The time-honored discounted cash flow method for determining appropriate utility returns falls short when interest rates are low. Inadequate ROEs ultimately increase cost of capital and wipe away...
Transmission's True Value
Adding up the benefits of infrastructure investments.
The allocation and recovery of transmission costs has proven to be a significant barrier for major regional and interregional transmission projects in many power markets. Attempts to address this barrier often lead to heated discussions over the merits of beneficiary-pays approaches and “socialized” recovery of the transmission investments. In that context, FERC Order 1000 now requires that the allocation of transmission costs be “at least roughly commensurate” with estimated benefits. With the additional mandate that regional and interregional grid planning efforts also consider transmission needs driven by public policy requirements, this places new emphasis on the identification and quantification of transmission benefits.
Benefits of transmission investments range from increased reliability to decreased transmission congestion and generation costs, as well as risk mitigation, renewables integration, economic development, and increased competition in power markets. These benefits often are spread geographically across multiple utility service areas and states, and are diverse in their effects on market participants. They also occur and change over the course of several decades. In fact, the benefits we derive from today’s transmission grid, such as the ability to operate competitive wholesale electricity markets, could barely be imagined when the facilities were built four or five decades ago.
The post-construction assessment of the Arrowhead-Weston transmission line in Wisconsin, which was energized in 2008 by American Transmission Co. (ATC), exemplifies the broad range of benefits associated with an expanded transmission infrastructure. The primary driver of the Arrowhead-Weston line was to increase reliability in northwestern and central Wisconsin by adding another high-voltage transmission line in what the federal government designated at the time as “the second-most constrained transmission system interface in the country.” 1 The project addressed this reliability issue by adding 600 MW of carrying capacity and improving voltage support, the impact of which was noticeable in both Wisconsin and in southeastern Minnesota.