PLUS (VSC Technology): Benefits. Available from: http://www.energy.siemens.com/us/en/power-transmission/hvdc/hvdc-plus/#content=Benefits. Accessed November 24, 2010. 47 Lazaridis, L.P., Economic Comparison of HVAC and HVDC Solutions for Large Offshore Wind Farms under Special Consideration of Reliability, 2005, p. 34. 48 As noted in several sources including: (1) European Wind Energy Association, Oceans of Opportunity: Harnessing Europes Largest Domestic Energy Resource, September 2009, p. 27; (2) Siemens, HVDC PLUS (VSC Technology): Benefits. Available from: http://www.energy.siemens.com/us/en/powertransmission/hvdc/hvdc-plus/#content=Benefits. Accessed November 24, 2010; (3) Lazaridis, L.P., Economic Comparison of HVAC and HVDC Solutions for Large Offshore Wind Farms under Special Consideration of Reliability, 2005, p. 34; and (4) Wright, S.D., Rogers, A.L., Manwell, J.F., Ellis, A., Transmission Options for Offshore Wind Farms in the United States, American Wind Energy Association, 2002, p. 5. 48 Trans Bay Cable presentation, March 16, 2005, p. 75. 48 Siemens, HVDC PLUS (VSC Technology): Benefits. Available from: http://www.energy.siemens.com/us/en/power-transmission/hvdc/hvdc-plus/#content=Benefits. Accessed November 24, 2010.
44
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instantaneously to avoid overloading transmission facilities and to quickly restore the system to reliable N-1 operation. Q. HAS PJM RECOGNIZED ANY OF THESE OPERATIONAL BENEFITS OF HVDC TECHNOLOGY? A. Yes. PJM explicitly noted the improved reliability, reactive performance, system stability, and control of real power flows as benefits of HVDC technology in its recommendation to pursue the HVDC option for the Mid-Atlantic Power Pathway (MAPP) project, despite the higher cost of the HVDC option.49
VII. CONGESTION RELIEF AND OTHER ECONOMIC BENEFITS OF THE AWC PROJECT RELATIVE TO A RADIAL ALTERNATIVE Q. WHAT ARE THE OTHER CATEGORIES OF ECONOMIC BENEFITS RELATED TO THE AWC PROJECT? A. As we will describe in greater detail below, the AWC Project will relieve congestion and thereby reduce production costs and energy market prices (in some locations) compared to a radial approach to interconnecting offshore wind. The Project will also provide capacity value to eastern PJM and help reduce the system operations costs of integrating wind.
49
PJM Transmission Expansion Advisory Committee, 2008 RTEP - Reliability Analysis Update, TEAC Meeting, October 15, 2008, pp. 8-10.
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1. Congestion Relief and Related Benefits Q. A. HOW DOES THE AWC PROJECT PROVIDE CONGESTION RELIEF? If offshore wind generation were interconnected to shore solely via radial lines, the power would be delivered to each corresponding onshore landing point as the individual wind power plants generate electricity. This power could be injected during time periods when the injections exacerbate transmission congestion on the onshore transmission system, which would require potentially costly redispatching of onshore generation or curtailing some of the wind power. In contrast, the AWC Project diversifies on its offshore backbone the wind generation from all interconnected plants and enables optimal control of where this power is injected onshore. The AWC Project can be operated to transmit offshore wind generation from anywhere on the backbone to wherever it is most valuable (i.e., where the LMP is highest), not only avoiding adding flows to congested onshore transmission facilities but also actively relieving congestion into the receiving area around each landing point. Moreover, the line can move economic but constrained-off onshore power from interconnection points with low LMPs to interconnection points with higher LMPs, further relieving congestion. The controllability of the line adds substantial operational flexibility to the PJM system and helps manage congestion and minimize system-wide costs.
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Q.
HAVE YOU SIMULATED THE AWC PROJECTS ABILITY TO RELIEVE CONGESTION AND INTEGRATE OFFSHORE WIND
GENERATION? A. Yes. We used Ventyxs PROMOD simulation model, with Ventyx professionals conducting the actual model runs at our direction. PROMOD is a widely used model for analyzing electricity markets and transmission benefits. It is also used by PJM in its transmission planning studies. The version we used spans PJM and the rest of the Eastern Interconnection. PROMOD simulates the electric system operation and energy market by emulating how the RTOs dispatch generation to serve load at least cost, subject to transmission constraints and operating constraints. It reports hourly nodal LMPs, the generation output and emissions of each generating unit, the flows on each transmission line, and the costs of transmission congestion. The model is most useful for estimating how these attributes change as new generation or transmission is added. Q. HOW DID YOU DESIGN YOUR PROMOD SIMULATIONS TO ESTIMATE CONGESTION IMPACTS OF THE AWC PROJECT? A. We simulated market conditions for 2016 with the addition of 6,600 MW of nameplate offshore wind generation interconnected in two alternative ways: A case with the AWC Project and a conservative hypothetical case in which the 6,600 MW of wind plants are only interconnected to shore with radial transmission lines. Both cases include the same load forecast, the same planned transmission and generation additions, the same wind generation, and the same onshore transmission topology. The two cases differ only in that the Radial
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Wind case delivers wind generation to the onshore interconnection point individually from each wind farm, whereas the AWC Wind case explicitly models the HVDC technology and optimizes deliveries and transfers along the line to manage congestion and minimize system-wide costs. Q. WHAT DATA SOURCES AND KEY ASSUMPTIONS DID YOU RELY ON FOR YOUR MODELING ASSUMPTIONS? A. The transmission topology is based on a 2015 load flow case that the MultiRegional Modeling Working Group (MMWG) assembled from the various RTOs and utilities FERC Form 715 filings, with minor modifications by Ventyx to fully reflect transmission projects planned for 2016 consistent with PJMs 2010 Regional Transmission Expansion Plan (RTEP). Planned projects include the major PATH, TrAIL, MAPP, and Susquehanna-Roseland projects. We also refined definitions of transmission constraints in eastern PJM by applying flow limits on vulnerable transmission facilities, interfaces, and contingencies. The list of key constraints is derived from various sources,
including prior studies conducted by Ventyx, a contingency analysis conducted by Ventyx specifically for this study, the list of historically-congested constraints from PJMs website, and input from PJM based on its recent analysis of offshore wind power. The flow limits on the monitored facilities are defined primarily by the thermal ratings of the lines under N-1 contingency conditions as contained in the load flow data.
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The load forecast was taken from each of the eastern RTOs official tenyear forecast for peak load and annual energy, with an hourly profile that Ventyx derived based on several past years of data. The list of generating units and their characteristics includes every existing facility and new generation that is under construction or permitted (from Ventyxs database). Planned renewable generation is not sufficient to meet the Mid-
Atlantic states 2016 RPS standards, as described in Section III of our testimony. Gas and oil prices are consistent with forward curves available from NYMEX. Coal prices and gas basis differentials were provided by Ventyx. The modeling assumptions and data sources are documented in the Technical Appendix report filed as Exhibit AWC-403 with this testimony. Q. A. WHY DID YOU USE 2016 AS YOUR STUDY YEAR? 2016 is the first year in which part of the AWC Project would be operational. Although the full set of line segments is not scheduled to be completed until 2020, we limited our study to 2016 to avoid having to make speculative assumptions about market conditions further in the future. Q. WHY DID YOU SAY THE RADIAL WIND CASE WAS A
CONSERVATIVE HYPOTHETICAL CASE? A. The AC Radial case is not based on specific proposed offshore wind power projects. We constructed it assuming that exactly the same size wind farms would be built at the same locations as in the AWC Wind case and that these wind farms would be interconnected radially to exactly the AWC Projects onshore interconnection points. Imposing these assumptions allowed us to isolate more
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clearly the benefits of AWC Projects backbone and controllability. However, these assumptions for the Radial Wind case are very conservative (i.e., understating the comparative value of the AWC Project) because it is unrealistic to assume that independent developers could agree to design and coordinate radially-interconnected wind power projects that are developed within the same time frame, utilize the same 500 MW to 1,000 MW scale, and choose the same optimally-selected onshore interconnection points as is possible with the AWC Project. No such projects have been announced or are under development, not even from the developers of currently-proposed offshore wind generation projects. Absent a coordinated offshore wind development effort like that
facilitated by the AWC Project, the more likely outcome of a radial scenario would be a more delayed development of smaller scale wind farms that are interconnected using smaller radial interconnections that are less optimally selected with respect to their impacts on the onshore grid. AWC will also
facilitate a faster ramp-up and lower-cost scale of offshore wind power development, and thus likely deliver more quickly the benefits of integrating offshore wind as discussed in Sections III and V of our testimony. Q. WHAT DID YOUR MARKET SIMULATIONS SHOW ABOUT THE AWC PROJECTS CONGESTION RELIEF BENEFITS RELATIVE TO THE RADIAL ALTERNATIVE? A. Our simulations showed that the AWC Project significantly reduces transmission congestion relative to a radial alternative. Congestion relief occurs on
transmission constraints in and into eastern PJM, including constraints near the
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selected interconnection points. The largest congestion reductions occur on the following constraints (listed in descending order of impact): a constraint on eastward flows on a 500 kV line from Keystone and Conemaugh (in western Pennsylvania) to the Juniata substation in central Pennsylvania for the loss of a parallel 500 kV line; a constraint on a 230 kV line emanating from the Fentress interconnection point in Virginia for the loss of a parallel 230 kV line; a constraint on a 230 kV line emanating from the Larrabee interconnection point (just south of Atlantic City) for the loss of a parallel 230 kV line; a constraint on a 230 kV line near the Hudson interconnection point for the loss of another 230 kV line; and a constraint on a 500 kV line from the Branchburg to Jefferson substations in northern New Jersey for the loss of a nearly parallel 500 kV line. It is possible that these particular facilities might not exactly be the ones that are congested in the future if market conditions are different from those modeled or if there are transmission upgrades associated with the interconnection of offshore wind. However, relieving one constraint often causes another
constraint in parallel or series to bind, so our findings will reasonably represent likely congestion patterns with and without the AWC Project. Q. HOW DOES THE CONGESTION RELIEF PROVIDED BY THE AWC PROJECT REDUCE THE COST OF ELECTRICITY RELATIVE TO THE RADIAL ALTERNATIVE? A. There are three alternative metrics that are frequently used to express the costs of congestion, and we have estimated the AWC Projects impact on all three: (1) congestion costs; (2) effects of congestion on production costs; and (3) effects of congestion on LMPs paid by load. Congestion costs are often used to describe
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actual markets, as in PJMs Annual State of the Market reports. Congestion costs express the amount of congestion charges loads pay into PJMs congestion fund. It is also equal to the total LMP payments less the LMP payments to generation, net of marginal-loss-related charges and payments. Technically, congestion costs also reflect the product of the shadow price and flow on each binding transmission constraints, summed over all constraints and all hours. Our
simulations show that the AWC Project would reduce total annual PJM congestion costs by $196 million compared to the Radial Wind case. Q. WHAT IS THE IMPACT OF AWCS CONGESTION REDUCTIONS ON SYSTEM-WIDE PRODUCTION COSTS RELATIVE TO THE RADIAL ALTERNATIVE? A. Reducing congestion allows lower-cost, more efficient generating units to be dispatched instead of higher cost units, resulting in lower overall production costs. The AWC Project reduces annual production costs by $33 million relative to the Radial Wind case. If such savings continued for 20 years, the net present value of future savings would be $350 million (expressed in 2010 dollars). However, because of inherent limitations of these types of market simulations, these estimates understate the congestion and production cost savings that the Project would provide under real-world system conditions as discussed further below. Q. WHY DO THESE CONGESTION AND PRODUCTION COST
ESTIMATES UNDERSTATE THE VALUE THE PROJECT WOULD PROVIDE UNDER REAL-WORLD SYSTEM CONDITIONS?
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A.
The PROMOD simulations do not capture a number of factors that cause realtime prices to be significantly more volatile than day-ahead prices. Such factors include wind generation uncertainty and forecasting errors, load forecasting errors, sudden outages of generation units, and all types of transmission outages. For example, PROMOD simulations assume actual wind generation and load are exactly as forecasted during the day-ahead generation commitment process, that all generation outages are known in advance, that wind generation and load do not vary within each hour, and that all transmission facilities are 100% available during all hours of the year. Because PROMOD does not model these factors, it is more representative of day-ahead market conditions than real-time. Thus, PROMOD understates real-time price volatility and the congestion and production cost implications of that volatility.
Q.
HOW DOES ACCOUNTING FOR HIGHER REAL-TIME VOLATILITY AFFECT THE ECONOMIC BENEFIT OF THE PROJECT?
A.
Volatility affects the value of all assets that provide flexibility, such as the AWC Project. To estimate the difference between day-ahead and real-time value of the Project, we analyzed the value that the AWC Project would have been able to realize in 2008, 2009, and 2010 by transferring power between the various onshore interconnection points. The transfer value is calculated on an hourly basis using the price differential between the lowest and highest LMP points, net of converter and DC line losses, assuming that the Project would have been able to transmit up to 2,000 MW (if the price differential exceeds the losses). As shown in Table 10, we found that the annual value of the AWC Project based on
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hourly real-time locational price differentials would have been 160% to 212% of the value under the less volatile hourly day-ahead price differentials. As the table shows, on average, the value of the Project in the hourly real-time market is 88% higher than the Projects value in the less volatile day-ahead market. Table 10 Value of 2,000 MW Transfer Capability Based on Real-Time Prices in Comparison to Value based on Day-Ahead Prices
Year 2008 2009 2010 2008-2010 Avg Energy Transfer Value Ratio 192.8% 160.2% 212.0% 188.3%
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Assessing Project value based on hourly real time prices still understates the Projects total value, because the AWC Project will be able to respond to 5-minute real-time prices, thereby providing additional benefits. In addition, this real-time market benefit is likely to increase over time as real-time volatility increases with the addition of more intermittent resources to the system. We have not yet quantified this additional real-time value due to limitations and inconsistencies in the available 5-minute historical real-time price data compared to hourly real-time price data and the challenge of simulating real-time markets factoring in wind uncertainty. Nevertheless, the analysis of historical real-time and day-ahead hourly price data shows that the total value of the AWC Projects congestion relief benefit under real-time market condition will likely be at least $660 million in terms of production cost savings, or approximately twice the congestion relief and production cost benefits captured in PROMOD.
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Q.
HOW WILL THE AWC PROJECT AFFECT THE POWER PRICES PAID BY CUSTOMERS?
A.
Our simulations show that, by reducing congestion, the AWC Project lowers energy prices (i.e., LMPs), especially in Eastern PJM. The results of this analysis are shown in Table 11 below. This LMP reduction is in addition to the LMP reduction realized by injecting energy from 6,600 MW of offshore wind plants with radial transmission interconnections. (We have already presented the overall LMP impacts of the AWC Project including the effects of wind generation in Section III of our testimony). Thus, the customer price impacts quantified here only reflect the AWC Projects incremental load LMP benefits relative to the Radial Wind case. As shown in Table 11, this AWC-related decrease in load-weighted annual average LMPs is approximately $1.4 to $2.5/MWh in northern New Jersey, and $0.80 to $1.30/MWh in eastern Pennsylvania. Compared to the Radial Wind case, LMPs increase slightly: by $0.50/MWh in Virginia and by $0.20 to $0.30/MWh in western PJM.
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Region
Table 11 Impacts of AWC Project on PJM Load LMPs Compared to Radial Interconnections of Individual Wind Farms
State PJM Area Annual Load (GWh)
[1]
Radial AWC Wind Wind LMP LMP ($/MWh) ($/MWh)

