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Transmission benefits: filling a critical gap in Order 1000, part 2

By Jim Hoecker

 

This is part two of a two part series by Hoecker. Read part one, where he explains how WIRES came to retain Brattle to review transmission projects by clicking here.

In its “The Benefits of Transmission,” the Brattle authors stated that “[a]n analysis that ignores or rejects benefits that are not measured with precision implicitly assumes that the value of such benefits is zero. This will systematically understate the value of transmission investments.” 

The Brattle report issued in July 2013 and became the first systematic effort to identify all possible transmission benefits and the methods planners can use to assess all the ways a project may (or may not) contribute economic, reliability, or public policy value to the electricity system, consumers, and the economy generally. Brattle also suggested a methodical way of addressing benefits in all cases -- planners should always (1) consider all benefits, (2) define the scope of potential benefits, (3) understand total benefits of a project before leaping into the politics of who will pay for it, (4) consider regional benefits as a basis for (the much tougher) inter-regional planning process, (5) evaluate and address all long-term uncertainties, and (6) compare costs and benefits over the life of the project. According to the report, this straightforward and intuitively helpful process is a formulation any transmission provider or any (RTO or non-RTO) region could apply. 

Will this innovative study achieve recognition and the positive impact the transmission sector deserves? The challenges posed by ingrained and often idiosyncratic planning practices should not be underestimated. The prolonged Order No. 1000 compliance process has already demonstrated that the planning and allocation processes vary tremendously from one region to the next, and that the FERC is as yet unwilling to prescribe more uniform or consistent approaches in most cases. 

In response, the Brattle report makes a simple recommendation. It provides a “checklist” of benefits that planners in any region, working on any project, could methodically employ. FERC should insist, implies the Brattle report, that the checklist and an accepted method of calculating the benefits of new transmission should always be consulted during the inter-regional planning process that FERC has mandated in order, in order to avoid a negotiation among planners based on “lowest common denominator” project criteria, which will ultimately lead to projects that are not the most beneficial for customers in each region or the most economically efficient.

The response to the Brattle report has been positive, although the FERC has not used it to imprint the inter-regional planning processes under Order No. 1000. Regional planners have informally applauded the work. It has also filled a gap in the understanding of many policy makers about how Order No. 1000 is supposed to work. WIRES has suggested it could inform the Commission’s decisions about the appropriate rates of return on equity for existing transmission projects when their returns are challenged under Section 206 of the Act, although some commenters object that this would inject valuation considerations into the ratemaking process. In sum, the report has been a constructive and thought-provoking contribution to an area of transmission planning that has heretofore been largely ignored.

This is part two of a two part series by Hoecker. Read part one, where he explains how WIRES came to retained Brattle to review transmission projects by clicking here.

 

Jim Hoecker is a former Chairman of the Federal Energy Regulatory Commission. He serves as Counsel and Advisor to WIRES, an industry coalition promoting transmission infrastructure, and is Senior Counsel at Husch Blackwell LLP in Washington, DC.

 

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Kathleen Wolf Davis's picture

Thank Kathleen for the Post!

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