Competition in electricity transmission is paying dividends

Competition in electricity transmission is paying dividends
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With the release of President TrumpDonald John TrumpEsper sidesteps question on whether he aligns more with Mattis or Trump Warren embraces Thiel label: 'Good' As tensions escalate, US must intensify pressure on Iran and the IAEA MORE’s infrastructure plan, improving transportation is now in the spotlight, along with communication and other important networks that are vital to our economy and way of life. Just as important, but not generating the same headlines, is expanding and modernizing America’s electricity transmission network in a cost-effective manner.

Enhancing the electricity grid by adding new transmission capacity is a necessity given today’s realities. The composition of the grid’s electric production capacity is changing with natural gas and renewables (such as wind and solar) becoming more affordable, and coal and nuclear in some cases being uneconomic. This creates bottlenecks in the system.

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In addition, electricity demand is expected to increase steadily during the next three decades, according to the U.S. Energy Information Administration. These changes mean the grid will be utilized and challenged in new ways to meet the delivery requirements of consumers. Significant new electric transmission construction is required to meet these needs and make the grid more resilient to natural disasters and potential terrorist attacks. Reliable electricity is the lifeblood of the U.S. economy.

 

Recognizing this, the Federal Energy Regulatory Commission (FERC) adopted Order 1000, which contains provisions that for the first time inject competition in some situations to the process of building new electric transmission capacity. Understanding that building this new capacity represents the fastest growing cost on ratepayers’ electricity bills, FERC saw competition as a means to construct urgently needed transmission projects more affordably.

FERC had good reason to think this way. Texas, for example, has enjoyed significant benefits as a result of bringing competition to the state’s electricity marketplace. Over a decade ago, Texas embarked on a massive high-voltage transmission construction endeavor known as the Competitive Renewable Energy Zone (CREZ) project. CREZ was designed to build out the Electric Reliability Council of Texas (ERCOT) grid in west Texas and the Texas Panhandle. It also facilitated the state’s long-term target of delivering 10,000 megawatts of renewable energy to electric customers and enhanced the resiliency of the grid in places like Midland and the Dallas-Fort Worth area.

CREZ is generally recognized to be a tremendous infrastructure success story. Texas now has a more diversified portfolio of generation resources (71 percent fossil and 29 percent non-fossil). Carbon dioxide emissions from the electric sector are down to 1998 levels. Retail electric prices are among the lowest in America. Recently, Lubbock’s municipally-owned utility, recognizing the benefits of the ERCOT market, requested and was granted by the Public Utility Commission of Texas (PUCT) the authority to move most of its customers to the ERCOT market.

Much of the credit for Texas’ success is attributable to the efficient and effective way in which the CREZ lines were completed, which is due in large part to PUCT using a competitive process to select the transmission companies that built the new lines. 

Driven by the requirement that transmission lines be constructed “in a manner that is most beneficial and cost-effective to customers,” the presumption of great need for additional electric infrastructure, and the desire for multiple companies to work simultaneously across the state, PUCT selected three non-incumbent transmission companies that successfully built large segments of CREZ. Most importantly, these competitive projects have been completed on time and on budget.

Similar success has also been seen in other regions where competition in electric transmission construction has occurred. Numerous qualified companies have competed for electric transmission construction projects in these areas. This competition has led to proposals from companies containing cost caps that shift the cost risk for projects to developers, not ratepayers, as well as more technically innovative solutions to adding transmission capacity.

New York Independent System Operator (NYISO) utilized a competitive process to relieve electric transmission congestion in western New York, including improving access to 2,700 MW from the Niagara hydroelectric facility. The cost estimate of the selected project bid was $181 million, as opposed to the incumbent utility’s proposed $232, resulting in an estimated savings of $51 million. The selected proposal also contained technical innovations enabling a higher transfer, resulting in a cost that is 45 percent less expensive per MW than the incumbent’s proposal. Further, NYISO observed that the selected proposal “provides additional operational flexibility” and “a new level of controllability to power flows on the 345 kV network” as compared to other proposals.

Unfortunately, the benefits of Order 1000’s competitive transmission project provisions are not being brought to all ratepayers under FERC’s jurisdiction. Unnecessary “carve-outs” cause competition for new transmission projects to be limited in certain regions, such as voltage restrictions on projects subject to competitive bidding and exempting certain reliability projects from competition. These carve-outs are denying consumers innovative solutions and more affordable electricity.

The concept of bringing competition to new electric transmission projects as contained in Order 1000 was the product of a thoughtful and deliberate rulemaking process at FERC. FERC thoroughly analyzed more than 10,000 pages of public comment to inform development of Order 1000, and the rule was adopted by Democratic and Republican-appointed FERC commissioners.

A wide range of organizations including the Federal Trade Commission; numerous state utility commissions; trade associations representing industries that are significant consumers of electricity; and public interest groups all supported the electric transmission competition provisions in Order 1000. And, competition in electric transmission introduced by Order 1000 has held up to every single court challenge, including the U.S. Supreme Court denying review.

Where competition in new electric transmission construction has occurred, it has worked. FERC should stay the course on competition and make perfecting and expanding the electric transmission competition provisions in Order 1000 a priority so more consumers can experience the benefits.

Barry Smitherman is a two-term member of the U.S. Department of Energy's Electricity Advisory Committee where during his second term he served as chairman of the Transmission Subcommittee. He is also former chairman of the Public Utility Commission of Texas and the Texas Railroad Commission, and is currently a lawyer in Austin, Texas. He is also a consultant for LSP Transmission Holdings LLC.