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End the Gridlock: Why Transmission is Ripe for New Technology

Recent advances in materials science promise a new, truly competitive paradigm for grid investment without land-use headaches or "big-iron" solutions.
Fortnightly Magazine - January 15 2001

projects perceived to have technology risk. Rules governing rights to the capacity created by these projects, and the valuation thereof, must be established. For interstate competitive markets to thrive, the siting logjam must be broken; reforms should create a unified federal siting process, albeit with stringent protections for state and local interests. And while mandatory open access may be suitable for conventional AC facilities under the "essential facilities" doctrine, we should seriously consider whether the burdens, limitations, and inefficiencies that it imposes are warranted for transmission projects that are undertaken on a competitive, at-risk basis.

Now Is the Time for Policy Reform

We find ourselves at a pivotal point in restructuring. Momentum for further reform is faltering in both Congress and the states. Meanwhile, a new class of transmission organizations is being formed. In many ways, now-before these new entities become vested in the notion of a monopoly over transmission services in their geographic areas-is the ideal time to forge a competitive framework for new, advanced forms of transmission service. The exact stage of development or commercialization of specific transmission technologies, by comparison, is unimportant. Shifting the focus away from contentious regulatory ratemaking formulas toward the economic and technical merits of new transmission solutions, and creating the framework for competitive entry, will accelerate their development. That will happen in much the same way that deregulation of power generation has spurred interest in the development of many forms of distributed power that, while high in cost today, show great promise.

How would this be done? Congress can find a ready model in the provisions of the Energy Policy Act of 1992 that created a light-handed regulatory framework for so-called "exempt wholesale generators." Upon a showing that their ownership structure did not afford a market power advantage, EWGs were placed outside the orbit of conventional rate regulation and Public Utility Holding Company Act restrictions. An earlier law-the Public Utilities Regulatory Policies Act of 1978-afforded so-called "qualifying facilities" certain controversial entitlements. By contrast, EWGs merely were allowed the opportunity to compete for wholesale market opportunities.

To foster new transmission investment, why not a similar framework for "exempt transmission facilities?" Conventional facilities could continue to be constructed under the umbrella of monopoly regulation where necessary. These ETFs would be free to compete on their economic and environmental merits for a wide range of power market opportunities. In particular, these might include debottlenecking congestion points and strengthening power flows across the "seams" of the grid where connections among RTO areas are weak.

Policy reforms in the area of transmission must appropriately reflect the concerns of the public policymakers, environmentalists, landowners, and market participants that have a stake in the competitive process. Here are some suggested elements for their organization.

Definitional Standard. ETFs should be consistent with the following standards:

  • The ETF framework should aim to induce new investment in the power grid; ETF status, accordingly, should be extended only to newly constructed facilities. (In the future it may be appropriate to explore ways to convert existing facilities to ETF status.)
  • The specific goal should be to induce