A spate of newly announced deals, including Allegheny Energy’s proposed $9.27 billion acquisition of FirstEnergy, plus PPL’s takeover of E.ON US for $6.73 billion, has left the utility industry...
The Myth of the Transmission Deficit
- to an article in the October 2002 issue of the written by Hirst and Kirby, "Expanding Transmission Capacity: A Proposed Planning Process," Vol. 15, p. 54, which is citing their own 2001 study.
- One can "eyeball" this by looking at a map of transmission systems. An example is a map of the PJM Interconnection LLC transmission system, where one can readily see that many of the 230-kV-and-above transmission lines are connecting nuclear and coal generating units.
- Hirst acknowledged a similar proposition in an earlier study, namely that if transmission and generation are correlated then it may be appropriate to "normalize" the trend in transmission capacity with generating capacity. When he did that, a downward trend in transmission disappeared: "Normalized by generating capacity, transmission capacity increased by about 2 percent per year between 1978 and 1984 and then remained essentially unchanged from 1984 through 1998." Eric Hirst, "Expanding U.S. Transmission Capacity," at 5, August 2000. This thought in the August 2000 study was missing from the June 2001 study.
- W. Scott Miller III, "A Call for Reason," , June 1, 2003, at 12.
- Peter Huber & Mark Mills, "Dig More Coal-the PCs are Coming," Forbes, May 1999, available at: http://www.forbes.com/forbes/1999/0531/6311070a.html. There is a fascinating e-mail exchange between Mark Mills and Amory Lovins that followed the article, available at: http://www.rmi.org/images/other/E-MMABLInternet.pdf. By the time Mills broke off the dialogue in September 1999 it was pretty clear that the Forbes article had been skating on thin ice. And subsequent research confirmed that, showing, for example, that Mills had assumed average PC electric load at 1,000 W when measured data was more like 135 W. Lawrence Berkeley Labs, "Research Finds Computer-Related Electricity Use to be Overestimated," Press Release, Feb. 1, 2001, available at: http://www.lbl.gov/Science-Articles/Archive/net-energy-studies.html. But by then it was too late-the conventional wisdom had set in.
- See "Blackout 2003: How Did It Happen and Why?" Hearings Before the House Committee of Energy and Commerce, 108th Cong. (Sept. 3, 2003) (statement of Secretary Abraham) (finding it difficult to explain why an 11 to 12 percent rate of return on transmission investment is not sufficient and explaining that regulatory uncertainty is actually the bigger hindrance to transmission investment).
- The NIMBY problem is the "not in my backyard" sentiment.
- The most recent annual report is Reliability Assessment, 2002-2011, October 2002, available at ftp://www.nerc.com/pub/sys/all_updl/docs/pubs/2002ras.pdf. The overall transmission assessment is at pages 20-22.
TLRs and Congestion: Signs of Trouble?
Beyond the decline in the rate of new transmission additions, the case for a transmission deficit relies on other alleged signs of trouble. None bear out.
In his 2001 study, Hirst cited an increase of more than 200 percent between 1999 and 2000 in the number of calls for transmission loading relief as evidence of a transmission deficit. For starters, Hirst was looking at the wrong universe of TLRs-level 2 and above. Anything less than level 5 is not a curtailment of firm service. Non-firm service is purchased with the expectation that it can and will be cut when necessary; market participants fully understand this. TLRs below level 5