Financial transmission rights and regulated returns have not induced needed construction. Presenting an alternative model.
J. Jolly Hayden is an independent consultant and most recently vice president of transmission operations for Calpine. Contact him at email@example.com. Robert J. Michaels is professor of Economics at California State University, Fullerton, and an independent consultant. Contact him at firstname.lastname@example.org. The opinions expressed in this article are the authors’ alone.
Between 1975 and 1999, transmission investment fell from $5 billion per year (in 2003 dollars) to less than half that amount. It is now on an upward trend, but the 2003 figure (the latest available) is only $4.1 billion.1 Even if investment increases substantially and stays high, the decline in transmission capacity relative to peak loads will not be reversed quickly.2 That ratio peaked in 1982, a year when wholesale markets had begun to grow.
By 2004, 75 percent of power generated in the United States went through those markets (this figure does not include some bilateral transactions).3 Arguments that the system was not “designed” for wholesale transactions are beside the point: They are taking place, providing benefits, and must use the same wires that serve everyone else.
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 (FTRs) and regulated returns have not sufficed to induce the necessary construction.