Short-term transmission planning shortchanges consumers, study says
The Brattle analysts noted that investment in high-voltage transmission lines is accelerating, from $4 billion in 2004 to nearly $16 billion in 2013. Brattle estimated that total transmission spending will range from $120 billion to $160 billion over the next decade, to replace decades-old lines, connect more renewable power to customers and deal with grid bottlenecks.
“Economic planning [of power lines] is done very poorly,” said Johannes Pfeifenberger, a principal with the Brattle Group and one of the study’s authors. “Planners only look at a narrow set of circumstances and benefits.
“If we spend that much, can we spend it in ways that provide more value and more flexibility so we can achieve lower costs in the long run?” he said.
The study said that while the Clean Power Plan faces an uncertain future, a “wait and see” approach and a “business as usual” mindset will make the power line bill higher than it could be with better planning.
The study said that current planning approaches fall short on several counts:
- Planners and policymakers typically don’t consider the entire range of benefits consumers can realize from a stronger, more flexible transmission network.
- Nor do they count the potential costs that hit consumers when parts of the grid are overstressed or vulnerable to failure.
- Interregional transmission planning isn’t working, and fails to identify and support valuable transmission projects that would provide cheaper and more secure electric power across multiple regions. The Federal Energy Regulatory Commission’s path-breaking Order 1000 is not achieving its goal of stronger transmission coordination across regions, the Brattle Report found.
“At this point, only SPP [the Southwest Power Pool] consistently evaluates a broad range of benefits and applies cost-benefit analyses to its entire portfolio of planned transmission projects,” the report said.
The resistance to a more expansive transmission policy in the United States stems in part from an understandable concern by state regulators about approving projects that aren’t immediately required to keep the lights on, Pfeifenberger said. But transmission projects also raise competitive issues.
“The reality is, there are very vocal stakeholders who do not want to see any more transmission. Some generators don’t like it because it creates more competition. There are incumbent utilities that have local power plants that are high cost and should be retired, but we need them in the absence of transmission. There are also local renewable power interests who don’t like transmission because it brings in lower-cost renewables,” he said.
Past proposals to consider an overlay of strategic interstate high-voltage lines met with stiff opposition from some state officials who defend their authority over power line siting, and from members of Congress who challenge widespread “socialization” of transmission costs to customers who may get little or no direct benefit from the lines.
Calif. crisis
As one example of a planning failure, the report cites the electricity crisis that hammered California in 2000-2001, an unimagined combination of weather shocks, energy shortages, a bungled state deregulation plan and fraud, the latter perpetrated by Enron Corp. power traders’ predatory market schemes like Fat Boy, Death Star and Ricochet.
Fatefully, California officials had earlier turned down a plan to strengthen the state’s electricity grid by upgrading a vital transmission link called Path 15 that delivered surplus hydroelectric power from the Pacific Northwest through the center of the state to Southern California. When a summer heat wave hit in 2000, driving up power demand, congested lines in Path 15 created supply bottlenecks that led to rolling blackouts, soaring wholesale prices and the bankruptcy of Pacific Gas & Electric.
After the crisis, the Path 15 upgrade was ordered and built, at a cost of $250 million, Brattle noted. But the emergency likely cost Californians $200 million in just its first half-year, the California Independent System Operator (CAISO) estimated. “We now know that with the benefit of hindsight that upgrading the transmission constraint would likely have paid for itself in just one year during the Power Crisis,” the report said.
The report also noted a CAISO study in 2004 of a proposed transmission link between the Palo Verde nuclear plant in Arizona and the Devers substation in Southern California as a rare example where planners considered potentially high costs of not building a project.
The project’s annualized cost was estimated at $71 million — well above the direct production benefits, which were put at $55 million annually. However, when the calculation included savings from new generation plants that need not be built because of the line, and increased emission reductions and lower prices from competition, the total benefits climbed to $100 million annually, Brattle said.
CAISO went further, considering the possible costs and benefits of 17 potential energy scenarios involving the proposed line, including the possible long-term outage of the San Onofre nuclear power plant (which became a reality). In this case, the study estimated a 50-50 chance that benefits could approach $200 million a year.
The Brattle study argued that “conservative” planning will increase whatever level that transmission spending may reach. It cited a study prepared by five universities for the Eastern Interconnection States’ Planning Council (EISPC), an analytical collaboration by public utility commissions, state energy officials and other government representatives in the eastern half of the United States.
The EISPC study concluded that traditional grid planning results in combined costs for generation and transmission that are 5 to 10 percent higher than the best plans would cost.
“Where you build transision in reaction to what is happening on the generation side, it is a lot more expensive in the long run, whereas if you plan transmission proactively on an anticipatory basis, you would spend more on transmission, and less in total [for transmission and generation combined],” Pfeifenberger said.
“It would be helpful for state regulators and commission staff to get a better sense of how to plan for an uncertain future, and wha