Strengthening the critical link

Electric Perspectives, Jul/Aug 2001 by Owens, David K, Gale, Roger

To create a vibrant energy market, we need a strong transmission system. And it starts with policy.

While it represents just 11 percent of the national average cost of delivered electric power, transmission is the vital link to the establishment of robustly competitive wholesale markets. Originally designed as a highway to link generators to loads and to enhance reliability through interconnections with other utilities, the transmission system is being asked to perform functions never intended--to operate as a superhighway. Through its landmark Orders 888 and 2000, the Federal Energy Regulatory Commision (FERC) has required nondiscriminatory open access to transmission and the voluntary formation of regional transmission organizations (RTOs) aimed at enhancing access to and efficient operation of the grid.

The theory is simple: Well funcboning wholesale markets, with robust transmission networks, will lead to an increase in the diversity of supply sources available to evolving retail markets, benefiting customers.

The reality is that the transmission grid is under significant stress, leading some policymakers to conclude that the goal of efficient competitive electric markets is illusory unless transmission is enhanced. Everyone knows it's not as simple as stringing more lines-- some policy groundwork needs to be done to strengthen the market, attract investment, and benefit customers.

An Urgent Need to Expand Transmission

Expansion of the transmission system certainly has not kept pace with growing electricity demand. Between 1998 and 1999, transmission congestion was up 40 percent; between 1999 and 2000, it was up 140 percent. (See Figure 1.)

Moreover, transmission investments have been declining for almost 25 years at an average rate of $120 million per year. (See Figure 2.) Transmission investment in 1999 was less than half of what it had been 20 years earlier.

The North American Electric Reliability Council (NERC)-the reliability watchdog of the bulk power network-- outlined the problem in its "Reliability Assessment 2000-2009": "Transmission congestion will worsen, and as a result, transactions will continue to be curtailed until other appropriate congestion relief measures are implemented. The continuing upward trend of NERC transmission loading relief procedures [which allow a transmission owner to decline transactions to ensure the reliability of its system] during a relatively mild summer [2000] in the Eastern Interconnect, is indicative of the persistence of congestion in various areas of the transmission system. Few major transmission system facility additions are planned for the near future. As competitive electricity markets continue to develop, it is likely that the transmission system will be operated at levels of power flow and in configurations not previously experienced."

From Need to Resistance

But whatever the need to build new transmission, getting it built is no easy task. The most significant obstacle is gaining siting approvals for new transmission lines, which has become almost impossible because of myriad challenges in the process of regulatory review and approval. These obstacles include the complicated state regulatory review process; involvement of many local government agencies, the courts, and federal and tribal governments; and the participation of competing interest groups. The public sentiment against transmission expansion is illustrated in the catch-all phrases NIMBY (not in my backyard), NOPE (not on planet Earth), and BANANA (build absolutely nothing anywhere near anyone). Indeed, one only has to look at the trials and tribulations over the Chisago transmission line project-first proposed in 1996linking facilities in Minnesota and Wisconsin. Or the Wyoming-Clover-- dale line proposal to link West Virginia and southwestern Virginia-a proposal first made in 1990! Or the Connecticut Siting Council's recent rejection of a proposed 300-MW transmission cable, which would run below Long Island Sound, linking New Haven, CT, to Shoreham, NY. TransEnergie us has been developing that project for almost three years. FERC recognizes the benefits of this interconnection and is reported to be upset by the decision.

The siting situation is likely to become even more complicated and contentious as regional markets are developed through FERC'S Order 2000. The order requires RTOS to have a planning process in place for the expansion of transmission to maintain reliability. This requirement challenges the traditional belief that transmission facilities serve only small regional or local markets. Thus, it is conceivable for the RTo planning process, under FERC's approval, to identify new regional transmission that state and local authorities flatly reject because they do not perceive a direct benefit for constituents.

To address such gridlock, Congress is being urged by the Bush administration and others to convey new authority to FERC (similar to its authority for natural gas pipeline enhancement) for the expansion and construction of transmission facilities. Such authority could be in collaboration with states.