[2] [3]
AWC Wind vs. Radial Wind LMP ($/MWh)

[4]= [3]-[2]
AWC Wind vs. Radial Wind Load Payments ($m/yr)

[5]= [1][4]
20,517 13,978 29,004 54,250 1,751 114,406 39,503 36,283 18,518 47,010 21,574 47,100 1,159 125,253 188,533 78,361 55,414 892,613 309,692 135,361 447,561
$51.2 $52.1 $58.0 $56.1 $63.0 $50.5 $50.8 $50.9 $52.1 $53.0 $46.1 $52.1 $53.4 $42.3 $43.7 $43.3 $46.8 $47.9 $52.5 $51.5 $43.6
$51.7 $52.2 $56.2 $53.7 $61.6 $50.9 $50.9 $51.2 $51.3 $52.1 $46.0 $51.1 $52.1 $42.5 $43.9 $43.4 $47.0 $47.7 $52.1 $50.7 $43.8
$0.5 $0.2 ($1.8) ($2.5) ($1.4) $0.5 $0.1 $0.3 ($0.8) ($0.9) ($0.1) ($1.1) ($1.3) $0.2 $0.2 $0.2 $0.3 ($0.1) ($0.4) ($0.8) $0.2
$10 $2 ($53) ($135) ($2) $53 $3 $9 ($15) ($44) ($2) ($50) ($2) $22 $47 $15 $14 ($126) ($113) ($112) $99
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Q.
HOW
MUCH
ARE
THE
ESTIMATED
CUSTOMER
SAVINGS
ASSOCIATED WITH THESE CHANGES IN LOAD LMPS? A. Compared to the Radial Case, the net effect of the AWC Projects congestion relief benefit would save customers in PJM approximately $126 million per year. If such savings continued for 20 years, the net present value of customer savings would be $1.3 billion (expressed in 2010 dollars). This does not count partially
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offsetting effects of FTRs, but it similarly does not count the amplifying effect of being to operate in the more volatile real-time market, as discussed above. Q. DID YOU ESTIMATE HOW REDUCED ENERGY PRICES COULD INCREASE CAPACITY PRICES, AS YOU DID IN SECTION III? A. Yes. The AWC Project would significantly reduce energy prices in EMAAC relative to a radial alternative. This would also reduce the energy margins earned by capacity resources in EMAAC, which would increase the market price for capacity. For example, a potential developer of a new combustion turbine would anticipate $3/kW-yr lower energy margins and thus need to obtain that much higher a price for capacity in order to be able to finance the project. Assuming new combustion turbines in EMAAC eventually set the clearing price for capacity, we estimate that the decrease in LMPs would increase capacity prices by $3.0/kW-yr. Similarly, the capacity prices would increase by $1.3/kW-yr in
SWMAAC, $0.5/kW-yr in the rest of MAAC (and it would decrease slightly in the rest of PJM RTO). Such a capacity price increase applied to all demand in PJM areas would increase customer payments by $115 million per year ($1.2 billion NPV). It should be noted that these capacity price adjustments are uncertain and would depend on the extent to which transmission constraints bind in PJMs capacity market, particularly between areas with differential changes in energy prices. Q. DID YOU ANALYZE HOW THE PROJECT WOULD AFFECT CONGESTION IF LESS WIND POWER WERE DEVELOPED?
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A.
Yes, we have simulated a case without any offshore wind generation. Although it is unlikely that the Project would be constructed without the accompanying development of offshore wind generation, simulating the effects of the AWC Project without offshore wind provides a useful bookend case that allows us to better understand the value of the offshore backbone itself. Compared to a 2016 Base Case that includes only planned transmission and generation additions (i.e., without the 6,600 MW of offshore wind), adding the AWC Project reduced onshore congestion by transmitting power from less congested, lower-LMP locations to more congested, higher-LMP locations. This relieves transmission constraints heading into northeastern PJM, especially on a 500 kV line from Keystone and Conemaugh (in western Pennsylvania) to the Juniata substation in central Pennsylvania for the loss of a parallel 500 kV line and a constraint on a 500 kV line from the Branchburg to Jefferson substations in northern New Jersey for the loss of a nearly parallel 500 kV line. Total annual congestion costs with the AWC Project without wind are $147 million lower than in the Base Case without windor about 75% of the congestion cost benefit of the AWC Project with 6,600 MW of offshore wind generation (relative to the Radial Wind case).
Q.
HOW
DOES
THE
AWC
PROJECT
AFFECT
SIMULATED
PRODUCTION COSTS AND LOAD LMPS IN THE CASES WITHOUT WIND? A. The congestion relief provided by the AWC Project would reduce production costs even without wind. Including effects on losses, annual production costs in the AWC Without Wind case would be $51 million lower than in the Base Case
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without wind, with an NPV benefit of $540 million over 20 years (expressed in 2010 dollars). Compared to the Base Case, the AWC Without Wind case
decreases load-weighted annual average LMPs by approximately $1.50 to $2.70/MWh in New Jersey and $1.00 to $1.70/MWh in eastern Pennsylvania. Compared to the Radial Case, LMPs increase slightly: by $0.90/MWh in Virginia and by $0.2 to $0.50/MWh in western PJM. 2. Capacity Value Q. A. HOW DOES THE AWC PROJECT PROVIDE CAPACITY VALUE? The Projects ability to control the injection of wind generation and transfer power across the constrained Mid-Atlantic region also provides capacity value that is not captured in production cost simulations. First, the AWC Project can transmit the capacity value of wind to the landing points with highest capacity value. In addition, the AWC Project allows transmission of 2,000 MW from southern Virginia, where PJM capacity prices are lower and unconstrained, to New Jersey and the Delmarva Peninsula, which are part of the higher-cost, capacity-import-constrained EMAAC region of PJM. The Project also allows transmitting capacity between subareas within EMAAC if capacity prices were to differ across these subareas again in the future. Q. DID YOU ESTIMATE THE VALUE OF THE AWC PROJECTS ABILITY TO TRANSFER CAPACITY? A. Yes. We estimated the order-of-magnitude capacity value of transmitting
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2,000 MW into EMAAC based on a scenario analysis PJM recently conducted
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using data from its 2013-14 forward capacity auction.50 As a rough proxy for the capacity market benefits of the AWC Project, we used analyzed the difference in capacity prices between (1) PJMs scenario that already includes the PATH and Susquehanna-Roseland transmission projects; and (2) the PJM scenario that additionally includes the MAPP transmission project. This addition of the MAPP transmission project increases the import capability into EMAAC by 1,576 MW, which is comparable to 2,000 MW the incremental EMAAC import capability provided by the AWC Project. These scenarios show a $36/MW-day capacity price decrease in MAAC and EMAAC relative to the rest of PJM (relative its corresponding scenario without MAPP) and a remaining $62/MW-day capacity price differential between EMAAC and the rest of PJM. Assuming the $62/MW-day capacity price
differential existed for only five years over the entire life of the Project (and ignoring the possibility that capacity price differentials may reappear within EMAAC), the Projects ability to transfer 2,000 MW of capacity would be worth $180 million. Similarly, if AWC were able to achieve the same $36/MW-day capacity price reduction in MAAC and EMAAC that MAPP achieves in PJMs scenario analysis, the resulting price impact would reduce customer capacity payments by $524 million per year in EMAAC and $666 million in PJM overall, or $2.1 and $2.7 billion, respectively, over five years.
50
http://pjm.com/markets-and-operations/rpm/~/media/markets-ops/rpm/rpm-auction-info/scenarioanalysis-results.ashx
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We believe these estimates conservatively capture the approximate magnitude of the capacity market benefits provided by the AWC Project. A more precise estimate would require forecasting future locational capacity market conditions, which we have not undertaken at this point. Q. HOW MIGHT FUTURE MARKET CONDITIONS AFFECT THE CAPACITY VALUE OF THE AWC PROJECT? A. The price differentials we assumed already account for the addition of the PATH, Susquehanna-Roseland, and MAPP transmission projects, which PJMs scenario analysis shows to reduce the EMAAC-to-RTO price differential from $217/MWday in 2013/14 to just $62/MW-day. However, the price impact we assumed EMAAC, could be overstated if the additional 2,000 MW of import capability provided by the AWC Project creates less price impact than the 1,576 MW of increased transfer capability into MAAC (as PJM estimated MAPP would provide). However, load growth and planned and likely future retirements of existing generating plants will tend to increase capacity prices in MAAC and EMAAC, and thus increase the capacity value of the AWC Project. (For
example, the 645 MW Oyster Creek nuclear plant in New Jersey recently announced an agreement to retire by 2019.) At the same time, however, load growth and the retirement of existing supply in the rest of PJM could similarly increase prices there, thus diminishing the capacity value of the AWC Project.
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3. Reduced System Operating Costs Q. WHAT EFFECTS WILL THE AWC PROJECT HAVE ON WIND INTEGRATION COSTS? A. The AWC Project will reduce the system operating costs associated with wind integration compared to a scenario in which individual resources that are interconnected to shore via radial transmission lines. The Project will do so by aggregating wind resources across hundreds of miles of offshore sites, and injecting into the onshore grid a more diversified wind energy portfolio with greater predictability and less variability. This will reduce the system operating costs of maintaining supply-demand balance at every point in time. Q. WHY DOES INTEGRATING WIND USUALLY IMPOSE ADDITIONAL COSTS ON SYSTEM OPERATIONS? A. Integrating significant amounts of wind imposes costs on system operations due to the variability and unpredictability of wind generation across all timeframes. Day-ahead unpredictability of wind output requires the commitment of extra resources to ensure there will always be enough generators turned on to be able to ramp up and provide adequate supply in the event that wind generation is less than expected. Closer to real-time, instantaneous and short-term fluctuations must be accommodated by procuring more regulation and load-following services. Wind output also often exhibits patterns of steep increases and drops over the course of several hours, known as ramps. Such ramping excursions could occur during morning and evening peak hours, thus magnifying load-related
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
ramping needs and exerting additional pressure on system resources. Steeper ramps require generation equipment that can respond more quickly to increase (ramp up) or decrease (ramp down) output. Such resources are costlier to build, maintain, and operate. Q. HOW LARGE ARE THE OPERATIONAL COSTS OF INTEGRATING WIND? A number of studies have examined the operational costs of integrating various levels of wind generation. Effects on system costs depend on the penetration and characteristics of the wind generation portfolio as well the other characteristics of the particular electric system. A recent study by the National Renewable Energy Laboratory (NREL) concluded that, with 20% to 30% wind energy penetration levels for the Eastern Interconnectionand assuming substantial transmission expansions and balancing-area consolidationtotal system operational costs caused by wind variability and uncertainty range from $5.77/MWh to $8.00/MWh of wind energy injected.51 The day-ahead wind forecast error contributes between $2.26/MWh and $2.84/MWh, while within-day variability accounts for $2.93/MWh to $5.74/MWh of wind energy injected.52 Q. PLEASE DESCRIBE HOW THE AWC PROJECT WILL REDUCE THE COST OF INTEGRATING WIND. A. The AWC Project can aggregate a diverse set of wind generation profiles thus reducing renewable generation volatility and unpredictability. The Project will
51 52
NREL, Eastern Wind Integration and Transmission Study, January 2010. $/MWh of wind energy in US$2024.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
provide such aggregation before the profile is delivered to the onshore grid, thus decreasing the need for balancing services such as regulation and load-following in a transmission constrained grid. In addition, forecasting a composite wind generation profile for the entire AWC system, will result in lower forecast errors across all time-frames. The aggregation of diverse wind resources will also
reduce the occurrence and severity of unexpected ramps (up- and downexcursions) in wind output, thus decreasing the need for ramping resources. Of course, even with radial lines, some of the same diversification benefits can be realized, but only by imposing additional flows and thus transmission constraints on the onshore grid. In the presence of these transmission constraints, the AWC Projects ability to diversify wind generation through its offshore backbone reduces system-wide ramping, load following, and regulation needs. Q. HAVE YOU QUANTIFIED THE WIND INTEGRATION COST SAVINGS PROVIDED BY THE AWC PROJECT ? A. No, we have not. Such quantification would require detailed within-hour
simulations taking into consideration both wind uncertainty and onshore grid constraints. However, the following analysis demonstrates that the savings of diversification could be quite significant. If total wind integration costs for
6,600 MW are $6/MWh (corresponding to the low end of NREL estimates because wind penetration will remain below 20% for many years), integration costs would amount to $140 million per year. Diversification and, by extension, any improved diversification that AWC would provide over radial alternatives, could save a significant portion of that.
1 2 3 4 5 6 7 8 9 10 11 12
Q.
HOW
MUCH
DIVERSIFICATION
CAN
THE
AWC
PROJECT
ACTUALLY ACHIEVE? A. The significance of diversification along the sites on the AWC backbone can be demonstrated by several key statistics for the five wind locations we have analyzed in our market simulations. In contrast to the near-100% correlation within each site, the correlations among sites decrease quickly with distance. As shown in Table 12, the correlations between wind locations in northern, central and southern New Jersey (NJ Sites 1, 2 and 3) are in the 77% to 88% range. In contrast, the correlations between New Jersey and southern Virginia wind locations range only from 49% to 61%. Table 12 Ten-Minute Correlations for Project Wind Sites
NJ Site 1 88% 77% 68% 62% 49% NJ Site 2 87% 75% 70% 54% NJ Site 3 DE Site MD Site
NJ Site 2 NJ Site 3 DE Site MD Site VA Site
82% 78% 61%
87% 70%
74%
13 14 15 16 17 18 19 20
Source: NREL Eastern Wind Dataset
Thus, integrating wind locations across the entire AWC Project significantly reduces variability. We find that the standard deviation of 10-minute output fluctuations of wind power of the diversified system is less than half the standard deviation of 10-minute output deviations for individual sites. Ramp rates of the diversified wind profile are lower as well. For example, we find that for every 1,000 MW of individual wind locations, the 10-minute period-to-period volatility exceeds 100 MW during 2% of all periods with
1 2 3 4 5 6 7 8
fluctuations as high as 800-900 MW (up and down). In contrast, the AWCsystem-wide wind fluctuations (also for 1,000 MW of wind) exceed only 50 MW during 2% of all periods with maximal swings only in the -245 MW (down) to 245 MW (up) range. Together, these factors indicate that the aggregated wind profile AWC injects at its interconnection points with the onshore grid will be less volatile and will impose lower ramp rates, which will reduce the amount of regulation and load-following that would be needed. The ability to forecast
injections more accurately will also reduce day-ahead unit commitment costs. 4. Emission Reduction Benefits Q. A. WHAT EFFECTS DOES THE AWC PROJECT HAVE ON EMISSIONS? By facilitating the development of offshore wind more quickly and at greater scale than if individual wind developers had to arrange their own interconnections, the AWC Project will give rise to major emissions reductions. As explained in Section III, the 6,600 MW of offshore wind interconnected by the AWC Project would eliminate 16 million tons of CO2 emissions from fossil-fuelfired generation per year. That is equivalent to taking 3 million cars off the road.53 At a value of $30 per ton of CO2 (as discussed in Section III), the reductions are worth approximately $500 million per year, or $5.2 billion over 20 years.
9 10 11 12 13 14 15 16 17 18 19
Based on average passenger and light truck vehicle emissions of 5.5 metric tons of CO2 per vehicle per year, as estimated by the Environmental Protection Agency, Emission Facts: Greenhouse Gas Emissions from a Typical Passenger Vehicle, EPA420-F-05-004, February 2005.
53
1 2 3 4 5 6 7 8 9 10 11 12 13
Q.
HOW
DO
YOU
RESPOND
TO
THE
CONCERN
THAT
THE
AWC PROJECT MIGHT BE USED TO MOVE COAL FROM VIRGINIA TO NEW JERSEY AND INCREASE CARBON EMISSIONS? A. The possibility that the AWC Project might be used to move coal from Virginia to New Jersey and thereby increase carbon emissions is not is a very realistic concern. It takes less than 200 MW of additional wind capacity facilitated by the AWC Project (i.e., less than 3 percent of what the Project can accommodate) to reduce CO2 emissions throughout the Eastern Interconnection. We expect the Project to promote the development of much more additional wind generation than 200 MW, resulting in major reductions in coal generation and CO2 emissions. Q. A. DOES THIS CONCLUDE YOUR TESTIMONY? Yes, it does.
Exhibit No. AWC-401
Exhibit AWC-401 Page 1 of 10
