Concluding that the transmission infrastructure is inadequate, the American Wind Energy Association (AWEA) and the Solar Energy Industries Association (SEIA) call for a national investment likened to the Eisenhower Administration’s commitment to the interstate highway system, to support renewable development. That call is echoed by the Energy Future Coalition (EFC), the Center for American Progress, the Sierra Club and others, who argue for nationally-directed plans for large-scale private-sector investment to connect vast renewable energy resources to the electric grid. By the date of this publication, these concepts likely will have turned into draft legislation.
While many of the suggestions made by AWEA, SEIA and EFC are sensible and well-intended, their call for the nation-wide allocation (socialization) of costs that may amount to several hundred billion dollars is unnecessary, costly, and likely to thwart the development of economical alternatives for meeting greenhouse gas (GHG) emissions reductions. Assuming, as seems quite likely, that Congress will establish a set of broad environmental goals for the electric industry through implementation of an RES and carbon-control measures, it would be far better to let the industry determine how to most effectively meet those goals by making economic choices among an array of available options. Subsidizing solutions that depend on expensive transmission construction is unnecessary and very well might result in the United States having foreclosed innumerable alternatives to compete with a vast transmission subsidy.
The elements of the proposals now being circulated for what AWEA and SEIA call the “green-power superhighway” include: 1) federally-mandated interconnection-level planning; 2) new federal siting authority; and 3) cost recovery from all load on an interconnection-wide basis. They argue that all of these elements must come together in order to accomplish the goal of attaching substantial renewable resources.1
With respect to planning, AWEA, SEIA and EFC call for legislation establishing interconnection-wide transmission planning overseen by the Federal Energy Regulatory Commission (FERC) with the aim of developing plans for new transmission lines to be built to attach renewable resources. As to siting authority, referencing the now balkanized nature of the state-by-state siting process, they call for uniform federal authority capable of licensing facilities that serve national interests. Finally, with respect to cost allocation, they argue that the cost of the transmission build-out should be spread among all load-serving entities on the basis of their relative load, for ultimate allocation to all customers throughout the nation. AWEA and SEIA contemplate that the backbone of the new grid will consist of high-voltage (765 kV) lines designed to bring (principally) wind resources from remote locations to population centers generally on the nation’s coasts.
While no definitive estimate of the cost of the new superhighway system yet has been advanced, there is some indication of its magnitude in a recent transmission build-out study that AWEA and SEIA cite favorably, undertaken in the Joint Coordinated System Plan 2008 (JCSP) by the Midwest ISO, SPP, PJM, TVA and MAPP. This study estimates that an $80 billion investment would be necessary in the Eastern Interconnection alone to meet the 20-percent wind-energy scenario the Department of Energy envisioned in its Eastern Wind Integration and Transmission Study. It seems reasonable to assume a nationwide program might cost at least twice that amount.
The options for responding to a federal RES or some form of carbon control, whether a cap-and-trade system or a carbon tax, include: 1) demand response and efficiency initiatives; 2) distributed renewable generation; 3) centrally-located, environmentally-sound generation (new or retrofitted); and 4) access to remote renewable resources that might call for transmission development. Greenhouse gas capture and storage ultimately might play a significant role, although the technology for wide deployment of this alternative isn’t yet commercially viable.
The Electric Power Research Institute (EPRI) through its “Full Portfolio” analysis and McKinsey and Company in its 2007 “U.S. Greenhouse Abatement Mapping Initiative,” have detailed the many options that must be brought to bear in this area. These studies reveal a myriad of options, including: energy consumption efficiency initiatives (many calling for capital investment); conversion of existing generation to more efficient operations; the development of additional nuclear capabilities, advanced coal generation and carbon capture and storage; distributed renewable resources (including distributed solar); plug-in hybrid vehicles and the development of large-scale remotely-located renewable generation.2
These studies inescapably lead to the conclusion there is no magic bullet for reducing carbon emissions, and that the U.S. energy industry must rely on a large number of alternatives. Many of these options call for meaningful capital investment, and they all will compete with one another—and should—for the capital devoted to meeting GHG-reduction goals.
