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October 25, 2018
Brattle Economists: Competitive Transmission Planning Offers Significant Cost Savings and Consumer Benefits

New data presented today at the 2018 WIRES Annual Meeting Policy Session by economists at The Brattle Group shows the experience with ISO/RTO competitive transmission planning processes to date as a result of FERC Order 1000 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 could be expanded to cover a larger portion of total transmission investments, according to an in-depth examination of competitive transmission planning processes in ISO and RTO regions of the United States and in the Canadian provinces of Ontario and Alberta.

“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 transmission-related customer benefits,” noted Johannes Pfeifenberger, a Brattle principal and co-author of the study.  “Placing an emphasis on developing more transmission projects through competitive processes will increase the attractiveness of transmission as a solution to enhance wholesale power market efficiencies and to integrate and balance increasing amounts of renewable generation.  Establishing and implementing consistent minimum ISO/RTO cost-reporting standards would also facilitate better tracking of project costs across all regions, thereby enhancing cost transparency.”

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 over the past five years are made based on local planning processes of incumbent transmission owners with limited ISO/RTO review and stakeholder input, resulting in less scrutiny in assessing the needs and cost-effectiveness of the investments.

The Brattle Group’s presentation of the new findings, “Transmission Competition Under FERC Order No. 1000: What We Know about Cost Savings to Date,” 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.