Much has changed in the nation’s electricity markets since Order 1000 was initially proposed, pointing to the dangers of developing a national transmission policy based on the “flavor of the day” and ignoring the changing economic and reliability needs of customers at the local level. Shifts in public policy, electricity generation and the proliferation of state-driven local renewables closer to population centers have undermined much of the rationale for the FERC transmission plan. Indeed, the unforeseen changes in the electric sector are proving challenging for even the most seasoned business leaders, let alone for regulators at all levels. Who could have anticipated the dramatic change in the generation mix since 2010? In April, utilities generated as much electricity from natural gas as it did coal for the first time since the government began collecting data in 1973. The switch from gas to coal highlights once again that top-down planning driven from Washington is unable to anticipate market development and efficiencies.
The changing profile of renewable energy development also raises questions about this desired shift in transmission strategy. Over the last several years, the cost of PV solar panels has significantly decreased. This technology can be deployed on the rooftops of homes and businesses without the need for expensive new transmission facilities. In fact, clean distributed generation can reduce congestion on transmission lines and cut costs. For example, clean energy projects in Michigan and the Midwest may be a less costly alternative for consumers than the combination of wind farms in the Dakotas and long transmission lines. FERC needs to ensure that national transmission policy enables these transparent cost comparisons and does not tilt the playing field toward one option at the expense of consumers.
Make no mistake, FERC is correct in its assessment that we must modernize and expand the nation’s power grid to ensure reliable sources of electricity. In fact, the power industry is investing in transmission at a record pace, driven by growing demand for electricity and the need to maintain reliability. The Edison Electric Institute reported that in 2010 investments by electric utilities and transmission companies eclipsed $10 billion for the first time.
According to Transmission Hub data, North American utilities are expected to spend more than $20 billion annually from 2012 to 2020 on new transmission projects and power lines - including those required for the integration of renewables. In 2013, annual investment on transmission will reach $15.4 billion, more than double the $7 billion spent in 2012 —and then double again in 2015 to $31 billion, representing 9,700 miles of power lines, the study said.
Transmission costs are bound to increase over time. But what has kept transmission a relatively small part of the consumer’s bill to date, is the discipline imposed by a transmission planning approach that is based on the fundamental reliability and economic needs of customers – not on public policies that shift, or a preference for generation of a certain type or from a certain region.
Federal transmission policy should facilitate investment in projects that are needed to maintain reliability and reduce congestion on the grid. Using federal transmission policy to achieve other broader policy objectives sets consumers up for benefits that are speculative, with burdens that are all too real. Happily, a bipartisan group of U.S. Senators supportive of renewable energy and a robust grid have introduced legislation that would protect consumers from unfair electricity costs. Congress can — and should—consider the important energy policy issues raised by FERC’s misguided transmission effort. Transmission is not an end in itself, but a means to achieve our nation’s goals of reliable, reasonably priced and clean electricity.
Edelston is the executive director of the Coalition for Fair Transmission Policy, a diverse group of electric utilities across the country, and president of the Energy Policy Group, LLC, an economics and public policy consulting firm serving the energy industries.