Exhibit AWC-401 Qualifications of Johannes P. Pfeifenberger Johannes Pfeifenberger is a Principal of The Brattle Group where he leads the firms utility practice area. He received a M.A. in Economics and Finance from Brandeis University and holds a M.S. (Diplom Ingenieur) in Electrical Engineering, with a specialization in Power Engineering and Energy Economics from the University of Technology in Vienna, Austria. Prior to joining The Brattle Group in 1991, Mr. Pfeifenberger was a consultant with Cambridge Energy Research Associates of Cambridge, Massachusetts, and a research assistant at the Institute of Energy Economics in Vienna, Austria. TESTIMONY AND REGULATORY FILINGS Before the Maryland Public Service Commission, Administrative Docket PC22, Filed Comments In the Matter of the Reliability Pricing Model and the 2013/2014 Delivery Year Base Residual Auction Results, October 1, 2010 (with K. Spees). Before the Federal Energy Regulatory Commission, Docket No. RM10-23-000, Filed Comments re: Notice of Proposed Rulemaking on Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, September 29, 2010 (with P. Fox-Penner and D. Hou). In the United States District Court for the Eastern District of Pennsylvania, Case No. 08-cv-3649NS, Expert Report on behalf of PJM Interconnection LLC re: hedge fund trading activities of financial transmission rights, February 22, 2010. American Arbitration Association, AAA No. 13-198-02918-08, General Electric International, Inc. vs. Project Orange Associates, LLC; Expert Report and Oral Testimony on behalf of General Electric International re: Operating Agreement Dispute, October 12, 2009 and January 5, 2010. Before the Federal Energy Regulatory Commission, Docket No. AD09-8-000, Filed Comments re: regional transmission planning and cost allocation, December 18, 2009 (with P. Fox-Penner and D. Hou). Before the Missouri Public Utilities Commission, Case No. ER-2010-0036, Direct Testimony on Interim Rates on Behalf of AmerenUE, October 20, 2009. Before the Maine Public Utilities Commission, Docket No. 2008-156, Assessment of a Maine ISA Structure as a Possible Alternative to ISO-NE Participation, Report and Oral Testimony on behalf of Central Maine Power Company and the Industrial Energy Consumer Group, May 2009.
The Brattle Group
Before the Public Service Commission of Wisconsin, Docket 137-CE-149, Direct Testimony on behalf of American Transmission Company re: transmission cost-benefit analysis, January 17, 2008. Before the Missouri Public Utilities Commission, Case No. EO-2008-0046, Rebuttal, Supplemental Rebuttal, and Surrebuttal Testimony on behalf of Midwest Independent Transmission System Operator, Inc. re: Aquila RTO cost-benefit analyses, November 30, 2007, December 28, 2007 and February 27, 2008. Before the Maine Public Utilities Commission, Docket No. 2007-317, An Assessment of Retail Rate Trends and Generation Costs in Maine, Whitepaper filed on behalf of Independent Energy Producers of Maine, September 5, 2007 (with A. Schumacher). Before the Public Service Commission of Wisconsin, Docket 137-CE-149, Planning Analysis of the Paddock-Rockdale Project, report by American Transmission Company re: transmission cost-benefit analysis, April 5, 2007 (with S. Newell and others). Before the Alberta Energy and Utilities Board, Proceeding No. 1468565, submission on behalf of AltaLink Management Ltd. re: Benchmarking the Costs and Performance of Utilities using a Uniform System of Accounts, October 2006 (with C. Lapuerta). Before the Arizona Power Plant and Transmission Line Siting Committee, Docket No. L-00000A06-0295-00130, Case No. 130, Oral Testimony on behalf of Southern California Edison Company re: economic impacts of the proposed Devers-Palo Verde No. 2 transmission line, September and October, 2006. Before the Federal Energy Regulatory Commission, Docket No. EL-06097-000, Affidavit and Rebuttal Affidavit on behalf of WPS Resources Corporation re: benefits of implementing a joint and common market across the MISO-PJM service areas, August 15 and October 2, 2006. Before the Maine Public Utilities Commission, Docket No. 2005-554, Direct Testimony and Surrebuttal on behalf of Penobscot Energy Recovery Company re: retail rate structure for station-use distribution service, June 7 and September 29, 2006. Before the Colorado Public Utilities Commission, Docket No. 06S-234EG, Direct Testimony on behalf of Public Service Company of Colorado re: purchased power rate adjustment mechanisms and imputed debt of purchased power, April 14, 2006. In the Matter of Binding Arbitration Between La Paloma Generating Trust, Ltd, as Revocably Assigned to La Paloma Generating Company, LLC, v. Southern California Edison Company, JAMS CASE NO. 1220032122, Direct and Rebuttal Testimony on behalf of Southern California Edison re: Power Contract Dispute, June and July 2005. Before the Federal Energy Regulatory Commission, Docket No. EC05-43-000, Affidavit and Supplemental Affidavit on behalf of Ameren Services Company re: Exelon Corporation and Public Service Enterprise Group Incorporated, Joint Application for Approval of Merger, April 11 and May 27, 2005 (with P. Fox-Penner).
The Brattle Group
Before the Illinois Commerce Commission, Docket Nos. 05-160, et al., Direct Testimony on Behalf of Central Illinois Light Company, Central Illinois Public Service Company, and Illinois Power Company re: Competitive Procurement of Retail Supply Obligations, February 28, 2005. Before the Federal Energy Regulatory Commission, Docket Nos. ER04-718-000 et al., Prepared Supplemental Testimony on Behalf of the Michigan Utilities re: Financial Impact of ComEd's and AEP's RTO Choices, December 21, 2004 (with S. Newell). Before the Federal Energy Regulatory Commission, Docket Nos. ER04-375-002 et al., Declaration re: Financial Impact of ComEds and AEPs RTO Choices on Michigan and Wisconsin, August 13, 2004; Prepared Direct and Answering Testimony on Behalf of the Michigan-Wisconsin Utilities, September 15, 2004 (with S. Newell). Before the Federal Energy Regulatory Commission, Docket No. ER00-2019-0000, California Independent System Operator Corporation, Direct Testimony and Rebuttal Testimony on Behalf of the California Independent System Operator re: Redesign of Transmission Access Charges, February 14, 2003 and October 2, 2003. Before the Federal Energy Regulatory Commission, Docket No. ES02-53-000, Midwest Independent Transmission System Operator, Inc., Prepared Direct Testimony on Behalf of the Midwest Independent Transmission System Operator re: Rate Design for ISO Administrative Cost Recovery, September 24, 2002. Before the Federal Energy Regulatory Commission, Docket No. RT01-87-001, Midwest Independent Transmission System Operator, Inc., Affidavit on Behalf of the Midwest Independent Transmission System Operator re: Inter-RTO Coordination, August 31, 2001 (with P. Fox-Penner). Before the Public Service Commission of the State of Missouri, Case No. EM-96-149, White Paper on Incentive Regulation: Assessing Union Electrics Experimental Alternative Regulation Plan, on behalf of Ameren Services Company, February 1, 2001 (with D. Sappington, P. Hanser, and G. Basheda). Before the Federal Energy Regulatory Commission, Docket No. ER00-2019-0000, California Independent System Operator Corporation, Testimony before Settlement Judge on behalf of the California ISO re: Redesign of Transmission Access Charges, July 12 and August 10, 2000. Before the State of New York Public Service Commission, In the Matter of Customer Billing Arrangements, Case 99-M-0631, Affidavit on behalf of New York State Electric and Gas Corporation, April 19, 2000 (with F. Graves). Before the Federal Communications Commission, An Economic Assessment of the Risks and Benefits of Direct Access to INTELSAT in the United States, Report filed In the Matter of Direct Access to the INTELSAT System, IB Docket No. 98-192, File No. 60-SAT-ISP-97, December 21, 1998 (with H. Houthakker and J. Green).
The Brattle Group
Before the Federal Communications Commission, A Response to the Economists Inc. Study: Preliminary Competition Analysis of Proposed Lockheed Martin/COMSAT Transaction, December 1998 (with C. Lapuerta). Before the United States District Court, Central District of California, Expert Report of The Brattle Group re: Contract Termination Damages; Comsat Corporation v. The News Corporation, Limited, et al., July 1, 1998. Before the Federal Communications Commission, Response to Comments on Comsats Reclassification Petition, File No. 60-SAT-ISP-97, July 7, 1997 (with H. Houthakker and W. Tye). Before the Federal Communications Commission, The Economic Basis for Reclassification of Comsat as a Non-Dominant Carrier, Report filed In the Matter of Comsat Corporation Petition for Forbearance from Dominant Carrier Regulation and for Reclassification As a Non-Dominant Carrier, April 24, 1997 (with H. Houthakker and W. Tye). Before the Federal Communications Commission, Competition in Transoceanic Switched Voice and Private Line Services to and from the U.S.: 1997 Update, Report filed In the Matter of Comsat Corporation Petition for Forbearance from Dominant Carrier Regulation and for Reclassification As a Non-Dominant Carrier, April 23, 1997 (with H. Houthakker and W. Tye). Before the Federal Communications Commission, Response to Statement of Professor Jerry A. Hausman, in re Hughes Communications, Inc., File Nos. 2-SAT-AL-97(11), et al., December 19, 1996 (with W. Tye). Before the Federal Communications Commission, The Economic Implications of the Proposed Hughes-PanAmSat Transaction, Written Statement in re Hughes Communications, Inc., File Nos. 2SAT-AL-97(11), et al., December 2, 1996 (with W. Tye). Before the Federal Communications Commission, Competition in the Market for Trans-Oceanic Video Services to and from the U.S., Report filed In the Matter of Comsat Corporation Petition for Partial Relief from the Current Regulatory Treatment of Comsat World Systems Switched Voice, Private Line, and Video and Audio Services, Docket No. RM-7913, October 24, 1996, (with H. Houthakker and W. Tye). Before the U.S. House of Representatives, Committee on Commerce, Subcommittee on Telecommunications and Finance, Oversight Hearing on the Restructuring of the International Satellite Organizations, Written Testimony, September 25, 1996. Before the Federal Communications Commission, Competition in the Market for Trans-Oceanic Facilities-Based Telecommunications Services, Report filed In the Matter of Petition for Partial Relief From the Current Regulatory Treatment of COMSAT World Systems' Switched Voice, Private Line, and Video and Audio Services, Docket No. RM-7913, June 24, 1994 (with H. Houthakker and W. Tye).
The Brattle Group
Before the State of New York Public Service Commission, Fuel Switching and Demand Side Management, Prepared Written Testimony on behalf of National Fuel Gas Distribution Company, Case Nos. 28223 and 29409, September 1992 (with D. Weinstein). Mr. Pfeifenberger has also presented research findings related to mergers and network access matters to government and antitrust enforcement agencies, including the U.S. Department of Justice, the Merger Task Force of the European Community, the German Cartel Office, the German Ministry of Economics, and the White House National Economic Council. ARTICLES, REPORTS AND PRESENTATIONS Transmission Investments and Cost Allocation: What are the Options? ELCON Fall Workshop, October 26, 2010. Transmission Planning: Economic vs. Reliability Projects, EUCI Conference, Chicago, October 13, 2010. Resource Adequacy and Renewable Energy in Competitive Wholesale Electricity Markets, article presented at the 8th British Institute of Energy Economics (BIEE) Academic Conference, Oxford, September 2010 (with S. Hesmondhalgh and D. Robinson). Transmission Planning and Cost Benefit Analysis, EUCI Web Conference, September 22, 2010 (with D. Hou). Transmission Planning: Overarching Challenges to Regional Expansion, Electric Transmission 203: Planning to Expand and Upgrade the Grid, WIRES and EESI Senate Staff Briefing Series, June 28, 2010. For Grid Expansion, Think Subregionally, Energy Daily, June 8, 2010 (with P. Fox-Penner and D. Hou). Incentive Regulation: Lessons from other Jurisdictions, Alberta Utilities Commission workshop, Edmonton, May 27, 2010 (with T. Brown and P. Carpenter). Incentive Regulation: Introduction and Context, Alberta Utilities Commission workshop, Edmonton, May 26, 2010. Job and Economic Benefits of Transmission and Wind Generation Investments in the SPP Region, Preport prepared for Soutwest Power Pool, March 2010 (with J. Chang, D. Hou, and K. Madjarov). Challenges to Albertas Energy-Only Market Structure?, IPPSA 16th Annual Conference, Banff Springs, Alberta, March 15, 2010. Best Practices in Resource Adequacy, presented at the PJM Long Term Capacity Issues Symposium, January 27, 2010 (with K. Spees). A Comparison of PJMs RPM with Alternative Energy and Capacity Market Designs, Report prepared for PJM Interconnection LLC, September 2009 (with K. Spees and A. Schumacher).
The Brattle Group
Assessment of a Maine ISA Structure as a Possible Alternative to ISO-NE Participation, Report prepared for Central Maine Power Company and the Industrial Energy Consumer Group, May 2009 (with K. Belcher, J. Chang, and D. Hou). Review of PJM's Reliability Pricing Model (RPM), Report prepared for PJM Interconnection LLC, June 30, 2008 (with S. Newell, R. Earle, A. Hajos, and M. Geronimo). Assessing the Benefits of Transmission Investments, Working Group for Investment in Reliable and Economic Electric Systems (WIRES) meeting, Washington, DC, February 14, 2008. The Power of Five Percent, The Electricity Journal, October 2007 (with A. Faruqui, R. Hledik, and S. Newell). Review of PJMs Market Power Mitigation Practices in Comparison to Other Organized Electricity Markets, Report prepared for PJM Interconnection LLC, September 14, 2007 (with J. Reitzes, P. Fox-Penner and others). Restructuring Revisited: What We Can Learn from Retail Rate Increases in Restructured and NonRestructured States, Public Utilities Fortnightly, June 2007 (with G. Basheda and A. Schumacher). The Power of Five Percent: How Dynamic Pricing Can Save $35 Billion in Electricity Costs, Discussion Paper, The Brattle Group, May 16, 2007 (with A. Faruqui, R. Hledik, and S. Newell). Evaluating the Economic Benefits of Transmission Investments, EUCI Conference, Nashville, Tennessee, May 3, 2007 (with S. Newell). Valuing Demand-Response Benefits in Eastern PJM, Public Utilities Fortnightly, March 2007 (with S. Newell and F. Felder). Financial Challenges of Rising Utility Costs and Capital Investment Needs, 2006 NASUCA Annual Meeting, Miami, Florida, November 14, 2006 (with A. Schumacher). Financial Pressures Ahead: Can Utilities Simultaneously Manage Rising Costs and Pressing Capital Investment Needs?, Public Utilities Fortnightly, October 2006. Behind the Rise in Prices: Electricity Price Increases are Occurring Across the Country, Among all Types of Electricity Providers Why?, Electric Perspectives, July/August 2006 (with G. Basheda, M. Chupka, P. Fox-Penner, and A. Schumacher). Why Are Electricity Prices Increasing: An Industry-Wide Perspective, prepared for The Edison Foundation, June 2006 (with G. Basheda, M. Chupka, P. Fox-Penner, and A. Schumacher). Understanding Utility Cost Drivers and Challenges Ahead, AESP Pricing Conference, Chicago, May 17, 2006 (with A. Schumacher). Modeling Power Markets: Uses and Abuses of Locational Market Simulation Models, Energy, Vol 2, 2006, The Brattle Group (with S. Newell).
The Brattle Group
When Sparks Fly: Economic Issues in Complex Energy Contract Litigation, Energy, Vol 1, 2006, The Brattle Group (with D. Murphy and G. Taylor). Innovative Regulatory Models to Address Environmental Compliance Costs in the Utility Industry, Newsletter of the American Bar Association, Section on Environment, Energy, and Resources, pp. 36, October 2005 (with S. Newell). Keeping Up with Retail Access? Developments in U.S. Restructuring and Resource Procurement for Regulated Retail Service, The Electricity Journal, December 2004, pp. 50-64 (with J. Wharton and A. Schumacher). Can Utilities Play on the Street? Issues in ROE and Capital Structure, opening comments for panel discussion on Traditional and Alternative Methods for Determining Return on Investment, Financial Research Institute Conference, Columbia, Missouri, September 16, 2004. What is Reasonable? How to Benchmark Return on Equity (ROE) and Depreciation Expense in Utility Rate Cases, Public Utilities Fortnightly, October 15, 2003, pp. 40-44 (with M.Jenkins). Efficiency as a Discovery Process: Why Enhanced Incentives Outperform Regulatory Mandates, The Electricity Journal, January/February 2003, pp. 55-62 (with D. Weisman). Big City Bias: The Problem with Simple Rate Comparisons, Public Utilities Fortnightly, December 2002, pp. 30-24 (with M. Jenkins). Power Market Design in Europe: The Experience in the U.K. and Scandinavia, Energy Bar Association, 56th Annual Meeting, Washington, DC, April 18, 2002 (with C. Lapuerta). REx Incentives: PBR Choices that Reflect Firms Performance Expectations, The Electricity Journal, November 2001, pp. 44-51 (with P. Carpenter and P. Liu). The State of Performance-Based Regulation in the U.S. Electric Utility Industry, The Electricity Journal, October 2001, pp. 71-79 (with D. Sappington, P. Hanser and G. Basheda). Eine wettbewerbliche Analyse beabsichtigter Zusammenschluesse in der Deutschen Elektrizitaetswirtschaft (A Competitive Analysis of Proposed Mergers in the German Power Industry), presentations to the German Cartel Office and the Merger Task Force of the European Commissions, February 2000. Transmission Access, Episode II: FERCs Journey Has Only Begun, Public Utilities Fortnightly, August 1999, pp. 44-48 (with P. Fox-Penner). Netzzugang in Deutschland im internationalen Vergleich, (International Benchmarking of German Transmission Access) Energiewirtschaftliche Tagesfragen, July 1999 (with C. Lapuerta, W. Pfaffenberger, and J. Weiss). Netzzugang in Deutschland ein Lndervergleich (Transmission Access in Germany an International Comparison), Wirtschaftswelt Energie, March 1999, pp. 9-11 (Part I) and April 1999, pp. 12-14 (Part II) (with C. Lapuerta and W. Pfaffenberger).
The Brattle Group