Where remotely-located renewable resources economically can be connected to transmission, obstacles in that path must be cleared away. AWEA, SEIA and EFC are right to target, as a significant obstacle to connecting renewable resources, the absence of workable federal-siting authority for interstate transmission facilities crossing state lines. State-siting authority is inadequate to address interstate transmission for renewable resources, since state authorities generally are restricted to considering the best interests of their jurisdictions in isolation, leaving any state in a proposed interstate-transmission pathway in a position to exercise an effective veto. Nor is federal authority currently adequate to overcome this barrier. While the Energy Policy Act of 2005 added section 216 to the Federal Power Act, authorizing FERC to exercise so-called “backstop” siting authority, the authority is restricted, and of limited utility for renewable resources. The Act authorizes FERC to issue certificates in instances in which states fail to site facilities that would address transmission constraints in so-called “national interest corridors” identified by the Department of Energy. Yet, these designations generally aren’t designed to address transmission for renewable resources. Moreover, the scope of federal authority recently was narrowed by the court’s decision in Piedmont Environmental Council v. Federal Energy Regulatory Commission,3 in which the 4th Circuit held that a state order directly denying a certificate application did not serve as a predicate for the exercise of federal backstop authority.
Further obstacles to interstate renewable-transmission projects often are presented by Federal agencies such as the Department of the Interior’s Bureau of Land Management, the Forest Service and the Department of Defense, all responsible for administrating federal lands that might be crossed by this green-power superhighway. Particularly in the Western United States, where federal land often is traversed by large-scale transmission projects, the lack of coordination, lengthy processes, and the inability to focus on the benefits of large national renewable goals often hamstrings projects. Here, delegating federal-siting authority to a single agency might be of enormous help.
Finally, coordinated interregional planning might merit further exploring, in order to facilitate the development of multi-state plans responsive to the need to interconnect renewable resources. Here there may be room for improvement, but it’s not clear that existing planning institutions and processes-including those only recently blessed by FERC in Order No. 890—aren’t up to the task. Indeed, the JCSP study process demonstrates that coordination is quite feasible among existing institutions in the development of cross-regional plans. Such coordination, in contrast to an additional layer of bureaucracy, holds the best hope of ensuring that the planning process will continue to be well-informed by existing expertise, and that local concerns to which the planning process must be mindful, continue being addressed. Without a doubt, once the need to respond to an RES and carbon control becomes a priority among utility planners, the focus of these processes will evolve.
The proposed socialization of the cost of an interconnection-wide transmission build-out would be an unnecessary and counter-productive step. Under existing FERC policy, where proposed new transmission facilities are integrated with existing facilities and serve to benefit all customers, whether by enhancing reliability or reducing system-wide costs, costs generally are rolled into system-wide rates.4 On the other hand, where new facilities are designed to provide service from a limited set of new resources, costs are borne directly by project developers and load. In California Independent System Operator,5 FERC permitted partial rolled-in rate treatment on an interim basis for the unsubscribed portion of transmission facilities designed to access remote renewable resources, but provided for the allocation of these costs to incremental subscribers as the line is used more fully. The interim and partial nature of the rolled-in rate treatment underscores the general regulatory rule that costs appropriately are assessed to cost causers, unless a specific showing is made that all customers will benefit from the investment. In Chinook Power Transmission, LLC, Zephyr Power Transmission, LLC,6 FERC modified its open-access rules to permit transmission project developers to commit capacity to anchor customers, thereby providing backers the security of financial commitments needed to support the projects. The decision promotes the development of new merchant facilities designed to access remotely- located renewable resources. Again, the order confirms the general rule supporting incremental rate treatment for facilities of limited general benefit. Explaining this policy with respect to new interstate natural gas pipeline facilities, FERC has commented that sending project developers and users a price signal reflecting the unsubsidized cost of facilities discourages overbuilding and levels the playing field for competitors.7
Under the quite reasonable assumption that all utilities soon will be required to comply with a federal RES and some form of carbon-control regime, utilities will have an unprecedented incentive to search out new options for GHG-emission reductions. Without a doubt, many utilities will make plans to build new transmission facilities in order to access remotely located renewable resources, while project developers will have reason to invest in such facilities in order to access newly motivated markets. Particularly in states in which RES requirements already are in place, a good deal of this work already is under way.
