Does Competition Ease Transmission Bottlenecks?

Opening up the selection process for upgrades could cut both electric bills and project costs, concludes The Brattle Group’s new study.
Photo: Southern California Edison

Pricing is a constant concern for customers during this era of rapid change in the energy sector. One possible long-term way to keep costs under control: allowing more competition into the process of upgrading the nation’s transmission system. So concludes a study released this week by The Brattle Group.

On paper, at least, competition in transmission planning has long been mandatory. Seven years have passed since the Federal Energy Regulatory Commission ordered competition in regional planning, yet only 2 percent of transmission investments are carried out competitively, the study reports.

“If the scope of competition could be expanded from 2% to 33% of total transmission investments, estimated customer benefits would be approximately $8 billion over just five years,” states the study, which was presented Nov. 13 at the annual meeting of the National Association of Regional Utility Commissioners in Orlando.

Easing Rate Pressure

The issue looms large at a time when an estimated $20 billion annually is flowing into the nation’s transmission system, about 10 times as much as in the 1990s. Over the next decade, transmission investment could draw as much as $160 billion, the report estimates. Last year, ISOs, RTOs and the Electric Reliability Council of Texas (ERCOT) accounted for $15.5 billion of the $18.8 billion nationwide investment in transmission. Competition could help reduce the “rate pressure” which is causing significant opposition by customers and policy makers to transmission investments.

The Brattle Group’s research was sponsored by LS Power, a diversified developer, investor and operator of generation facilities and energy infrastructure; and GridLiance, a group of energy operating and holding companies specializing in transmission. An affiliate of Blackstone Energy Partners, GridLiance  partners with municipal governments, joint action agencies and electrical cooperatives in Missouri, Oklahoma and Kansas.

In particular, the report paints a stark contrast between competitive and non-competitive projects. For the 15 transmission projects in that were competitively bid between 2013 and 2017, final project costs declined between 15 percent and 60 percent, with an average differential of 40 percent. Those projects also feature caps and other cost-control provisions, the report noted.

Benchmarking Needed

 Non-competitive transmission procurement tells a different story. Brattle Group researchers also determined that projects not subject to competitive bids are prone to rising costs. On average, the final cost of those projects jumps 34 percent above initial estimates. A lack of cost-tracking capacity further hampers the ability of RTOs and ISOs to accurately assess escalations. The report urges RTOs and ISOs to adopt standard cost-tracking processes in order to facilitate benchmarking and improve transparency.

Regulatory issues present significant hurdles, as well. Over the past five years, about half of the $35 billion invested in ISO/RTO regions under the jurisdiction of the Federal Energy Regulatory Commission have stemmed from local planning processes of incumbent transmission owners. RTOs, ISOs and other stakeholders have had only limited input, “resulting in less scrutiny in assessing the needs and cost effectiveness of the investments,” the researchers said.

Though reform is yet to be realized, regulatory roadblocks are already on the radar of some officials. During a July hearing of the Senate Energy and Natural Resources Committee, two former FERC chairmen who had served respectively under Republican and Democratic presidents urged lawmakers to start untangling the approval process. “A complex regulatory regime has made project authorization a protracted and inefficient process and has failed to produce effective regional and interregional project planning,” said Jim Hoecker, who chaired the agency during President Bill Clinton’s second term.