Transmission Access In Germany Compared to Other Transmission Markets, commissioned by Enron Europe Ltd., December 1998, updated February 1999 (with C. Lapuerta and W. Pfaffenberger). Competition to International Satellite Communications Services, Information Economics and Policy, Vol. 10 (1998) 403-430 (with H. Houthakker). In What Shape is Your ISO, The Electricity Journal, July 1998, (with P. Hanser, G. Basheda, and P. Fox-Penner) Distributed Generation: Threats and Opportunities, Electric Distribution Conference, Denver Colorado, April 28-29, 1998 (with P. Hanser and D. Chodorow). Whats in the Cards for Regulated Distribution Companies, Electric Distribution Conference, Denver Colorado, April 28-29, 1998 (with P. Hanser and D. Chodorow). Does Generation Divestiture Mitigate Market Power, 1998 Energy Futures Forum, Woodbridge, NJ, April 23, 1998. Joint Response to the Satellite Users Coalition Analysis of the Privatization of the Intergovernmental Satellite Organizations as Proposed in H.R. 1872 and S. 1382, March 9, 1998 (with H. Houthakker, M. Schwartz, W. Tye, and A. Maniatis). Whats in the Cards for Distributed Resources?, The Energy Journal, Special Issue, January 1998 (with P. Ammann and P. Hanser). An Economic Assessment of H.R. 1872 (analyzing the impact of a bill attempting to restructure the international satellite organizations), September 26, 1997 (with H. Houthakker and A. Maniatis). Considerations in the Design of ISO and Power Exchange Protocols: Procurement Bidding and Market Rules, Electric Utility Consultants Bulk Power Markets Conference, Vail, Colorado, June 4, 1997 (with F. Graves). The Top 10 Other Challenges to Success in Utility Mergers, 1997 Energy Futures Forum, NJAEE, Woodbridge, New Jersey, April 17, 1997 (with W. Tye). Introduction to Market Power Concerns in a Restructured Electric Industry, TBG Presentation, July 1996 (with others). Does Intelsat Face Effective Competition, Columbia Institute for Tele-Information, Conference, April 26, 1996, (with H. Houthakker, Harvard University). Distributed Generation Technology in a Newly Competitive Electric Power Industry, American Power Conference, Chicago, April 10, 1996 (with P. Ammann and G. Taylor). Handle with Care: A Primer on Incentive Regulation, Energy Policy, Vol 13, No. 8, September 1995 (with W. Tye).
The Brattle Group
Measuring Property Value Impacts of Hazardous Waste Sites, Air & Waste Management Association, 88th Annual Meeting, June 18-23, 1995 (with K. Wise). The Not-So-Strange Economics of Stranded Investments, The Electricity Journal, Reply, November 1994 (with W. Tye). Purchased Power: Hidden Costs or Benefits?, The Electricity Journal, September 1994 (with S. Johnson, L. Kolbe, and D. Weinstein). Pricing Transmission and Power in the Era of Retail Competition, Electric Utility Consultants: Retail Wheeling Conference, June 1994 (with F. Graves). The Enigma of Stigma: The Case of the Industrial Excess Landfill, Toxics Law Reporter, Bureau of National Affairs, May 18, 1994 (with K. Wise). Banking on NUG Reliability: Do Leveraged Capital Structures Threaten Reliability?, Fortnightly, May 15, 1994 (with S. Johnson and L. Kolbe). Valuation and Renegotiation of Purchased Power Contracts, The Brattle Group Presentation, May 2, 1994 (with others). Still More on Purchased Power, The Electricity Journal, Reply, February 1994 (with S. Johnson). Purchased Power Risks and Rewards, Presentation at the AGA/EEI Budgeting and Financial Forecasting Committee Meeting, February 28, 1994 (with L. Kolbe and S. Johnson) Evaluation of Demand-Side Management Programs, Capital Budgeting Notebook, Electric Power Research Institute, Chapter 12, 1994 (with others). Purchased Power Risks and Rewards, Report for the Edison Electric Institute, Fall 1993 (with S. Johnson and L. Kolbe). Purchased Power Incentives, The Electricity Journal, Reply, November, 1993 (with S. Johnson). It's Time For A Market-based Approach to Demand-side Management, PowerGen '93 Conference, November 1993 (with L. Kolbe). Incentive Regulation: Dos and Donts, Electric Utility Consultants: Strategic Utility Planning Conference, June 1993 (with W. Tye). Its Time For A Market-based Approach to DSM, The Electricity Journal, May, 1993 (with L. Kolbe, A. Maniatis, and D. Weinstein). Charge ItFinancing DSM Programs, Public Utilities Fortnightly, May 1, 1993 (with D. Weinstein). Fuel Switching and Demand-side Management, Public Utilities Fortnightly, May 1, 1992 (with D. Weinstein).
The Brattle Group
Development of Sectoral Energy Requirements in the Japanese Economy: 1970 to 1980, Masters Project in International Economics, Brandeis University, May 1991. The Costs of Hydropower: Evidence on Learning-by-Doing, Economies of Scale, and Resource Constraints in Austria, International Journal of Energy Research, Vol. 14, pp. 893-899, 1990 (with F. Wirl). Eine konomische Analyse alternativer Kraftwerkstypen (an economic analysis of power supply alternatives), Girozentrale Quartalshefte, pp. 21-30, January 1990 (with F. Wirl). Eine einfache Charakterisierung der saisonalen Elektrizittsnachfrage (a simple characterization of seasonal electricity demand), sterreichische Zeitschrift fr Elektrizittswirtschaft, March 1990. Kraftwerksausbauplanung mit Linearen Optimierungsmodellen am Beispiel sterreichs (power systems expansion planning for Austria with mixed-integer and linear-programming models), Masters Thesis, Institute of Energy Economics, University of Technology, Vienna, May 1989.
The Brattle Group
Exhibit No. AWC-402
Exhibit AWC-402 Qualifications of Samuel A. Newell Samuel A. Newell is a Principal of The Brattle Group where he leads the firms use of locational energy market simulation models. Dr. Newell holds a Ph.D. in technology management and policy from the Massachusetts Institute of Technology, an M.S. in materials science and engineering from Stanford University, and a B.A. in chemistry and physics from Harvard College. Prior to joining The Brattle Group, Dr. Newell was Director of the Transmission Service at Cambridge Energy Research Associates and previously a Manager in the Utilities Practice at A.T.Kearney. TESTIMONY AND REGULATORY FILINGS Economic Evaluation of Alternative Demand Response Compensation Options, whitepaper filed by ISO-NE in its comments on FERCs Supplemental Notice of Proposed Rulemaking in Docket No. RM10-17-000, October 13, 2010 (with K. Madjarov). Before the Federal Energy Regulatory Commission, Docket No. RM10-17-000, Filed Comments re: Supplemental Notice of Proposed Rulemaking and September 13, 2010 Technical Conference, October 5, 2010 (with K. Spees and P. Hanser). Before the Federal Energy Regulatory Commission, Docket No. RM10-17-000, Filed Comments re: Notice of Proposed Rulemaking regarding wholesale compensation of demand response, May 13, 2010 (with K. Spees and P. Hanser). Before the Connecticut Department of Public Utility Control, provided oral testimony to support the 2010 Integrated Resource Plan for Connecticut (see below), June, 2010. 2010 Integrated Resource Plan for Connecticut, report co-submitted with The Connecticut Light & Power Company and The United Illuminating Company to the Connecticut Energy Advisory Board, January 4 2010. Presented to the Connecticut Energy Advisory Board January 8, 2010. Dynamic Pricing: Potential Wholesale Market Benefits in New York State, lead authors: Samuel Newell and Ahmad Faruqui at The Brattle Group, with contributors Michael Swider, Christopher Brown, Donna Pratt, Arvind Jaggi and Randy Bowers at the New York Independent System Operator, submitted as SUPPLEMENTAL COMMENTS OF THE NEW YORK INDEPENDENT SYSTEM OPERATOR, INC. ON THE PROPOSED FRAMEWORK FOR THE BENEFIT-COST ANALYSIS OF ADVANCED METERING INFRASTRUCTURE in State of New York Public Service Commission CASE 09-M-0074 December 17, 2009.
The Brattle Group
Before the Connecticut Department of Public Utility Control, provided oral testimony to support the 2009 Integrated Resource Plan for Connecticut (see below), June 30, 2009. 2009 Integrated Resource Plan for Connecticut, report co-submitted with The Connecticut Light & Power Company and The United Illuminating Company to the Connecticut Energy Advisory Board, January 1, 2009. Informational Filing of the Internal Market Monitoring Units Report Analyzing the Operations and Effectiveness of the Forward Capacity Market, prepared by Dave LaPlante and Hung-po Chao of ISO-NE with Sam Newell, Metin Celebi, and Attila Hajos of The Brattle Group, filed with FERC on June 5, 2009 under Docket No. ER09-1282-000. Before the Connecticut Department of Public Utility Control, provided oral testimony to support the 2008 Integrated Resource Plan for Connecticut and Supplemental Reports (see below), September 22-25, 2008. Integrated Resource Plan for Connecticut, co-submitted with The Connecticut Light & Power Company and The United Illuminating Company to the Connecticut Energy Advisory Board; coauthored with M. Chupka, A. Faruqui, D. Murphy, and J. Wharton, January 2, 2008. Supplemental Report co-submitted with the utilities to the Connecticut Department of Utility Control; co-authored with M. Chupka, August 1, 2008. Quantifying Customer Benefits from Reductions in Critical Peak Loads from PHIs Proposed Demand-Side Management Programs, whitepaper by Samuel A. Newell and Ahmad Faruqui filed by Pepco Holdings, Inc. with the Public Utility Commissions of Delaware (Docket No. 07-28, 9/27/2007), Maryland (Case No. 9111, filed 12/21/07), New Jersey (BPU Docket No. EO07110881, filed 11/19/07), and Washington, DC (Formal Case No. 1056, filed 10/1/07). Presented orally to the Public Utility Commission of Delaware, September 5, 2007. Before the Public Service Commission of Wisconsin, Docket 137-CE-149, Planning Analysis of the Paddock-Rockdale Project, report by American Transmission Company re: transmission cost-benefit analysis, April 5, 2007 (with J.P. Pfeifenberger and others). Prepared Supplemental Testimony on Behalf of the Michigan Utilities before the Federal Energy Regulatory Commission, Docket No. ER04-718-000 et al., re: Financial Impact of ComEds and AEPs RTO Choices, December 21, 2004 (with J. P. Pfeifenberger). Prepared Direct and Answering Testimony on Behalf of the Michigan-Wisconsin Utilities before the Federal Energy Regulatory Commission, Docket No. ER04-375-002 et al., re: Financial Impact of ComEds and AEPs RTO Choices on Michigan and Wisconsin", September 15, 2004 (with J.P. Pfeifenberger).
The Brattle Group
Declaration on Behalf of the Michigan-Wisconsin Utilities before the Federal Energy Regulatory Commission, Docket No. ER04-375-002 et al., re: Financial Impact of ComEds and AEPs RTO Choices on Michigan and Wisconsin", August 13, 2004 (with J.P. Pfeifenberger).
ARTICLES AND PRESENTATIONS DR Distortion: Are Subsidies the Best Way to Achieve Smart Grid Goals? Public Utilities Fortnightly, November 2010. Midwest ISOs Resource Adequacy Construct: An Evaluation of Market Design Elements, report prepared for Midwest ISO, January 2010 (with K. Spees and A. Hajos). Demand Response in the Midwest ISO: An Evaluation of Wholesale Market Design, report prepared for Midwest ISO, January 2010 (with A. Hajos). Cost-Benefit Analysis of Replacing the NYISOs Existing ICAP Market with a Forward Capacity Market, whitepaper written for the NYISO and submitted to stakeholders, June 15, 2009 (with A. Bhattacharyya and K. Madjarov). Fostering Economic Demand Response in the Midwest ISO, whitepaper written for the Midwest ISO, December 30, 2008 (with R. Earle and A. Faruqui). Review of PJMs Reliability Pricing Model (RPM), report prepared for PJM Interconnection LLC for submission to FERC and PJM stakeholders, June 30, 2008 (with J. Pfeifenberger and others). Reviving Integrated Resource Planning for Electric Utilities: New Challenges and Innovative Approaches, Energy, Vol. 1, 2008, The Brattle Group (with M. Chupka and D. Murphy). Enhancing Midwest ISOs Market Rules to Advance Demand Response, Report written for the Midwest Independent System Operator, March 12, 2008 (with R. Earle). Before the PJM Board of Directors and PJMs General Session, Panel member serving as an expert in demand response on behalf of Pepco Holdings, Inc., December 22, 2007. Resource Adequacy in New England: Interactions with RPS and RGGI, Energy in the Northeast Law Seminars International Conference, Boston, MA, October 18, 2007. Corporate Responsibility to Stakeholders and Criteria for Assessing Resource Options in Light of Environmental Concerns, Bonbright Electric & Natural Gas 2007 Conference, Atlanta, GA, October 3, 2007.
The Brattle Group
The Power of Five Percent, The Electricity Journal, October 2007 (with A. Faruqui, R. Hledik, and J. Pfeifenberger). Quantifying Customer Benefits from Reductions in Critical Peak Loads from PHIs Proposed Demand-Side Management Programs, whitepaper prepared for Pepco Holdings, Inc., September 21, 2007 (with A. Faruqui). Review of PJMs Market Power Mitigation Practices in Comparison to Other Organized Electricity Markets, Report prepared for PJM Interconnection LLC, September 14, 2007 (with P. Fox-Penner, J. Pfeifenberger, J. Reitzes and others). Evaluating the Economic Benefits of Transmission Investments, EUCIs Cost-Effective Transmission Technology Conference, Nashville, May 3, 2007 (with J. Pfeifenberger, presenter). Valuing Demand-Response Benefits in Eastern PJM Public Utilities Fortnightly, March 2007 (with J. Pfeifenberger and F. Felder). Quantifying Demand Response Benefits in PJM, Study Report Prepared for PJM Interconnection, LLC and the Mid-Atlantic Distributed Resources Initiative, January 29, 2007 (with F. Felder). Quantifying Demand Response Benefits in PJM, PowerPoint presentation to the Mid-Atlantic Distributed Resources Initiative (MADRI) Executive Committee on January 13, 2007, to the MADRI Working Group on February 6, 2007, as Webinar to the U.S. Demand Response Coordinating Council, and to the Pennsylvania Public Utility Commission staff April 27, 2007. Modeling Power Markets: Uses and Abuses of Locational Market Simulation Models, Energy, Vol 2, 2006, The Brattle Group (with J. Pfeifenberger). Innovative Regulatory Models to Address Environmental Compliance Costs in the Utility Industry, October 2005 Newsletter, American Bar Association, Section on Environment, Energy, and Resources; Vol. 3 No. 1 (with J. Pfeifenberger). Who Will Pay for Transmission, CERA Expert Interview, Cambridge, MA, January 15, 2004. Reliability Lessons from the Blackout; Transmission Needs in the Southwest, presented at the Transmission Management, Reliability, and Siting Workshop sponsored by Salt River Project and the University of Arizona, Phoenix, AZ, December 4, 2003. Effect of Cross Sound Cable, CERA Alert, October 24, 2003 (with H. Stauffer and G. Mukherjee). Application of the Beneficiary Pays Concept, presented at the CERA Executive Retreat, Montreal, Canada, September 17, 2003.
The Brattle Group
Exhibit No. AWC-403
Exhibit No. AWC-403
PROMOD MODELING APPROACH AND ASSUMPTION FOR AWC PROJECT ANALYSIS
TECHNICAL APPENDIX TO THE DIRECT TESTIMONY OF JOHANNES P. PFEIFENBERGER AND SAMUEL A. NEWELL
December 20, 2010
Exhibit No. AWC-403
TABLE OF CONTENTS I. Description of the PROMOD Model ................................................................................... 1 A. Transmission System Representation ................................................................................. 1 B. PROMOD Unit Dispatch .................................................................................................... 2 C. PROMOD Unit Commitment ............................................................................................. 2
II. Modeling Assumptions for the Base Case....................................................................... 3 A. Transmission ....................................................................................................................... 3 1. Topology ......................................................................................................................... 3 2. Transmission constraints ................................................................................................ 3 3. Other PROMOD modeling assumptions......................................................................... 3 B. Electricity Demand ............................................................................................................. 3 C. Electricity Supply................................................................................................................ 5 1. Capacity and Reserve Margins....................................................................................... 5 2. Unit Characteristics........................................................................................................ 5 D. Fuel prices........................................................................................................................... 6 E. Emissions allowance prices ................................................................................................ 8 III. A. B. IV. A. V. AWC Project Case Without Incremental Wind .......................................................... 10 Project Configuration........................................................................................................ 10 Loss Factors ...................................................................................................................... 10 AWC Project Case with 6,600 MW Incremental Wind .............................................. 13 Wind Locations and Hourly Wind Generation Profiles.................................................... 13
Radial Alternative Case with 6,600 MW Incremental Wind .......................................... 18 A. Wind Locations and Hourly Generation Profiles.............................................................. 18 Benefits Calculations ...................................................................................................... 19 Load LMP Reductions in PJM.......................................................................................... 19 System Production Cost Savings ...................................................................................... 22 System Emission Reductions............................................................................................ 22
VI. A. B. C.
Exhibit No. AWC-403 Page 1 of 23
Technical Appendix: Market Simulation Assumptions

