Jay Morrison, Senior Regulatory Counsel, National Rural Electric Cooperative Association: I was disappointed to see that two different articles in the October 2005 issue erroneously stated...
Letters to the Editor / Corrections, Clarifications
To the Editor:
I read your May 15, 2003, "Frontlines" column ("Grid Glut?") and have to respectfully take issue with a couple of your thoughts.
First, the lack of strategic transmission enhancements is one of the root causes of an energy crisis we are beginning to experience in the United States. With natural gas prices above $5.00/mmBtu since February and currently over $6.00/mmBtu through March of 2004, U.S. gas and electricity customers, whose prices are meaningfully impacted by gas prices, are about to receive a real shock for the rest of this year and through the heating season of 2003-04.
This, as well as future gas price spikes, could be muted by having additional transmission capacity in place from the coal generation-rich middle United States to the East and South, thereby reducing the amount of gas used for generation in the off-peak periods and likely reducing gas prices. The soon-to-be-released Midwest ISO (MISO) transmission plan, as well as the just-released Department of Energy standard market design study, show significant electricity consumer savings if the middle United States to the East and South areas are reinforced strategically. The MISO study points out that enhancements would pay for themselves in one to four years, depending on your gas price assumption, with the shortest payback if gas prices were roughly $5.00/mmBtu.
The payback would be even shorter at today's higher gas prices.
The second issue you raised is why there are few transmission expansions going on. I would suggest many of the current transmission owners who also own generation have a significant disincentive to invest in transmission, since it may likely devalue their generation asset. This is especially the case if the shareholders are a different set of stakeholders than the customers. It is a difficult argument for the CEO of a generation company to make its board of directors strategically enhance its transmission system to allow more low-cost generation (mainly coal) into the area, which will decrease market prices in the area and presumably decrease the value of the existing generation in the area (and possibly the stock value as well). This would be akin to believing a local store owner would want to fund an interstate to come near town so Wal-Mart could put up another SuperCenter in the area and take advantage of Wal-Mart's large-scale, low-cost operation. It will not happen.
The transmission system enables affordable electricity and energy. Transmission and generation are not equal options. Strategic transmission enhancements are far more valuable, for they are the insurance policy against fuel price spikes, low hydro output, catastrophic events, and market power abuse. Gas generation at load cannot do that. Strategic transmission enhancements enable various fuel sources to compete to supply electricity to consumers at the lowest cost.
The merchant model of transmission will not work, much the same way the United States did not develop the interstate system using a merchant model. If we had developed the interstate system that way, we would have fewer good highways, and consumers would be paying significantly more for many products. Simply put, Wal-Mart's low-cost system