Harbinger or Anomaly?

Deck: 

As it becomes more routine for developers to offer cost containment commitments, it will become increasingly difficult for RTOs to ignore the cost impact of proposals.

Fortnightly Magazine - March 2016
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As FERC Order 1000 moves from compliance filings to implementation, many new transmission projects that traditionally were assigned automatically to incumbent transmission owners are now open to competition under the competitive solicitation processes the Commission mandated. To date, only the California Independent System Operator (CAISO) and PJM Interconnection, L.L.C. (PJM) have awarded projects based, in whole or part, on their Order No. 1000 approved competitive processes. 

Although the limited competitive processes to date prevent generalizations, in those solicitation processes that have been finalized, the qualified sponsor with the best cost containment proposal has carried the day. In this new cost- and risk-focused world, incumbent transmission owners' proposals have been beaten out by new entrants, based on the winner's offer to absorb cost overruns and limit the cost risks for ratepayers.

The takeaway: Cost containment will be a critical factor in a significant portion of future competitive solicitations. For prospective developers, whether incumbent or nonincumbent, this means a successful proposal and successful execution of that proposal will hinge on the sponsor's ability to accurately estimate its costs and mitigate on its own behalf the risks inherent in a cost-contained proposal.

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