Interviews with software middlemen.
Partner, Utility Practice Group
Grid Investment & Restructuring: Two Challenges, One Solution
FERC must align the immediate self-interest of profit-maximizing entities with its own view of what is in the public interest.
to investors, even though allowed returns on transmission investment have not attracted the needed capital investment up until now. FERC needs to pull out the stops-perhaps for a limited time-with respect to returns on investment, cost-recovery opportunities, and ownership structure. The allocation of the resulting costs always can be worked out in rate cases. We understand that rate adjustments, however small, and jurisdictional realignments always are fought over. But FERC either must make the case for the economic value, as well as the competitive virtue of ITCs, or indefinitely endure the uncertainties and lack of policy resolution associated with mixed or directionless wholesale power markets.
Edison Electric Institute, EEI Survey of Transmission Investment: Historical and Planned Capital Expenditures (1999-2008). EEI’s survey finds (based on a sample of utility capital budgets) that investor-owned utilities plan to spend $28 billion on transmission between 2004 and 2008.
Eric Hirst, U.S. Transmission Capacity: Present Status and Future Prospects , for EEI and the U.S. Department of Energy (June 2004). Hirst cites various estimates of the amount of investment needed in the next decade to correct for underinvestment, ranging from $27 billion to $100 billion. For the causes and implications of increasing transmission congestion, see North American Electric Reliability Council (“NERC”), 2004 Long-Term Relibability Assessment: The Reliability of Bulk Power Electric Systems in North America , at pp. 33-46.
Transmission Independence and Investment (Docket Nos. AD05-5-000; PL03-1-000)(hereinafter “Technical Conference”). See also, Federal Energy Regulatory Commission (“FERC”), Office of Market Oversight and Investigations, 2004 State Of The Markets Report, June 2005, at p. 26-28 (“Market Report”).
New York v. FERC , 535 U.S. 1 (2002). The Court majority observed that, even though FERC had discretion to decline to regulate the transmission component of a bundled retail power sale, it believed that FERC could (indeed should) have exercised its full Federal Power Act authority over transmission since competitive interstate power markets were the objective of its principal electric rulemakings. We note that, on average, about 10 percent of the cost of delivered retail energy is transmission.
Underinvestment probably has many causes—low returns, the competition for capital within utilities, large upfront costs, regulatory uncertainty, lack of state cooperation, or a perception that projects have no societal benefits. See, e.g., Testimony of Dr. Brendan Kirby, Oak Ridge National Laboratory, Technical Conference (Transcript, p.16).
Perhaps the most widely recognized obstacle to expansion of the transmission system is state-siting regulation, which can be used to frustrate construction of projects in sensitive areas or can cause undue burden and delay for facilities planned for multiple jurisdictions. Congress is therefore likely to give FERC authority to effectively preempt state siting laws in circumstances of inordinate delay. No states have tried to consolidate approvals of the multi-state lines through interstate compacts, although innovative multi-state planning is becoming more prevalent in RTOs and on the non-RTO West.
Policy Statement Regarding Evaluation of Independent Ownership and Operation of Transmission, 111 FERC ¶61,473 (2005).
A case in point is American Transmission Co. (“ATC”). Madison Gas & Electric Co., et al., Order Authorizing Disposition of Jurisdictional Facilities, 93