transmission business evolution in a period of significant resource constraints patricia a. park...

Transmission Business

Evolution In a Period of Significant Resource Constraints

Patricia A. Park

UCONN MBA PROGRAM

April 24, 2008

2

The Cost of Reliability-August 10, 1996, Power Outages in the

Western State

The blackout in the western states on August 10, 1996, was a complex and dramatic

reminder of the importance our modern society places on reliable electricity service.

Ultimately, power was interrupted to approximately 7.5 million customers, for periods

ranging from a few minutes to about nine hours. Immediate costs to the region’s

economy were estimated at $2 billion. The August 10 outages were caused by multiple

transmission line failures over a period of several hours. A single transmission line failure is

a contingency that is routinely considered in reliability planning. However, the failure of

several lines, combined with the day’s pattern of operation, caused the system to become

unstable (which had not been anticipated by reliability planners), causing automatic controls

to open the California Oregon Intertie, a major link between the northern (Pacific Northwest)

and southern (California) portions of the western system. Opening the Intertie produced a

power surge from the Pacific Northwest through the eastern portion of the grid toward

Arizona and southern California, causing many lines to disconnect automatically and

eventually fracturing the western grid into four separate electrical “islands.” Within each

island, large blocks of customers lost power when their electricity demands suddenly

exceeded available local generation. The situation was worst in the southern island where

automatic controls disconnected over 90 generators to prevent them from being further

damaged. Some of the larger units were out of service for several days.Source: J. Hauer and J. Dagle, 1999. Review of Recent Reliability Issues and System Events. Report PNNL-1 3150.

3

Reliability Reality Check

Over the next five to ten years, electricity demand (25% +) will far outpace transmission capacity (increasing at a pace of only 4%). This short fall may lead to serious transmission congestion and reliability problems.

The benefits of increasing transmission capability to ensure reliability, even if this insurance is used only once to prevent a system-wide blackout, would be enormous and could far outweigh any potential gains from increased trade.

4

Today’s Discussion Topics

Transmission History

US Transmission System

NU Transmission System

Transmission Major Projects

Mitigating Risk of Resource Constraints

Labor Constraints – The Quanta Deal

Material Constraints & Contracting Strategies

Additional Information – Lead Times/Source of Supply

5

Transmission’s History

For nearly 100 years, US Power Industry was dominated by vertically integrated monopolies that generated, transmitted and distributed electric power in their own service territories

Initially, transmission was built by each utility for its own load purposes and to provide emergency support locally.

From the mid 1980s to 1994, approximately 23,000 miles of transmission capacity was added to the system.

From 1994 to 1998, total transmission capacity remained unchanged!

Factors contributing to construction lag included association with electric and magnetic fields (EMF), complexities of siting process, including required approvals from Federal, State, and local agencies.

During the 1990s, restructuring of the Power Business (under Order 888) began with generation, which was the easiest component to lend itself to free competition. Transmission and Distribution remained regulated.

6

Transmission’s History, Cont’d

During the 1970s, increased oil prices and higher inflation resulted in rising electricity production costs.

PURPA was drafted during this time to address the problem of America’s generation power plants operating at lower generation efficiencies.

PURPA created a special class of non-utility generators that constructed small power plants and co-generation facilities called Qualifying Facilities (QFs)

PURPA was not meant to start deregulation, but QFs began to flood the market.

Public Utilities Regulatory Policy Act of 1978 (PURPA)

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EPAct of 1992 created a competitive wholesale market and the associated trading activities, ordering utilities to provide third-party access to their transmission systems.

During this time, utilities were still vertically integrated, owning generation.

EPAct enabled generation competitors (known as independent power producer or IPPs) to have transmission access.

Mid 1990s – IPPs began to search for new customers, as the regulator’s pricing policies required a lowering of prices paid by the utilities to the IPPs.

Access to transmission lines was critical for serving new customers who did not have their own lines.

This was a turning point in the history of transmission

Energy Policy Act of 1992 (EPAct)

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1996 FERC Order 888 called for the “unbundling” of vertically integrated utilities into generation, transmission, and distribution activities Order 888 reflected FERCs commitment to provide free access to the

transmission grid Order 888 had mixed results:

The generation sector saw an increase in generation facilities and many utilities sold off their generation assets;

Transmission sector suffered the consequences, with increased load becoming too high for the transmission lines to handle.