As described in Sections II, III, and VII of our testimony, we used the PROMOD IV simulation model (hereafter referred to as PROMOD) to analyze the congestion-related benefits of the AWC Project. Ventyx professionals conducted the actual model runs at our direction. We simulated market conditions for 2016 with the addition of 6,600 MW of nameplate offshore wind generation interconnected in four alternative ways: (1) A Base Case without the AWC Project or offshore wind; (2) An AWC Without Wind case to analyze the effect of the Project without wind; (3) an AWC Wind case with the AWC Project and 6,600 MW offshore wind; and (4) a Radial Wind case in which the 6,600 MW of wind plants are only interconnected to shore with radial transmission lines. All cases have the same load forecast, the same planned transmission and generation additions, and the same onshore transmission topology. The cases differ only in whether there is offshore wind and whether the offshore wind is interconnected via the AWC Project or radial lines. This document describes the PROMOD model, our input data and modeling assumptions in each of the four cases simulated, and some key results cited in the testimony. It also explains certain calculations made outside of the model to arrive at our conclusions. I. DESCRIPTION OF THE PROMOD MODEL PROMOD is an integrated electric generation and transmission market simulation system. The model is used in PJMs transmission planning process. PROMOD incorporates extensive details in generating unit operating characteristics and constraints, transmission constraints, generation analysis, unit commitment/operating conditions, and market system operations. PROMOD provides information on the dynamics of the marketplace through its ability to determine the effects of transmission congestion, fuel costs, generator availability, and load growth on buslevel market prices. PROMOD performs an 8760-hour commitment and dispatch recognizing both generation and transmission impacts at the bus-bar (nodal) level. PROMOD forecasts hourly energy prices, unit generation, fuel consumption, bus-bar energy market prices, regional energy interchange, transmission flows and congestion prices. PROMOD features an hourly chronological dispatch algorithm that minimizes costs while simultaneously adhering to a variety of operating constraints; including generating unit characteristics, transmission limits, fuel and environmental considerations, spinning reserve requirements, and customer demand. A. TRANSMISSION SYSTEM REPRESENTATION PROMOD captures the constraints and limitations inherent in electric power transmission using a DC load flow algorithm. All major transmission equipment is modeled, including voltage transformers, phase-angle regulators, DC ties, generation buses, load buses, and transmission lines with reactance and resistance inputs. The transmission topology data is fully integrated with the commitment and dispatch algorithm so that generators are scheduled, started and cycled while enforcing transmission constraints. PROMOD simultaneously optimizes the transmission, generation commitment, and unit dispatch for all 8,760 hours under security-constrained unit
1
commitment and economic dispatch rules. PROMOD also models transmission interfaces enforcing bi-directional limits on groups of lines. PROMOD includes both summer and winter normal-state ratings on power flow branches and interfaces to enforce normal flow limits on the transmission system. In addition, PROMOD recognizes contingency constraints, so that the dispatch will still be feasible if any of a set of contingency events or combination of events occurs. A single defined contingency may represent multiple transmission lines or generator outages (N-1, N-2 and more contingencies). Emergency ratings (summer and winter) on power flow branches and interfaces can be used to define additional energy that may flow on lines during contingency events. There are no program-imposed limitations on the number of contingencies or monitored lines. PROMOD calculates the incremental losses for serving load at each bus and incorporates the marginal loss component into the bus LMP, consistent with PJMs calculation of LMPs. B. PROMOD UNIT DISPATCH PROMOD calculates dispatch costs for each unit capacity segment based on its variable costs, which include fuel (commodity, handling, transportation, etc.), emissions, and O&M. Based on the impedance of the connected transmission lines, shift factors are calculated for each bus, so that generation injected will flow into the system adhering to the physical characteristics of the grid. PROMOD incorporates each generators costs, shift factors, and operating constraints into a linear program to optimize the dispatch across the entire system for each hour, honoring transmission constraints within a full security-constrained economic dispatch. The dispatch process is a linear program optimization that includes a DC load flow solution to monitor flows on transmission lines, calculates and applies marginal losses factors at each generation node, recognizes market import/export tariffs, and co-optimizes for spinning reserve requirements. The unit dispatch also depends on the unit commitment process. C. PROMOD UNIT COMMITMENT PROMOD uses a multi-pass process to establish day-ahead unit commitment for each generator based on forecast energy prices at the generator injection bus. Unit characteristics captured in the commitment and dispatch include multi-segment operation, minimum capacity, start-up costs, minimum runtime and minimum downtime constraints, and operating reserve contribution. The unit commitment process also captures system operational impacts including transmission congestion, marginal losses, phase angle regulators, DC line operation, regional interchange, and tariffs.
II. MODELING ASSUMPTIONS FOR THE BASE CASE A. TRANSMISSION 1. Topology The geographic scope of our study is the entire Eastern Interconnection, with the transmission topology defined by the Eastern 2015 MMWG Summer Peak Case. This case includes the following PJM-approved transmission projects: PATH, TrAIL, MAPP, and SusquehannaRoseland. Ventyx made only three modifications to the Base Case to better reflect the expected topology in 2016, following PJMs 2010 Regional Transmission Expansion Plan: Added MAPP DC Tie from 200020 CLVT CLF to 200160 (IR_500) 750 MW Added MAPP DC Tie from 200020 CLVT CLF to 232005 (VIENNA) 750 MW Removed Branchburg Roseland Hudson 500 kV branches. 200002(BRANCHBG) to 200094 (ROSELD) 1 and 200094 (ROSELD) to 200096 (HDSN 500) 1 2. Transmission constraints Data for regional transfer limits between NERC sub-regions are taken from NERC summer/winter assessments, while transfer limits within a sub-region are developed by Platts from FERC 715 filings. Ventyx also provides monitored line and contingency event data derived from published FERC 715 forms, other public documents, and internal load flow analysis. We also added various contingency constraints for this study based on various sources, including prior studies conducted by Ventyx, a contingency analysis conducted by Ventyx specifically for this study, the list of historically-congested constraints from PJMs website, and input from PJM staff based on its recent analysis of offshore wind power. The flow limits on these additional monitored facilities are defined by the thermal ratings of the lines under N-1 contingency conditions as contained in the load flow data. 3. Other PROMOD modeling assumptions The simulations were conducted with each RTO or NERC region conducting its own unit commitment, but with system-wide dispatch subject to wheeling charges between regions (except between PJM and MISO). B. ELECTRICITY DEMAND Peak and energy forecasts are derived from various sources including ISO reports, EIA-411 forms, and FERC-714 forms. Table 1 below summarizes the annual peak and energy assumptions made in PROMOD simulations. Table 2 below provides the details on PJM load assumptions for each of the 17 sub-areas.
Table 1 Summary of Load Assumptions for 2016

