Investment in an electricity network in the public interest

Electricity is needed to read this blog, call your family, and buy milk at the store. Most modern public health, safety and security systems we rely on also depend on the electrical grid. To expand and modernize the nation’s electrical infrastructure, the federal government recently announced new funding. This continues a 100-year tradition of the government shaping the electricity grid. State and federal governments have a solid foundation for a wide range of government policies that align the public interest with the utility companies building the electric grid.

The public’s practical dependence on electricity supplies and the long-term, spillover economic benefits of electric system improvements reinforce the continued and evolving role of local, state, and federal governments in the electric grid. Because a modern, stable electric power system needs investment to meet growing electricity demand and enable new energy technologies for the transition to cleaner energy and a healthier environment, state and federal governments are active in supporting new transmission and improving existing network infrastructure.

Since July, when I wrote about state governments planning new network infrastructure, a lot has happened and yet to happen. Most importantly, the utility industry is still waiting for the Federal Energy Regulatory Commission (FERC) to finalize its upcoming regional transmission planning rule. Potential regional transmission planning reforms unveiled by FERC in July 2021 could address vulnerabilities and reduce a repeat of the devastating power outages of the past few years. Grid reliability is part of FERC’s authority and responsibility.

Although FERC has been reluctant to address the root causes of transmission planning inaction, other bodies have found means to promote the public interest when it comes to grid infrastructure. Congress and state legislatures are helping build a modern network. New funding for a US Department of Energy (DOE) effort will address some of the obstacles blocking investment in interstate transmission. In the past month, DOE announced funding support for several large, impactful transmission projects.

DOE will pre-contract for the use of a portion of three transmission lines it selected on October 30. Each of these lines will transport at least 1,000 megawatts (MW), which at the scale of a conventional nuclear power plant is large enough to provide economies of scale in land use, construction and energy losses. DOE’s commitments assure developers and lenders that interstate customers and suppliers can meet demand for these lines over time. Lining up all the smaller users on a large line is a bit of a chicken or egg problem. DOE’s announced capacity commitment overcomes these obstacles in time and scale. DOE uses this approach for transmission connecting Nevada and Utah, Arizona and New Mexico, and New Hampshire, Quebec and Vermont.

Transmission investment in large interstate projects is often hampered by incorrect application of the “beneficiary pays” principle. Compared to the broader infrastructure-building approach, this is a more recent constraint on transmission financing. Federal and state participation in transmission is good and necessary to counter biases in utility stakeholder debates that do not account for all potential beneficiaries. Government influence on transmission expansion is an adjustment to correct the assumption that the market will perfectly organize buyers and sellers, even for infrastructure assets that have 40- to 80-year lives and spread the benefits widely.

The largest of 58 grid partnership projects announced by the Department of Energy on Oct. 18 falls under the delusion that current transmission planning and cost allocation are sufficient to identify and confirm beneficiaries across state and regional boundaries. Indeed, today’s significant network investment practices do not even attempt to describe the beneficiaries outside the country seeking network expansion. The Department of Energy will fund roughly a quarter ($464 million) of the cost of a set of transmission improvements between the Midcontinent Independent System Operator and the Southwest Power Pool, two grid operators that serve the Plains states. This “joint purposeful interconnection queue” project will unlock approximately 30,000 MW of new generation – mostly wind and solar – that has been proposed along the border between the two grids. This funding effectively recognizes the public benefits of grid expansion, but these transmission investments would be too expensive for new generators to afford.

State governments see transmission as key to economic development, just as federal investments in ports, highways and communications have enabled economic growth across the country. Nebraska and New York have long histories of public investment in the electric grid. Twenty years ago, there was another round of public support for electric transmission in Idaho, Kansas, South Dakota and Wyoming. Recent legislation created the Colorado Transmission Authority based on lessons shared by the New Mexico Renewable Energy Transmission Authority and the North Dakota Transmission Authority. All these countries recognize that transmission policy is a key part of the energy supply chain and economy.

Public investment in transmission recognizes that such funding has broad and varied benefits that are not typically included in the cost-benefit analyzes of utilities and network operators. These benefits are maximized when the voices of affected communities are heard and local priorities are recognised, a role that governments must be appropriate to play.

Illinois, Maine, and Maryland have recently passed legislation on energy transmission and storage needs that could build on the experience of other states. In addition, the Union of Concerned Scientists published the Network’s Just Principles for Communicating Transmission Decisions. When the public is represented in transmission planning, more policy goals, benefits and safeguards for the community can be included. When public benefits are scattered and processes inadequate, local, state and federal governments must play a role in determining the future of the electric grid.

Leave a Comment

Your email address will not be published. Required fields are marked *