North American Electric Reliability Council (NERC) initiated transmission loading relief protocols to avoid damage to the system during peak usage.

FERC Order 888

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US Transmission System

Comprised of more than 150,000 circuit miles of extra high voltage (EHV 230kV and above) lines.

While the transmission system experienced significant growth during the 60s and 70s, the past few decades experienced dramatic decline or slowing of growth because of regulatory uncertainties, siting restrictions, and delays.

The electric transmission system is comprised of tens of thousands of electrical and mechanical devices and components that are interconnected. These components include electric generators, transmission lines (cable) and protection components such as circuit breakers and relays.

10

The NU Transmission System

Upgrading NU’s Transmission System requires a significant increase in capital investment.

Major Projects: Bethel / Norwalk Line Middletown / Norwalk Line Glenbrook Cables Long Island Replacement Cable (LIRC) New England East West Solution (NEEWS)

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Four Major Southwest Connecticut Transmission Projects – A $1.68 Billion Investment, About 2/3 Complete

Bethel-Norwalk 345-kV underground& overhead$350 Million

21 miles 345-kV (56% underground)


Completed October 2006 at a cost of $335 million Middletown-Norwalk 345-kV

underground & overhead$1,047 Million (NU share)Glenbrook Cables

115-kV underground$223 Million

9 miles 115-kV underground

Projected in-service date: December 2008

Under contract – construction under way, 69% complete at 1/04/08

Long Island Cable138-kV cross-sound$72 Million (NU share)

11 miles 138-kV submarine cable

Joint project with LIPA

Projected in-service date: mid-2008

63% complete at 1/04/08



Joint project with United Illuminating

Projected in-service date: Second-half 2009

62% complete at 1/04/08

COMPLETE

50% of CT Load

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2008-2012 Transmission Capital Expenditures Increase By Over 20% From Previous Five-Year Program

$0

$100

$200

$300

$400

$500

$600

$700

$800

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Major Southwest CT NEEWS Springfield 115-kV Cables Other

Historic Forecast

In M

illio

ns

Up To $3.0 Billion $1,816 Million

$560 million of major SWCT

projects in 2008-2012 forecast

period; $1.68 billion in total

NEEWS projects estimated at

$1 billion during the 2008-2012 forecast

period

$1.1 billion of additional

forecasted projects

Successful completion of

SWCT projects

NEEWS projects ramping up

Springfield 115-kV Cables projects

estimated at $350 million during the

2008-2012 forecast period

Springfield 115-kV Cables project

ramping up

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Historical Transmission Capital Expenditures

$170

$257

$454

$740-750$758

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

2004 2005 2006 2007 2008

$ M

illio

ns

14

$592

$311

$155

$420$530

$108

$58

$55

$108

$72

$50

$137

$222

$135$104

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

2008 2009 2010 2011 2012

CL&P PSNH WMECO

Projected Transmission Capital Expenditures

$432

$663$706

$506

$740-$750

$ M

illio

ns

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NEEWS Project Schedules - Forecast Project Total $1 Billion

NEEWS

Greater Springfield Reliability

(115-kV/345-kV)

Interstate Reliability (345-kV)

Central CT Reliability (345-kV)

ISO technical applications approval

Mid 2008 Mid 2008 Late 2008

State siting application filed

Mid 2008 Mid 2008 Late 2008

Procurement contracts 2009 – 2012 2009 – 2012 2010 - 2012

Siting completed Late 2009/Early 2010 Late 2009/Early 2010 2010

Construction targeted to start on staggered basis

2010 2010 2010/Early 2011

In-service Late 2012/2013 Late 2012/2013 2013

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Other Forecasted Projects Total $1.1 Billion

$1.1 Billion

CL&P

115-kV Reliability Program 30.0

Fiber Optic Communications 20.0

310/368 Line Split 29.0

Eastern Connecticut Reliability 190.5

Barbour Hill Autotransformer 10.7

Aging Equipment & NERC Compliance Upgrades (24% in RSP) 91.4

Numerous Projects Addressing Maintenance, Reliability & Load Growth (55% in RSP) 202.9