Region NonCoincident Peak (MW) PJM MISO MAPP Non-MISO NYISO ISO-NE FRCC SERC SPP Eastern Canada IESO (Ontario) 174,246 109,030 12,126 34,871 28,853 52,060 183,820 54,930 46,173 22,655 Annual Energy (GWh) 892,613 562,991 75,382 166,472 132,795 258,214 949,354 271,160 233,156 136,478 PJM Load Forecast Report 2010 FERC 714 and EIA 411 data. FERC 714 and EIA 411 data. 2010 Load & Capacity Data Gold Book 2010-2019 CELT Report 2010 Regional Load & Resource Plan FERC 714 and EIA 411 data. FERC 714 and EIA 411 data. FERC 714 and EIA 411 data. FERC 714 and EIA 411 data. Data Source
Notes: Load values are grossed up for transmission losses.
Table 2 PJM Peak and Energy Assumptions by Area

PJM Area AE AEP APS BGE COMED DPLC FE OHIO JCPL METED PECO PENN Elec PEPCO PPL PSEG RECO UGI VP PJM Total Peak (MW) 3,288 32,663 9,511 8,351 26,542 4,383 14,508 7,323 3,314 9,519 3,223 7,591 7,986 12,006 477 208 23,353 174,246 Energy (GWh) 13,978 188,533 55,414 39,503 125,253 20,517 78,361 29,004 18,518 47,010 21,574 36,283 47,100 54,250 1,751 1,159 114,406 892,613
Source: Data reported by Ventyx.
Hourly load shapes are developed by normalizing the historical data for the 5 year period between 2001 and 2006, and then adjusting to meet the coincident peak and energy forecasts at the regional level, while maintaining hourly volatility.
C. ELECTRICITY SUPPLY 1. Capacity and Reserve Margins Generation capacity assumptions are developed based on unit-level data as compiled by Ventyx in The Velocity Suite, which uses public sources including the EIA-860, EIA-411, EIA-867, EIA412, EIA-759, FERC Form 1, FERC 423, and REA-12 and other utility and ISO publications. It includes only existing units and the units that are under construction or permitted. No generic expansion is included except for the offshore wind in AWC Wind and Radial Wind cases, and only announced retirements are modeled. Table 3 below summarizes the amount of generation assumed in each region. Table 3 Summary of Base Case Generation Capacity Assumptions for 2016
Region PJM MISO MAPP Non-MISO NYISO ISO-NE FRCC SERC SPP Eastern Canada IESO (Ontario) Coal (MW) 79,279 69,481 5,700 2,774 3,456 9,924 79,491 26,360 1,914 6,426 Gas (MW) 58,778 38,420 2,421 17,287 15,195 34,763 93,246 33,194 1,869 7,503 Oil (MW) 12,077 4,502 246 10,730 6,098 11,921 2,731 1,294 2,846 2,203 Nuclear (MW) 33,948 8,466 0 5,432 4,669 4,579 35,714 2,553 1,216 11,498 Hydro/PS (MW) 7,443 3,444 8,288 5,878 3,394 55 17,705 2,737 39,443 8,187 Wind (MW) 6,254 12,893 4,058 1,805 403 0 136 7,006 3,750 1,917 Other (MW) 5,659 3,803 350 2,112 3,513 2,077 3,858 896 2,024 680 TOTAL (MW) 203,438 141,009 21,063 46,019 36,727 63,318 232,880 74,039 53,062 38,414
Source and Notes: [1] Calculated based on data compiled by Ventyx. [2] "Other" category includes mostly interruptible loads, and also renewables other than hydro and wind.
2. Unit Characteristics Ventyx provided the unit characteristics assumptions, which include each units location, summer/winter capacity, primary and secondary fuels, GADS category, operating and maintenance costs, heat rates, projected capacity changes, projected retirement dates, and average monthly hydro generation. Ventyx used detailed operational data from the Continuous Emissions Monitoring System (CEMS) to derive unit emissions rates and incremental heat rates. Values for forced outage rates, forced outage durations, and scheduled maintenance requirements are based on the NERC Generating Availability Data Systems (GADS) and supplemented by Ventyx. Data for nuclear planned refueling outage schedules and nuclear forced outage rates are developed internally by Ventyx based on publicly filed information from the Nuclear Regulatory Commission. Other operational modeling parameters such as unit minimum runtime, minimum downtime, contribution to spinning reserve, must-run status, etc, needed for simulation accuracy are supplied by Ventyx. Table 4 below summarizes average unit characteristics by generation type.
5
Table 4 Summary of Unit Characteristics Assumptions by Generation Type

Generation Type Variable Minimum Average O&M Load Heat Rate ($/MWh) CC Gas (existing) CC Gas (new) CT Gas (existing) CT Gas (new) CT Oil (existing) Hydro (existing) Hydro (new) Nuclear (existing) ST Coal (existing) ST Coal (new) ST Gas (existing) ST Oil (existing)
Source: Ventyx.
Maint. Req. (hours/yr) 435 359 364 359 375 0 0 0 680 590 792 1,117
(%) 35.5% 38.9% 25.0% 20.0% 25.0% 23.1% 15.3% 100.0% 41.5% 41.0% 35.4% 37.1%
(Btu/kWh) 7,754 6,867 12,436 9,240 14,266 0 0 10,594 10,522 9,889 11,306 11,425
Forced Outage Rate (%) 6.4% 5.5% 4.8% 3.6% 7.7% 0.0% 0.0% 3.7% 7.8% 6.5% 4.5% 6.2%
Forced Minimum Minimum Outage Downtime Uptime Duration (hours) (hours) (hours) 31.0 31.0 58.0 58.0 58.0 0.0 0.0 168.0 46.0 46.0 75.0 64.0 7.3 4.7 2.1 1.0 1.4 0.0 0.0 120.0 20.8 8.0 8.0 10.1 7.9 6.7 1.8 1.0 1.2 0.0 0.0 168.0 20.4 6.9 7.6 10.6
$1.9 $2.3 $3.7 $3.7 $3.8 $0.0 $0.0 $3.3 $2.0 $4.5 $1.9 $2.0
D. FUEL PRICES Natural gas prices for Henry Hub are based on futures market prices from NYMEX. Monthly natural gas basis differentials for each region were provided by Ventyx. Distillate fuel oil (FO2) prices are estimated based on futures market prices from NYMEX. FO2 futures are only available until 2012, therefore, crude oil futures are used to determine the FO2 price growth rates after 2012. Residual fuel oil (FO6) prices are estimated based on the statistical relationship to crude oil prices. Regression coefficients obtained from the historical prices are applied to the crude oil futures to determine FO6 price forecasts. Figure 1 below graphs the historical and projected natural gas and oil prices. Average Henry Hub prices for 2016 are $5.7/MMBtu, average FO2 prices are $18.2/MMBtu, and average FO6 prices are $11.1/MMBtu (in nominal dollars). Figure 2 summarizes the monthly natural gas price differentials by region.
Figure 1 Historical and Projected Natural Gas and Oil Prices

$30
Historical
$25
Projections
Nominal $/MMBtu
$20
FO2
$15
FO6
$10
$5
Henry Hub
$0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Sources and Notes: [1] Historical prices from EIA's database. [2] Henry hub projections based on NYMEX futures prices as of Oct 22,2010. [3] FO2 projections use NYMEX futures prices until 2012, then escalates at crude oil futures growth rate as of Oct 22,2010. [4] FO6 projections are derived based on historical relationship to crude oil prices, applied to futures prices as of Oct 22,2010.
Year
Figure 2 Basis Differential Assumptions by Region

$2.0
$1.5 MAAC East MAAC West PJM Other MISO NYISO ISO-NE SPP SERC
Nominal $/MMBtu
$1.0
$0.5
$0.0
-$0.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Month
Source: Calculated based on data compiled by Ventyx; includes transportation cost adders.
Coal price forecasts are developed based on supply and demand model used by Ventyx. Figure 3 below shows average delivered prices assumed for each region in 2016.
7
Figure 3 Delivered Coal Price Assumptions by Region

