Transmission

Something seems deeply disturbing about the utility industry these days. An almost palpable tension rises whenever the utility CEO is asked how he will build enough power plants to meet the skyrocketing demand for power. Some consultants predict that sometime after this decade the time will come when utilities won’t be able to build enough to meet demand, no matter what they try.

In October, the North American Electric Reliability Council (NERC) issued its first long-term reliability assessment report in its new role as the nation’s federally mandated reliability organization. The report found that under current trends the U.S. electric power system may not be able to meet customer demand in much of the country 10 years from now.

FERC Chairman Joseph Kelliher gives mixed signals that leave developers wary of committing to investments in new infrastructure, given his clear desire to affect positive change, while appearing to argue for policy decisions that are politically safe but arguably inconsistent.

By almost any measure, the nation is running short of transmission, and the existing volume of investment cannot long continue to reliably accommodate retail-load growth and larger wholesale volumes. Factors like environmental opposition also have caused declines and delays in transmission investment, but it seems clear that financial transmission rights and regulated returns have not sufficed to induce the necessary construction. The authors propose a new model to reward investors who lower congestion costs.

Constellation Energy CEO Mayo Shattuck has complained that he and the utility have unfairly been demonized in the public and in the press. In one interview with a Maryland paper, Shattuck showed distress over the verbal abuse his executives had received from angry ratepayers. And who can blame him?

The march of technology, the urgent call for greater grid investment, and a painful recent past have caught up with the utilities industry. One key area of preventative maintenance for utilities is the transformer, many of which are decades old. Representing approximately $200 billion in investment, these units—which currently number approximately 100,000—can’t be replaced overnight.

Whether it’s an aging workforce, the impact of competitive markets, or an outdated transmission system, today’s energy and utility organizations are facing a whole new set of challenges. What many people in the industry don’t realize is that the utility sector is not the first to face these kinds of issues. The U.S. military is dealing with, or has dealt with, a strikingly similar set of problems in recent years.

Important challenges still confront the development of a coherent strategy to create an efficient modern transmission system. Assuming FERC and Congress are earnest about creating a 21st century grid, new ideas, projects, and technologies need to emerge.

Major transmission projects based on two distinct models are showing signs of life. What can these projects teach us about future transmission investment?

FERC proposed a new set of regulations, under the new section 219 of the Federal Power Act, explaining in broad outline how it might approve generous financial incentives for new investments in transmission—incentives once dubbed as “candy.” As of mid-January, the new NOPR had spawned more industry comment than just about any other FERC proposal in recent memory.