Total CL&P Other Projects 574.5

$'s Millions WMECO



Ludlow Transformer Repl. 12.0

Berkshire 2nd Autotransformer 9.9



Total WMECO Other Projects 134.9

$'s Millions PSNH



Scobie 3rd Autotransformer 12.4

White Mountain Region Upgrades 14.9

Monadnock Region Upgrades 26.6

Nashua Area Solution 14.0

Deerfield & Gosling Autos 52.7



Total PSNH Other Projects 401.3

$'s Millions

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Mitigating Resource Constraints

Construction Expertise – experienced, proven firm, track record with NU Burns & McDonnell (Transmission, including MN, Glenbrook, NEEWS) Master Service Agreement Signed 8/2005, re-negotiated 2008 for another 5 years to

2013. Labor – partnered with the largest U.S. transmission constructor

Contract signed with Quanta for $750 million in transmission construction services Provides for 70% of labor over the next six years

Material – established worldwide network to procure key components Transformers, poles, underground cables and control systems

Cross-Functional Team Approach (Transmission Group, Purchasing, Legal)

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The Quanta Contract

Terms 1/1/08 to 12/31/13 (six years) plus work awarded but not completed past

12/31/13 Commitments

Northeast Utilities Company (NUSCO) to award $ 750 million of work to any Quanta company (PAR, MJ Electric, Dashiell, etc) during contract term. Work awarded may be associated with any NUSCO Company or function (CL&P, WMECO, PSNH, Transmission, Distribution, etc.).

Quanta guarantees workforce to execute $ 750 million of work during contract term. All work offered by NU but refused by Quanta shall be treated as if it was work awarded.

Work can be awarded as T&M, fixed price (lump sum) or T&M with negotiated target.

Opt-out Clause If NUSCO fails to award $ 750 million of work during contract period (or elects

to cancel contract), there is a fee schedule that begins at $ 5 million and is reduced proportionate to work awarded and goes to zero when $ 500 million is awarded.

The opt-out clause is reciprocal for Quanta’s commitment.

Transmission Equipment

Procurement Strategy Team

Initiated: August 2007

Members: Purchasing, Transmission Group, Legal

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Goals

Identify and prioritize equipment requiring procurement strategies

Identify tasks and sub-teams

Begin negotiations for new contracts, revisions to contracts and Master Services Agreements

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Raw Material Index

22

Raw Material Index

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Raw Material Index

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Identify Equipment

Equipment Priority:

The following equipment priorities were established:

Equipment RFP Date Status

1. Transformers in process NU - final negotiations

2. Underground Cable in process NU – final negotiations

3. Poles/Towers 4/25/2008 B&M

4. Overhead Cable 7/2/2008 B&M

5. Hardware 10/2/2008 B&M

6. Fiber Optic Cable TBD B&M

7. GIS Equipment TBD NU

8. Breakers 6/22/2008 NU

9. CCVT’s TBD NU

10. Relays TBD NU

11. Control Cables TBD B&M

25

Status Update

Transformers Issued 3rd amendment for 3 single phase transformers for Ludlow S/S –

completed 2/26/08 Continue to gather information and negotiate with Areva to finalize amendment

for additional transformers for 2009 – 2013 Lessons Learned

Difficult to gather information regarding total transformer requirements and schedules Original contract for transformers not flexible to use as blanket order – in process of

modifying contract structure

Underground Cable Final negotiations in process with vendor Lessons Learned

Coordination of non-NEEWS requirements (e.g. UG requirements for Norwalk Harbor)

Poles Reviewing scope of work document and vendor list Burns & McDonnell is preparing to issue RFP by 4/25/08

Master Service Agreements Final negotiations completed with Siemens

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Transformer Contracting Strategy

Purchasing/Transmission finalizing a 5-year agreement with Areva; Value per transformer is $2M

Working to obtain quantity data (# of transformers required) from Transmission Projects Group

Typical lead time for transformers is out 24 months. Deal to include 6 production slots yearly; guarantee by vendor to

produce within 18 months vs 24 months. Pricing Structure

Firm price for given period of time; Formula based pricing

Base firm with index floating for copper, core steel, oil (transformer), adjustments for currency.

