Competitive Transmission Planning Offers $8 Billion In Potential Consumer Benefits Over Five Years

Study results presented at the 2018 NARUC Annual Meeting by economists at The Brattle Group show that the experience with ISO/RTO competitive transmission planning processes demonstrates potential for significant cost savings. These savings would provide consumer benefits of $8 billion over just five years if the scope of the ISO/RTO competitive processes were expanded to cover a larger portion of total transmission investments.

"As we have shown in previous studies, transmission investments can provide significant customer cost savings through a wide range of benefits, such as improved reliability and reduced generation-related costs. What we show in our latest analysis is that competitive ISO/RTO planning processes can further enhance the cost-effectiveness of transmission and offer additional customer benefits," noted Johannes Pfeifenberger, a Brattle principal and co-author of the study.  "Placing an emphasis on developing a larger portion of transmission projects through competitive processes will also benefit transmission owners by reducing rate pressures and maintaining the attractiveness of transmission as a solution to enhance wholesale power market efficiencies and to integrate and balance increasing amounts of renewable generation as the cost of these technologies continues to decline."  

The key findings of the Brattle analysis include the following:

• Seven years after FERC Order No. 1000 mandated competition in regional transmission planning, an estimated 98% of ISO/RTO transmission investments are still made outside competitive planning processes.
• ISO/RTO-planned transmission projects not subject to competition have experienced cost escalations, with final project costs (including inflation) exceeding the projects' initial cost estimates by 34% on average. Furthermore, these cost escalations often take place without adequate cost-tracking mechanisms in some ISO/RTOs, thereby making it very challenging to track and document these cost increases passed on to customers.
• The experience to date indicates that competitive transmission projects are associated with significant cost savings. Winning bids of competitive transmission projects have been priced on average 40% below initial project cost estimates and have been accompanied with cost caps or other cost-control mechanisms. If these competitive transmission projects can indeed be placed in service as bid without cost escalations, average customer savings could be as high as 55% compared to the escalated costs of transmission projects not subject to competitive planning processes.
• U.S. transmission investments have grown from $2 billion per year in the 1990s to over $20 billion per year in the last five years, 85% of which is located in ISO/RTO regions. Even if long-term savings were only half of the 55% cost difference documented to date and the scope of competitive processes could be expanded from 2% to 33% of total ISO/RTO transmission investments, estimated consumer benefits would be about $8 billion over just five years.
• Project eligibility criteria for ISO/RTO competitive transmission planning processes remain restrictive, greatly limiting the scope of competition and the potential for customer savings. Based on the positive experience with less restrictive competitive regional planning processes, the scope of competitive transmission investments could be expanded greatly nationally.
• Significant investments in transmission are made without full ISO/RTO and stakeholder engagement in the planning and approval of projects. Roughly one-half of the approximately $70 billion of aggregate FERC-jurisdictional investments in ISO/RTO regions over the past five years have been made based on local planning processes of incumbent transmission owners with only limited ISO/RTO review and stakeholder input, resulting in less scrutiny in assessing the needs and cost-effectiveness of the investments.
• Consistent ISO/RTO cost-reporting practices would facilitate better tracking of project costs across all regions, thereby enhancing cost transparency.

The Brattle presentation, "Transmission Solutions: Potential Cost Savings Offered by Competitive Planning Processes," prepared for LS Power and GridLiance, is authored by Brattle Principals Johannes Pfeifenberger and Judy Chang and Senior Associate Akarsh Sheilendranath, and was conducted with the support of Research Analysts Simon Levin and Wren Jiang. It is available at brattle.com.