Kansans are unfairly shouldering transmission costs for energy exported out of state. The following is a collaborative effort between Sunflower Electric Power Corp., Midwest Energy, Inc., Kansas Electric Power Cooperative, Inc., and Kansas Electric Cooperatives, Inc. to inform electric co-op members of efforts to correct this inequity.
Our nation’s electric grid is undergoing monumental change. From the types of resources we use (generation) to the way in which we get it (transmission), this change is happening on a grand scale and at lightning speed.
Over the last 20 years, the U.S. has experienced a fast and furious conversion from conventional generation of coal, natural gas, and diesel generators to renewable energy resources such as wind and solar. Government subsidies and the pursuit of cheaper forms of energy have fueled a dramatic growth in the wind industry. Kansas ranks in the top five of wind energy producing states, with production skyrocketing from approximately 40,000 megawatt hours (MWh) in 2001 to roughly 27,500,000 MWh produced in 2022.
While conventional generation was built relatively close to the customers it served, renewable generation is built where the fuel source is located — where the wind blows and the sun shines. This has created renewable rich areas over the past 10 years and Kansas is one of them.
Renewable Rich Areas and Transmission Costs
Renewable rich areas tend to have smaller amounts of load and less robust transmission systems, which limits the amount of renewable energy that can be harvested and exported to load centers. Because of the growth in wind generation and other renewables, there is an increased need to build more transmission projects to minimize network congestion and enable renewable generation to be delivered to other parts of Kansas, or in some cases, out of state.
Transmission costs allocated to consumers inside renewable rich zones tend to be higher than other areas where renewables aren’t as pervasive because rural areas have fewer customers over which to spread costs. The cost of these transmission facilities is disproportionately paid by those living in the areas where the generation is located, although the benefits are mostly for the region and not necessarily local consumers. Another cost consideration is that revenue distribution has not kept pace with actual power flows. Transmission revenue still goes to the utility where the power is used, not where it is generated.
Kansas Generation and Transmission Co-ops Experience Cost Disparity
The western area of the Southwest Power Pool (SPP) illustrates the disparity between the location of needed transmission construction and the cost allocation of these new facilities. For example, Sunflower Electric Power Corporation, Hays, Kansas, is in the western part of SPP’s territory and has about 3,491 MW of non-Sunflower renewable generation in its service area while its peak energy requirement is only 1,110 MW. Over the last eight years, the Sunflower zone exported over 63 million MWh of wind power to other zones and states in the SPP region, with a majority of the costs allocated to the Sunflower zone.
Similarly, in 2022, about 40% of the energy that moved on Midwest Energy’s, Hays, Kansas, transmission system was delivered to its wholesale and retail customers while the other 60% moved off-system to renewable energy buyers elsewhere, with Midwest receiving no compensation for the use of its system.
Topeka-based Kansas Electric Power Cooperative (KEPCo) is a transmission-dependent utility, which means it does not own transmission facilities and instead utilizes the facilities of five Kansas transmission owners in the SPP to provide its members with transmission service. Over the past decade, KEPCo’s transmission costs have more than doubled. This is, in large part, attributable to the cost allocation mismatch experienced by Sunflower and Midwest Energy.
More transmission inside the renewable rich zones will be necessary to minimize congestion and provide for more renewable interconnections to harvest the cheap energy we have available. But allocating costs using the current cost allocation construct does not capture who truly benefits from facilities built inside the renewable rich zones. Bottom line: Kansans are unfairly shouldering the costs of exporting energy.
Transmission Expansion in Last 10 Years
Transmission expansion in western Kansas over the last decade resulted in the construction of more than 500 miles of new 115/138/345 kV transmission. In the central and eastern areas of the state, nearly 700 miles of transmission lines were built/rebuilt over the last 10 years, with approximately 20% built to accommodate SPP and other mandates and 80% built to replace aged, poor performing infrastructure. New transmission provides better system reliability to customers, significantly reduces SPP market prices, and provides cost-effective congestion relief that benefits all SPP members. However, a comparison of transmission rates among the 18 zones in SPP shows that Sunflower and Midwest Energy transmission rates are among the highest in SPP. This is due, in part, to the magnitude of SPP-driven transmission projects within those zones.
Wrongly allocating transmission costs to local customers inside renewable rich areas will negatively impact development of future needed transmission as states who are paying for transmission to benefit other states will resist new builds if the local customers must carry the burden for the rest of the region.
Searching for Solutions
Kansas ratepayers should not bear the costs of exporting these renewable resources out of state.
Kansas-based generation and transmission cooperatives (G&Ts) along with your local distribution electric cooperatives are currently working with state and national lawmakers, the Federal Energy Regulatory Commission (FERC), the SPP and others to move to a cost allocation methodology that corrects this inequity and follows the principle that the cost causer should be the cost payer.
New methods must be developed to properly allocate transmission costs for resource rich zones as the current method lacks the flexibility to capture who truly benefits from facilities built inside those renewable rich zones. FERC must ensure that if the transmission upgrade is inside the renewable rich zone and the load being served or benefiting from the upgrade is outside that zone, the cost allocation of the upgrade should be allocated to a much larger region than the host zone.
Maintaining Reliability and Affordability
The transition to more renewable generation will continue to push the need for new and upgraded transmission infrastructure in Kansas. And as the power supply moves farther from the source of demand, it will be imperative to find cost allocation solutions that are equitable to customers who are currently paying the costs, without benefits, for exporting energy out of the state. Your Kansas-based G&T cooperatives and your local distribution cooperatives will continue to push for equitable cost allocation solutions to maintain reliable and affordable energy for Kansas electric cooperatives’ consumer-members.