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Underground Cable Strategy

Contracting strategy to select one player in the market place to provide 115kV and 345 kV cable.

Long term agreement ranging 3-5 years with preferred treatment for manufacturing slots

Price of cable would be fixed, with fluctuation allowances for metals and currency.

If a domestic supplier c/b identified, Currency issue disappears Transportation risk goes away

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Master Services Agreements

Create a standard set of terms and conditions for equipment & services

Identify vendors to start immediate negotiations

Supplier Status Completion Date1. Siemens complete 3/31/20082. Areva start 4/15/2008 t/b/d3. ABB start 6/1/2008 t/b/d

Additional InformationLead Time Reports

Sources of Supply

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Transmission Lead Time Report

Leadtime (weeks) AROEquipment Type Detail 2008 1Q 2007 2006 2005Breakers, 115kV 26 20 20 20Breakers, 345kV 32 28 28 28Breakers, 500kV 30 36 28 24Breakers, live tank 34 36 20 20Cable, control Conductor, 345 & 115-kV underground 40 18 20 20Conductor, 345 & 115-kV overhead 18 18 20 20Connectors, tubular bus 18 10Control Panels 22Hardware 18 10 10 10Insulators 18 14 14 14Pole, steel monopole 34 30 22 20Poles, laminated wood 10 10 10 10Reactors 110 100 58 46Reactors, air core 30 22RelaysStructures, lattice 24 20 20 20Switches, 115kV Disconnect 18 18 20 18Switches, 345kV disconnect 18 20 22 18Switchgear, gas insulated (GIS) 60 61 52 43Transformer, single phase auto 100 90 58 46Transformer, three phase auto 110 100 85 50Transformers, capacitor voltage 26 26Traps, wave 20 20Tuners, line 18 6Wire, overhead ground 14 16

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Transmission Lead Time Report, Details

Manufacturer Equipment Type Detail Lead Time WeeksABB Breakers, 115kV 26

Breakers, 345kV 30Breakers, 500kV 30Breakers, live tank 28-30Switchgear, gas insulated (GIS) 56Transformer, single phase auto 90Transformer, three phase auto 90

AREVA Breakers, 115kV 14-16Breakers, 500kV 24-26Breakers, live tank 16-20Reactors *Shunt 76-80Reactors, air core 12-24Switches, 115kV Disconnect 14-16Switches, 345kV disconnect 16-18Switchgear, gas insulated (GIS) 54-56Switchgear, gas insulated (GIS) *230-kV GIS (115-kV/63-kV applications) 63-65Switchgear, gas insulated (GIS) *345-kV GIS 78-80Transformer, single phase auto 76-80Transformer, three phase auto 76-80Transformers, capacitor voltage 19-21Traps, wave 13-24Tuners, line 6-8

Brugg Wire, overhead ground 10-14Carter & Craw Control Panels 18-22

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Manufacturer Equipment Type Detail Lead Time WeeksDis-Tran Breakers, 115kV 24

Breakers, 345kV 30Breakers, 500kV 30Breakers, live tank 34Conductor, 345 & 115-kV underground 20Conductor, 345 & 115-kV overhead 18Connectors, tubular bus 18Hardware 18Insulators 18Pole, steel monopole 34Reactors 30Reactors, air core 30Structures, lattice 24Switches, 115kV Disconnect 18Switches, 345kV disconnect 18Transformers, capacitor voltage 26Traps, wave 20Tuners, line 24Wire, overhead ground 10

HD Supply Hardware 8-18Tuners, line 8-18

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Manufacturer Equipment Type Detail Lead Time WeeksHICO America Breakers, 115kV * 40 kA 16-18

Breakers, 115kV *50/63 kA 20-24Breakers, 345kV 32Breakers, 345kV*362-kV Breakers 20-26Reactors 52-60Switchgear, gas insulated (GIS) 60Transformer, single phase auto *Core Design 52-60Transformer, single phase auto *Shell Design 58-60Transformer, three phase auto *Core Design 52-60Transformer, three phase auto *Shell Design 58-60

