Following a five-year upward trend in transmission investments, U.S. investor-owned utilities are poised to boost their transmission spending even more by 2008, but they must have a durable regulatory framework to make those plans a reality, Southern California Edison CEO Alan J. Fohrer told federal regulators today.
Testifying before the Federal Energy Regulatory Commission on behalf of the Edison Electric Institute, Fohrer refuted the misperception that U.S. electric utilities are "not sufficiently focused on the transmission part of the business" and announced that the industry is preparing to make major new investments in the grid.
The SCE chief executive acknowledged that from the mid-1970s until 1999, growth in transmission spending lagged behind the growth in electricity demand.
"Since 1999, however, we have seen a dramatic reversal of this trend through strong growth in transmission investment by the industry," Fohrer said. He noted that annual transmission investment by the industry increased from US$2.6 billion in 1999 to $3.6 billion by 2000, and continued growing steadily to hit $4.1 billion by 2003.
"Industry plans for the future are even more impressive, reaching levels not seen in the last 30 years," Fohrer said. A recent survey of EEI member companies reveals a projected $28 billion in new investment over the 2004-2008 time period. When compared to the $18 billion in recorded investment over the 1999-2003 time period, projected investment is expected to increase by 60%.
"These investments will improve grid reliability, support the integration of new generation, improve transfer capability between regions and enhance markets," Fohrer noted.
While a remarkable opportunity for transmission investment is within reach, the commission needs to accommodate this growth by aggressively pursuing policies that ensure regulatory certainty and cost recovery, Fohrer said.
"I cannot overemphasize the need for FERC to establish and put into effect a durable regulatory framework that says if I prudently invest a dollar in transmission infrastructure, that I will be able to fully recover that dollar, along with my cost of capital, through electricity rates," Fohrer told the Commission. "Such a framework is essential to raising the substantial and nearly unprecedented amount of capital necessary to construct needed, cost-effective transmission facilities."
Commenting on the dilemma of unrecoverable, "trapped" costs for utilities that often arise when federal and state regulatory policies diverge, Fohrer urged FERC to work closely with state policymakers to ensure that the appropriate regulatory mechanisms are in place to allow for full cost recovery and the avoidance of trapped costs.
Fohrer also urged the commission not to favor one corporate structure or business model over another, saying that "many different structures and business models can coexist in a competitive wholesale marketplace for the construction of transmission, provided there are fair rules in place for all market participants. The commission should be careful not to disrupt current investment plans by aggressively pursuing new business models based on the mistaken believe that the industry is not committed to building transmission."