PJM MISO MAPP Non-MISO NYISO ISO-NE FRCC SERC SPP $0.0 $0.5 $1.0 $1.5
$2.3 $2.2 $1.2 $2.4 $3.3 $2.4 $2.7 $1.8

$2.0 $2.5 $3.0 $3.5
Nominal $/MMBtu
Source: Ventyx
Ventyxs Coal Sub-Module utilizes a network LP that satisfies, at least possible cost, the demand for coal at individual power plants with supply from existing mines using the available modes of transportation. Demand by each power generating plant is taken from the prior iteration of the Power Module, supply curves are built from mine-level data, and transportation options and costs are developed from EIA coal transaction data. The network LP generates forecasts of annual FOB prices by mine, delivered prices by plant, and the characteristics of the coal delivered to each plant, e.g., sulfur and heat content. Known contracts between specific mines and power plants are represented. E. EMISSIONS ALLOWANCE PRICES The D.C. Circuit Court remanded Clean Air Interstate Rule (CAIR) on December 28, 2008, and provided EPA time to modify the rule to address the objections raised.1 Due to the uncertainty about the regulations and the perceived likelihood that new regulations will reduce the value and volume of allowance trading, the allowance prices for SO2 and NOx have dropped precipitously over the last one and a half years. As illustrated in Figure 4 below, current SO2 allowances trade at less than $10/ton, compared to $500/ton a few years ago. Similarly, current seasonal NOx allowances trade at $45/ton, compared to almost $1,000/ton a few years ago.
U.S. Court of Appeals for the District of Columbia Circuit, No. 05-1244.
Figure 4 Historical SO2 and NOx Allowance Prices

$1,000 $900 $800 $700 $600 NOx Seasonal
$/ton
$500 $400 $300 $200 $100 Jul-07 Jul-08 Jan-07 Apr-07 Jan-08 Jan-09 Jul-09 $0 Apr-08 Apr-09 Jan-10 Apr-10 Oct-07 Oct-08 Oct-09 SO2
Month
Source: Bloomberg.
Forward prices for SO2 and NOx allowances are even lower than the current allowance prices (SO2 at $1/ton, annual NOx less than $100/ton, and seasonal NOx less than $50/tons). Prices at these low levels have effectively no impact on unit dispatch cost, therefore, allowances prices have been set at zero in the PROMOD market simulations. Similarly, there is a great uncertainty about the long-term future CO2 prices. However, the likelihood of climate legislation in the short term is very low, given the fact that all legislative proposals have been tabled, and the next Congress is widely expected to be less supportive of cap-and-trade than the last. Thus, for the purpose of our analysis, the CO2 prices are kept as zero in the PROMOD market simulations.
III. AWC PROJECT CASE WITHOUT INCREMENTAL WIND The AWC Without Wind case includes the same set of input assumptions that are also included in the Base Case. In addition, it models high-voltage direct current (HVDC) transmission lines that represent AWC Project. A. PROJECT CONFIGURATION The AWC Project is a double-circuit, HVDC offshore transmission backbone with twelve offshore AC-DC converter stations capable of integrating at least 6,000 MW of offshore wind generation in geographic locations ranging from northern New Jersey to southern Virginia. The Project will also have onshore DC-AC converter stations at seven locations in New Jersey, Delaware, and Virginia, where renewable power can be injected into the existing transmission grid in controlled proportions. Figure 5 below illustrates the project configuration for the AWC Project. Figure 5 Preliminary AWC 2-Circuit Design
1000 Hudson
500 Sewaren
1000 Fentress2 1000 Fentress1
B. LOSS FACTORS Table 5 and Table 6 below summarize the modeled AWC losses in PROMOD simulations. DC Line losses are calculated based on 0.056 MW/mile at a maximum flow of 1,000 MW and assumed to vary quadratically with flow (e.g. 500 MW flow would result in losses that are one fourth of 0.056 MW/mile). Losses on the voltage converters are calculated based on a loss factor of 1.6 percent and assumed to vary linearly with flow.2 (Offshore converter losses of 1.6 percent have been taken into account in the wind power profiles injected into the AWC system).
Data provided by Atlantic Grid Development, LLC.
10
Table 5 Summary of AWC Loss Assumptions for Circuit I

Line Line Index Type From To Line Distance (miles) A B C D E F G Lateral Backbone Backbone Backbone Lateral Lateral Lateral Sewaren Station Sewaren Backbone Cardiff Backbone Indian River Backbone Cardiff Station Indian River Station Fentress Station Sewaren Backbone Cardiff Backbone Indian River Backbone Fentress Backbone Cardiff Backbone Indian River Backbone Fentress Backbone 30.0 75.0 76.0 93.0 30.0 35.0 30.0 Line Losses @ Max Flow (MW) 1.7 4.2 4.3 5.2 1.7 2.0 1.7 Converter Losses (% of flow) 1.60% 1.60% 1.60% 1.60%
*Converter losses as a percent of power flow (bi-directional) and includes only the losses at on-shore converters. Losses at off-shore converters will be modeled as a reduction in wind generation profiles.
B C A E F D G
1000 Hudson
500 Sewaren
1000 Fentress1
11
Table 6 Summary of AWC Loss Assumptions for Circuit II

Line Line Index Type From To Line Distance (miles) A B C D E F G Lateral Backbone Backbone Backbone Lateral Lateral Lateral Hudson Station Hudson Backbone Larrabee Backbone Piney Grove Backbone Larrabee Station Piney Grove Station Fentress Station Hudson Backbone Larrabee Backbone Piney Grove Backbone Fentress Backbone Larrabee Backbone Piney Grove Backbone Fentress Backbone 50.0 25.0 141.0 78.0 25.0 25.0 30.0 Line Losses @ Max Flow (MW) 2.8 1.4 7.9 4.4 1.4 1.4 1.7 Converter Losses (% of flow) 1.60% 1.60% 1.60% 1.60%
*Converter losses as a percent of power flow (bi-directional) and includes only the losses at on-shore converters. Losses at off-shore converters will be modeled as a reduction in wind generation profiles.
C D E
A F
1000 Hudson
500 Sewaren
1000 Fentress1
12
IV. AWC PROJECT CASE WITH 6,600 MW INCREMENTAL WIND The AWC Wind case includes the same input assumptions as the AWC Without Wind case with the addition of 6,600 MW of offshore wind to the grid, through the AWC transmission system. A. WIND LOCATIONS AND HOURLY WIND GENERATION PROFILES The wind data is obtained from the National Renewable Energy Lab (NREL) Eastern Wind Dataset, which was originally produced by AWS-Truewind for the Eastern Wind Integration and Transmission Study conducted by NREL.3,4 To estimate the wind output in the AWC Wind Scenario, 6 unique sites are selected from the NREL dataset for 2006, as shown in Table 7 and Figure 6. The sites were chosen to reflect the design of the AWC Project and the location of the landing points, which are also assumed to be used in the Radial Wind case. Table 7 NREL Wind Sites Selected for Hourly Offshore Wind Profiles
Location State Site Name NREL Installed Site ID Nameplate Capacity (MW) Hudson, Sewaren Larrabee Cardiff Indian River Piney Grove Fentress NJ NJ NJ DE MD VA NJ1 NJ2 NJ3 DE1 MD1 VA1 7532 7778 8378 9715 10044 12633 1,650 1,100 1,100 550 1,100 1,100 Total: 6,600
3 4
http://www.nrel.gov/wind/integrationdatasets/eastern/data.html
AWC TrueWind LLC, Development of Eastern Wind Resource, and Wind Plant Output Datasets, Report NREL/SR-550-46764, December 2009.
13
Figure 6 Modeled Wind Plant Locations
Figure 7 below summarizes the capacity factors for each location (before any losses or curtailments) on a monthly and average daily basis. Figure 8 shows the generation duration curve for 6,600 MW of installed nameplate wind capacity at the above locations. The ten-minute correlations between wind generation at these locations are shown in Table 8. Table 9 shows ten-minute fluctuations in power outputs from 1,000 MW of wind capacity injected through radial transmission lines in comparison to ten-minute fluctuations from 1,000 MW of diversified wind injected with the AWC Project.
14
Figure 7 Hourly Offshore Wind Profiles (a) By Month

60%
Capacity Factor (%)
50% 40% 30% 20% 10% 0% Mar Aug Apr Jul May
Hudson/Sewaren Larrabee Cardiff Indian River Piney Grove Fentress
Month
(b) By Hour
60% 50%
Capacity Factor (%)
40% 30% 20% 10% 0% 0 2 4 6 8 10 12 14 16 18 20 22 24
Hour
15
Nov
Dec
Jan
Feb
Sep
Jun
Oct
Figure 8 AWC Wind Generation Duration Curve for 6,600 MW of Nameplate Wind Power Plants
7
GWh
3 2 1 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% of Hours
Table 8 Ten-Minute Correlations for Project Wind Sites

NJ Site 2 NJ Site 3 DE Site MD Site VA Site NJ Site 1 88% 77% 68% 62% 49% NJ Site 2 87% 75% 70% 54% NJ Site 3 DE Site MD Site
82% 78% 61%
87% 70%
74%
Source: NREL Eastern Wind Dataset
16
Table 9 Ten-Minute Power Output Fluctuations for 1,000 MW of Wind Power Injected from Individual Radial Lines versus 1,000 MW of AWC Diversified Injection
Site NJ1 NJ2 NJ3 DE1 MD1 VA1 AWC Project Min (MW) -780 -920 -915 -805 -805 -800 -246 Max (MW) 775 830 835 785 755 860 246 Standard Deviation (MW) 47.01 45.10 43.43 41.82 46.77 48.57 21.64
Several adjustments are made to the original profiles obtained from the NREL dataset. First, the data is scaled to match the wind generation modeled in this scenariofor each of the 12 offshore converter boxes along the AWC Project, 550MW of wind is assumed to be connected. Then, wind generation is reduced by 1.6% to reflect losses from offshore converters. Finally, for each of the 12 converter boxes, loss-adjusted wind generation is curtailed at the 500MW capacity of the converter boxes. Such curtailments amounted to only 47 GWh out of more than 23,000 GWh generated. The resulting generation used as inputs in PROMOD amounts to 23,428 GWh, as shown in Table 10. In the simulation, PROMOD further adds losses on the DC lines and onshore converter, which takes out another 457 GWh, then applies another 12 GWh of curtailments due to onshore transmission constraints. The net result is 22,959 GWh of offshore wind power being injected into the onshore AC system. Table 10 Net Offshore Wind Generation Added in the AWC Wind Case
Site Wind Generation Before Curtailment (GWh) 4,062 2,031 4,211 4,154 3,915 1,984 3,500 23,857 Losses on Offshore Converters (GWh) 65 32.5 67 66 63 31.7 56 382 Curtailments Due to Converter Limits (GWh) 7 3.6 8 9 8 4.3 5 47 Net Wind Generation Added in PROMOD* (GWh) 3,990 1,995 4,135 4,079 3,844 1,948 3,438 23,428
Hudson Sewaren Larrabee Cardiff Indian River Piney Grove Fentress Total
* Before PROMOD applies losses on DC lines and onshore converters and before curtailemnts due to onshore constraints.
17
V. RADIAL ALTERNATIVE CASE WITH 6,600 MW INCREMENTAL WIND The Radial Wind case includes the same set of assumptions as the AWC Wind case, except for the configuration of transmission lines that connects the offshore wind to the grid. The Radial Wind case assumed that the transmission lines that would connect the offshore wind to the grid would consist 12 high-voltage alternating current (HVAC) transmission lines with a capacity of 500 MW each. A. WIND LOCATIONS AND HOURLY GENERATION PROFILES To make the analysis comparable to the AWC Wind case, the same hourly generation profiles are used for incremental offshore wind (before losses and curtailments). The locations of the wind farms and the amount of capacity additions are also the same. This allows us to isolate the impact of the AWC backbone from differences that would otherwise be related to wind locations and profiles. The total amount of offshore wind that could be delivered to the grid is set to 6,000 MW, which is equal to the amount that could be delivered by the AWC Project at the same onshore landing points. Since the radial transmission lines are not interconnected through a backbone system as in AWC cases, they are not modeled explicitly in PROMOD. Table 11 below summarizes the amount of offshore wind generation connected to the grid at various landing points, net of any AC losses and curtailments due to line limits. As the table shows, the amount of generation potential is the same as in the AWC Wind case, but we removed 120 GWh from the input data to account for curtailments due to offshore transmission limits.5 We further removed 491 GWh to account for losses on the offshore AC lateral lines that PROMOD would not otherwise account for. Losses are estimated based on 0.417 MW/mile at a maximum flow of 500 MW flow, and assumed to vary quadratically (e.g., 250 MW flow would result in losses that are one fourth of 0.417 MW/mile).6 Mileages to onshore interconnections are the same for the radial alternative and the lateral segments of the AWC Project. The resulting generation used as inputs in PROMOD amounts to 23,245 GWh, as shown in Table 11. In the simulation, PROMOD further applies another 239 GWh of curtailments due to onshore transmission constraints. The net result is 23,006 GWh of offshore wind power being injected into the onshore AC system, almost identical to the 22,959 GWh in the AWC Wind case.
The amount of curtailment due to offshore transmission limits is greater than for the AWC Wind case because the AWC Wind case removes offshore converter losses before limiting the output of the converter to 500 MW. Loss factors for typical 138 kV HVAC cable technology provided by Atlantic Grid Developments technical consultants.
18
Table 11 Net Offshore Wind Generation Added in the Radial Wind Case
Site Wind Generation Before Curtailment & Losses (GWh) 4,062 2,031 4,211 4,154 3,915 1,984 3,500 23,857 Curtailment Due to Offshore Transmission Limits (GWh) 19 9.6 22 23 22 11.1 14 120 Transmission Losses on Offwhore AC Lines (GWh) 126 37.8 67 79 87 31.7 63 491 Net Wind Generation Added in PROMOD* (GWh) 3,917 1,984 4,122 4,053 3,807 1,941 3,422 23,245
Hudson Sewaren Larrabee Cardiff Indian River Piney Grove Fentress Total
* Before PROMOD applies curtailment due to onshore contraints.
VI. BENEFITS CALCULATIONS A. LOAD LMP REDUCTIONS IN PJM Customers wholesale energy payments are calculated for each PJM area by multiplying load and LMPs on an hourly basis. (This does not consider risk premiums, the value of FTRs, or other factors that can affect retail rates.) Table 12 below summarizes total annual customer payments for energy based on load-weighted average LMPs from the PROMOD simulations.
19
Table 12 Summary of Load LMPs by PJM Area