Intral Wire, overhead ground 4-6Laminated Wood SystemsPoles, laminated wood 8-10LS Cable Conductor, 345 & 115-kV underground 24MEEPI Breakers, 115kV 52

Breakers, 345kV 52Breakers, 500kV 52Reactors 110Switchgear, gas insulated (GIS) 60Transformer, single phase auto 100Transformer, three phase auto 110

Phoenix Wire (HICO)Conductor, 345 & 115-kV underground 14-16Conductor, 345 & 115-kV overhead 14-16Wire, overhead ground *(OPGW) 12-14

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Manufacturer Equipment Type Detail Lead Time WeeksPrysmian Conductor, 345 & 115-kV underground 40Service Wire (HICO) Wire, overhead ground *(Copper GW) Stock-14Siemens Reactors 156Siemens -US Breakers, 115kV 16-18

Breakers, 345kV *(live tank) 32Breakers, 500kV *(dead tank) 24

Silec Conductor, 345 & 115-kV underground 72South. States Breakers, 115kV *(Circuit Switchers) 12-14

Breakers, live tank *(Circuit Switchers) 12-14Switches, 115kV Disconnect 12-14Switches, 345kV disconnect 14-16

Southwire Conductor, 345 & 115-kV underground 18Conductor, 345 & 115-kV overhead 12

T&B Pole, steel monopole 17-20Structures, lattice 12-24

Trench Reactors, air core 18Transformers, capacitor voltage 14-16Traps, wave 18Tuners, line 6

? Cable, control Relays

35

Established Worldwide Access to Key Suppliers

GC Cable from Prysmian in Finland

GC DFR from Qualitrol in Ireland

GC Breakers & Switches from ABB Power in U.S.

GC Scada Cabinet from GE Harris in Canada

M-N Steel Poles from Thomas & Betts in U.S.

M-N Overhead Ground Wire from Intral in Canada

M-N 345-kV Breakers from HICO in South Korea

M-N Autotransformers & Transformers from Areva in Brazil

M-N Shunt Reactors from Siemens in Germany

M-N GIS from Mitsubishi in Japan

M-N 115-kV Cable from Prysmian in Italy

M-N 345-kV Cable from Silec in France

B-N Underground Cables from VISCAS in Japan

36

Numerous Firms Support NU Transmission’s Capital Program

Poles $75M PennSummitt Tubular LLC Sabre Tubular Structures TransAmerican Power Products Thomas & Betts Valmont

Substations $300M ABB Areva BTW Crompton Greaves / Pauwels Group General Electric HICO Mitsubishi Siemens

Cables & Wire $375M ABB Alcan LS Cable Nehring Nexans Okonite Pirelli/Prysmian Silec/General Cable/Sagem Southwire Sural USA Viscas/Fujikura

Engineering Firms $90M American Electrical Test Black & Veatch Corporation Burns & McDonnell Engineering Commonwealth Associates, Inc. Engineering & Environmental

Consulting, LLC L. E. Myers Co. (an MYR Group

company) Power Engineers, Inc. Sargent & Lundy, LLC TRC Companies, Inc.

Construction $1.3B Bond Brothers E. S. Boulos (an NU company) Hawkeye Henkels & McCoy KemsCo Equipment Co. Mass. Electric Construction Co. (A

Kiewit company) McPhee MJ Electric (Quanta) New River Electrical Corp. PAR Electrical Contractors, Inc.

(Quanta) S. M. Electric Co. Thiro USA W. A. Chester

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Acknowledgements

Muraleedharan Gopinathan, Director (Interim) Convex Operations

Allen Schindler, Director Enterprise Planning & Development

Kyle Alldredge, Manager Corporate Purchasing

Corporate Purchasing Senior Staff

David Hyatt

David Evans

Mary Emerson

Lisa Smith

transmission business evolution in a period of significant resource constraints patricia a. park...

Documents

miles of transmission

total transmission capacity

western system

system events

reliability problems

power outages

reliability planners

cost of reliability