Adding cost socialization for new transmission facilities into this mix will tilt the balance among the many options for satisfying new RES and carbon-control requirements substantially toward reliance on remote renewable resources through cost-subsidization. With the cost of new transmission for remotely-located renewable resources rolled into system-wide rates by statutory fiat, any investment in other options, even if they were more economical when considered on a fair basis, will be disadvantaged.
Cost socialization also is inequitable when considered with respect either to utilities that themselves already have invested heavily in transmission to access renewable resources (as is true of many utilities in California struggling to meet already stringent RES requirements), and as it relates to utilities (particularly those in the Southeastern United States) for whom wind resources simply aren’t a realistic option, no matter how heavily the transmission grid is subsidized. For these utilities, the best hope of mitigating substantial RES and carbon-control requirements lies in developing efficiencies in the production and use of electricity, and in the development of local biomass resources. It does the environment no good to call upon these utilities to subsidize a transmission grid to which they have no realistic hope of accessing.
AWEA, SEIA and EFC suggest that without a national funding mechanism, necessary transmission simply will not be built. This seems clearly incorrect, and ignores the unavoidable dynamic that an RES or carbon-control framework will establish. Faced with a direct mandate, or an overwhelming financial incentive, utilities simply must respond, and, where economical, they will build or fund new transmission systems.
Whether the investment compelled by these new requirements will support all of the high-voltage facilities contemplated by AWEA, SEIA and their supporters is an open question. Both the AWEA and SEIA paper, and AEP in their promotional materials, tout the engineering benefits of new 765-kV lines, pointing to the efficiency of the larger lines with respect to the power they convey, the use of rights of way, and lower line losses than smaller-scale facilities. But it makes no sense to judge the economics of these lines in the abstract. If, indeed, it makes economic sense to build them, when considering the available resources and demand while comparing the cost of construction to all of the available alternatives, the reasonable conclusion is that they should be built. Yet, project developers should be making these judgments, based on projected generating capacity, anticipated demand and cost and efficiencies of the facilities. There is no need for legislation that prejudges the result.
As proponents of the new transmission superhighway suggest, the nation’s experience with the interstate highway system provides an instructive example. The lessons learned, however, might not serve proponents’ position. Good work has been done over the years demonstrating that the nation’s commitment to the interstate highway system had the effect of crowding out other transit resources, undermining urban centers and contributing to suburban sprawl.8 The U.S. experience in this respect has been compared unfavorably to the European one, in which mass transit between, and within, urban centers encouraged far better use of land resources, the preservation of strong urban centers, and not nearly so great a reliance on automobile travel. This experience gives rises to an inescapable conclusion: Subsidizing the interstate highway system foreclosed a range of alternatives that became uneconomical by comparison, and would have been more environmentally benign.
Cost socialization of the proposed electric grid build-out probably would have a similar effect. While the need to respond to an RES and carbon-control measures should engender a myriad of responses, some local and some centralized, the massive investment contemplated by transmission superhighway proponents leaves room for only one answer as a matter of economics, and a costly one at that. We can do better.
1. See www.awea.org (“Green Power Superhighways; Building a Path to America’s Clean Energy Future”).
2. See mydocs.epri.com/docs/public/DiscussionPaper2007.pdf; and http://www.mckinsey.com/clientservice/ccsi/greenhousegas.asp.
3. Case No. 07-1651, 4th Cir., Feb. 18, 2009.
4. See Southern California Edison Co., 121 FERC _ 61,168 (2007).
5. 119 FERC _ 61,061 (2007); reh’g denied, 120 FERC _ 61,244 (2007).
6. 126 FERC _ 61,124 (2009).
7. See Certification of New Interstate Natural Gas Pipeline Facilities, 88 FERC 61, 227 at 61,745 (1999).
8. Dunn, J.A. Jr. Miles to Go European and American Transportation Policies, MIT Press, Cambridge, MA (1981); Jackson, K.T., Crabgrass Frontier: The Suburbanization of the United States, Oxford University Press, New York, N.Y.U. (1985); Muller, P.O. “Transportation and Urban Form: Stages in the Spatial Evolution of the American Metropolis.” In The Geography of Urban Transportation, 2nd ed, edited by S. Hanson, The Guilford Press, New York, NY (1995), pp. 26-52. For a good summary of this literature, see Schwager, D. “Consequences of the Development of the Interstate Highway System,” Federal Transit Administration, Transit Cooperative Research Program, August 1997, No. 2.