Allegheny Energy named Max Kuniansky director of investor relations. He previously held the position of vice...
The Myth of the Transmission Deficit
contrasts this $56 billion figure with the $35 billion that he estimates utilities are already planning to spend over the next 10-year period (which he derives from an estimate of retired transmission lines to be replaced, plus new capacity that utilities plan to build). This leaves a $21 billion gap between the estimated need, $56 billion, and the estimated plan over the next 10 years, $35 billion. This $21 billion gap is the figure that EEI once promoted as the amount of extra investment needed for the transmission grid. 8
The discerning reader will have noted that under this Hirst analysis we are not $50 billion or $100 billion short in transmission investment at this time. Instead, we are projected to be $21 billion short by 2009. Assuming the gap opens at the same amount each year, Hirst was forecasting a $2 billion per year shortfall in capital investment. The revenue requirement effect is perhaps $300 million in year one, twice that in year two, etc. Not chump change, but not big bucks either.
Somehow that $2 billion per year deficit became $50 billion needed now, and then $100 billion needed now. 9
Is There Any Deficit at All?
But is there even an emerging $2 billion per year deficit that requires new transmission policies? The case for this is far from proved.
Each of the propositions in the case is open to question. It is far from certain that a reliable transmission system is predicated upon maintaining the 1999 ratio between megawatt-miles of transmission line and megawatts of peak demand, or that peak demand will increase by the forecasted 2 percent annually, or that utilities need a higher return to build more transmission lines.
Why? In the 1970s and 1980s utilities built a large number of nuclear generating units to meet projected peak demand. Each of these nuclear units required substantial new transmission lines to transport the power from the nuclear units located in predominantly rural areas to load centers. This phenomenon gave rise to extensive new transmission proportionate to new nuclear generation (and to a lesser extent new coal generation). 10
Today, however, new generation tends to be natural-gas fired. These natural gas plants are usually located closer to load centers and closer to existing transmission lines and networks. Because of this proximity, these new plants do not require new transmission lines to the same extent their earlier nuclear and coal siblings did. The gas plants' new interconnecting lines are not anything like the transmission lines that were required to interconnect rural nuclear and coal plants in prior decades.
Given that new plants require fewer transmission lines to interconnect, one would expect a gradual decline in the ratio of transmission lines to peak demand simply because the generation-related driver of new transmission is declining. 11
In addition to the physical efficiency phenomenon surrounding new gas-fired plants, the raw data collected from utilities concerning transmission line development may be painting an inaccurate picture of the physical reality of new transmission construction. For example, it is not clear whether utility-forecasted investment in