Region State PJM Area Annual Load
(GWh)
[1]
Average Load-Weighted LMP

Base AWC Case w/o Wind ($/MWh) ($/MWh)
[2] [3]
Annual Load Payments

Base AWC Case w/o Wind ($m/yr) ($m/yr)
[6] [7]
AWC Wind ($/MWh)

[4]
Radial Wind ($/MWh)

[5]
AWC Wind ($m/yr)

[8]
Radial Wind ($m/yr)

[9]
20,517 13,978 29,004 54,250 1,751 114,406 39,503 36,283 18,518 47,010 21,574 47,100 1,159 125,253 188,533 78,361 55,414 892,613 309,692 135,361 447,561
$55.4 $58.2 $62.5 $60.4 $64.6 $53.2 $54.3 $54.8 $55.8 $57.7 $48.0 $56.1 $57.6 $43.1 $44.4 $43.9 $48.7 $50.2 $56.1 $55.3 $44.5
$55.8 $56.7 $60.0 $57.7 $62.8 $54.0 $54.4 $55.1 $54.8 $55.9 $47.9 $54.7 $55.8 $43.3 $44.7 $44.2 $49.2 $50.0 $55.7 $54.1 $44.8
$51.7 $52.2 $56.2 $53.7 $61.6 $50.9 $50.9 $51.2 $51.3 $52.1 $46.0 $51.1 $52.1 $42.5 $43.9 $43.4 $47.0 $47.7 $52.1 $50.7 $43.8
$51.2 $52.1 $58.0 $56.1 $63.0 $50.5 $50.8 $50.9 $52.1 $53.0 $46.1 $52.1 $53.4 $42.3 $43.7 $43.3 $46.8 $47.9 $52.5 $51.5 $43.6
$1,137 $814 $1,812 $3,278 $113 $6,081 $2,146 $1,989 $1,033 $2,710 $1,036 $2,643 $67 $5,393 $8,377 $3,440 $2,698
$1,145 $792 $1,741 $3,130 $110 $6,183 $2,150 $2,000 $1,014 $2,630 $1,033 $2,576 $65 $5,419 $8,432 $3,467 $2,727
$1,061 $730 $1,630 $2,911 $108 $5,827 $2,010 $1,857 $950 $2,448 $993 $2,406 $60 $5,320 $8,280 $3,405 $2,607
$1,051 $728 $1,683 $3,046 $110 $5,774 $2,007 $1,848 $964 $2,492 $995 $2,456 $62 $5,298 $8,233 $3,390 $2,593
$44,768.0 $44,613.1 $42,602.8 $42,729.2 $17,370 $7,489 $19,909 $17,251 $7,317 $20,045 $16,134 $6,857 $19,612 $16,247 $6,969 $19,513
These results show that adding 6,600 MW of offshore wind would reduce the load-weighted LMPs by $2.5/MWh, and customer payments by $2.2 billion per year in PJM (compare columns 4 to 2, and 8 to 6 in Table 12). The simulations also show that the AWC Wind case results in lower losses than the Base Case, which helps reduce load LMPs (already accounted for in PROMOD), but it would also reduce the loss refunds customers receive, which is not captured in PROMOD.7 We calculated this difference to be approximately about $80 million/year, based on the marginal loss collections implied by the marginal loss components of the LMPs paid by loads versus LMPs received by generators. The net result is that customers energy payments decrease by $2.1 billion per year. The lower energy prices can be expected to increase capacity prices. As energy prices decrease, so do the energy margins earned by generators, which will induce them to bid commensurately more in the capacity market. For example, the potential developer of a new combustion turbine in EMAAC would anticipate $9/kW-yr lower energy margins and thus would need to bid that much higher for capacity to enter the market. Table 13 below summarizes the effects on generator energy margins (based on our PROMOD simulations) and the resulting impacts on capacity prices and customer payments. The $480 million increase in capacity prices partially offsets the $2.1 billion benefits customers receive from reduced LMPs.
PJM collects for losses through the marginal loss component of LMPs. Because marginal losses are approximately twice as large as average losses, PJM refunds load half of its marginal loss charges.
20
Table 13 Calculations for Capacity Price Offsets on LMP Benefits (AWC Wind minus Base Case)
PJM Region Capacity Resource (MW)
[1]
Reduction in Energy Margins for a new CT ($/kW-yr)

[2]
Estimated Increase in Capacity Prices ($/kW-yr)

[3]
Impact on Capacity Payments ($m/yr)

[4]
EMAAC SWMAAC Other MAAC Other PJM RTO PJM TOTAL
32,835 11,242 23,562 85,103 152,743
-$8.8 -$9.7 -$2.0 -$0.4 -$3.2
$8.8 $9.7 $2.0 $0.4 $3.2
$289.6 $108.7 $47.1 $35.9 $481.2
Sources and Notes: [1] Based on capacity cleared in 2013/2014 RPM Base Auction. [2] Estimated from PROMOD simulation results. [3] = -1[2] [4] = [1][3] / 1,000
Compared to the Radial Wind case, the net effect of the AWC Projects congestion relief benefit would save customers in PJM approximately $126 million per year (compare columns 8 to 9 in Table 12). Losses do not change significantly between the two cases, therefore, no adjustment is needed for loss refunds. However, the lower energy margins reduce the energy margins earned by the capacity resources, especially in EMAAC, which would increase the market price for capacity. Table 14 below summarizes such impacts on the capacity prices and payments that would offset the LMP benefits. Table 14 Calculations for Capacity Price Offsets on LMP Benefits (AWC Wind minus Radial Wind)
PJM Region Capacity Resource (MW)
[1]
Reduction in Energy Margins for a new CT ($/kW-yr)

[2]
Estimated Increase in Capacity Prices ($/kW-yr)

[3]
Impact on Capacity Payments ($m/yr)

[4]
EMAAC SWMAAC Other MAAC Other PJM RTO PJM TOTAL
32,835 11,242 23,562 85,103 152,743
-$3.0 -$1.3 -$0.5 $0.1 -$0.7
$3.0 $1.3 $0.5 -$0.1 $0.7
$98.5 $14.7 $12.6 -$12.0 $113.8
Sources and Notes: [1] Based on capacity cleared in 2013/2014 RPM Base Auction. [2] Estimated from PROMOD simulation results. [3] = -1[2] [4] = [1][3] / 1,000
21
B. SYSTEM PRODUCTION COST SAVINGS Production costs are calculated at the system level, and include fuel, variable O&M, and start-up costs of the generators. PROMOD simulations dispatch generation to meet hourly load forecasts that include losses (the PROMOD option that calculates losses dynamically was turned off due to run-time issues). Thus, PROMOD is not modeling changes in system losses as system conditions change between cases. PROMOD does, however, calculate the marginal loss components of LMPs. We used the marginal loss components to estimate the changes in losses and the associated changes in production costs that were not captured in our PROMOD simulations. We calculate the cost of losses for each case by multiplying the load by half of the difference between the load-weighted average loss component of the LMP and the generationweighted average loss component. The difference between cases is shown in Table 15 below, which summarizes the production costs across all four cases. The loss adjustments shown assume that the Base Case losses are consistent with the losses included in the load forecasts. Table 15 Summary of System Production Costs based on PROMOD Results
Emission Metric Units Base AWC Case w/o Wind [1] [2] $75,513 $0 $75,513 $75,463 -$1 $75,462 AWC Wind [3] $74,487 -$79 $74,408 Radial Wind [4] $74,521 -$80 $74,441
System Production Costs Unadjusted Loss Adjustments System Production Costs Adjusted for Losses
* Loss adjustments are calculated based on changes in PJM losses.
($m/yr) ($m/yr) ($m/yr)
C. SYSTEM EMISSION REDUCTIONS PROMOD models unit-level emissions as part of its dispatch. Table 16 below summarizes the resulting Eastern Interconnection-wide emissions for CO2, SO2, and NOx, but with an adjustment we made to the model outputs to account for the differences in losses across scenarios.
22
Table 16 Summary of System Emissions for CO2, SO2, and NOx based on PROMOD Results
Emission Metric Units Base Case [1] 2,055,091 0 2,055,091 2,299,022 0 2,299,022 1,461,819 0 1,461,819 AWC w/o Wind [2] 2,055,614 -53 2,055,560 2,301,200 -60 2,301,140 1,462,732 -38 1,462,694 AWC Wind [3] 2,039,522 -668 2,038,854 2,274,504 -747 2,273,757 1,451,784 -475 1,451,309 Radial Wind [4] 2,039,242 -643 2,038,599 2,272,544 -720 2,271,824 1,451,273 -458 1,450,815
(thousand tons) System CO2 Emissions Unadjusted Loss Adjustments (thousand tons) System CO2 Emissions Adjusted for Losses (thousand tons)
System SO2 Emissions Unadjusted Loss Adjustments System SO2 Emissions Adjusted for Losses System NOx Emissions Unadjusted Loss Adjustments System NOx Emissions Adjusted for Losses
(tons) (tons) (tons) (tons) (tons) (tons)
* Loss adjustments are calculated based on changes in PJM losses, assume system average emission rates.
23

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UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION

Docket Nos. EL11-____-000 ER11-____-000

DIRECT TESTIMONY OF JOHANNES P. PFEIFENBERGER AND SAMUEL A. NEWELL

ON BEHALF OF THE AWC COMPANIES

December 20, 2010

TABLE OF CONTENTS (Exhibit AWC-400)

INTRODUCTION ......................................................................................................1 PURPOSE AND SUMMARY OF TESTIMONY....................................................5

(Exhibit AWC-401) (Exhibit AWC-402) (Exhibit AWC-403)

UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION

Docket Nos. EL11-____-000 ER11-____-000

DIRECT TESTIMONY OF JOHANNES P. PFEIFENBERGER and SAMUEL A. NEWELL I. INTRODUCTION

PLEASE STATE YOUR NAMES, EMPLOYER, TITLE, AND BUSINESS ADDRESS.

While we recognize the above benefits and costs of offshore wind

$3.2 billion $1.2-3.0 billion $0.6 billion

$350 million $310 million $1.35 billion -$1.2 billion

$180 million $2.7 billion

> $9-15 billion

HOW HAVE YOU ORGANIZED THE REMAINDER OF YOUR TESTIMONY?

Figure 1 Renewable Demand in Mid-Atlantic Coastal States by Year

HOW MUCH RENEWABLE CAPACITY CURRENTLY EXISTS WITHIN THESE STATES?

Table 4 Renewable Supply in Mid-Atlantic Coastal States by Technology

proposed renewable projects, which add up to about 20,000 GWh, with

Base AWC Case Wind LMP LMP ($/MWh) ($/MWh)

* Based on PROMOD simulations for 2016.

Development Impact (JEDI) Model.12

The economic stimulus benefits

23.0 2.8 5.0 30.8

75% 9% 16% 100%

3,485 419 758 4,661

converters and HVDC backbone and lateral cables.

HOW HAVE YOU USED THESE INVESTMENT ASSUMPTIONS IN YOUR ANALYSIS?

Offshore AC Collector System

Table 8 Analysis of Jobs, Earnings, and Economic Activity

79,000 18,000 33,000 130,000

$5.0 $0.9 $1.6 $7.6

$9.8 $2.4 $4.3 $16.4

120,000 23,000 41,000 184,000 184,000 28,000 51,000 263,000

$8.2 $1.1 $2.1 $11.4 $13.3 $1.5 $2.6 $17.4

$20.6 $3.5 $6.3 $30.3 $37.2 $5.1 $9.2 $51.5

over a 20-year operation period.

Second, the development of 6,600 MW of

AWC PROJECT CONFIGURATION AND COSTS

SUMMARIZE THE CONFIGURATION OF THE AWC

Figure 2 Preliminary AWC 2-Circuit Design

500 500 Larrabee Cardiff

1000 500 Indian Piney River Grove

1000 Fentress2 1000 Fentress1

$1.0 $1.6 $0.5 $0.2 $3.4

$1.0 $1.9 $0.6 $0.2 $3.8

$1.6 $2.5 $0.7 $0.4 $5.3

[1B]: [1C]: [1D]: [2]:

including: Kriegers Flak (connecting Sweden, Germany, and Denmark and up to

Radial AWC Wind Wind LMP LMP ($/MWh) ($/MWh)

AWC Wind vs. Radial Wind LMP ($/MWh)

AWC Wind vs. Radial Wind Load Payments ($m/yr)

* Based on PROMOD simulations for 2016.

2,000 MW into EMAAC based on a scenario analysis PJM recently conducted

NJ Site 2 NJ Site 3 DE Site MD Site VA Site

82% 78% 61%

Source: NREL Eastern Wind Dataset

Exhibit No. AWC-401

Exhibit AWC-401 Page 1 of 10

The Brattle Group

Docket Nos. EL11--000 ER11--000

Docket Nos. EL11--000 ER11--000