Dive Brief:
- Competitive transmission line projects get planned and built more quickly in four major grid regions compared with similar projects built by incumbent utilities, according to analysis released Tuesday by the R Street Institute, a free market-oriented think tank.
- The faster construction was seen in the California Independent System Operator, ISO New England, Midcontinent Independent System Operator and Southwest Power Pool. In contrast, incumbent utilities in the PJM Interconnection planned and built transmission projects more quickly than independent transmission companies, the R Street analysis found.
- Competitive transmission projects are roughly 30% less expensive than similar incumbent projects, according to the report, “Need for Speed: An Analysis of Speed to Market and Cost Results of Competitive Transmission”.
Dive Insight:
Previous studies showed that transmission competition can provide meaningful cost savings, but some questioned whether the additional effort of competitive solicitations was worth it, especially if they delay needed transmission, Kent Chandler, one of the report’s authors, said in an email.
“Our analysis found no evidence that competitive solicitations have added time to the overall transmission planning and development timelines relative to utility processes,” said Chandler, a senior fellow at the R Street Institute and former chairman of the Kentucky Public Service Commission.
The Federal Energy Regulatory Commission opened up transmission construction to competition when it issued its Order 1000 in 2011. Since then, incumbent utilities have pushed to limit competition in the transmission arena.
In April, for example, Entergy, Xcel Energy and seven other utility and transmission companies asked FERC to halt the practice of putting regional transmission projects out to bid in the MISO and SPP regions, which span much of the central United States. The Illinois Commerce Commission and state lawmakers from Iowa, Kansas, Montana and Oklahoma oppose the utilities’ request.
The utilities told FERC that competitive bidding slows transmission development by 16 to 20 months on average.
However, based on a review of completed competitive transmission projects — a total of 18 projects — R Street found that competitive projects are generally planned and built more quickly than comparable greenfield projects built by incumbent utilities. The report’s authors based their assessment for competitive projects on the time it took to build a project after a grid operator identified the need for the project. The time span includes a solicitation process, which can take more than a year.
Incumbent transmission projects take longer to build in most regions
In CAISO, the median completion time for three competitive projects was 2,064 days, or about 30% faster compared with the 2,980 days it took incumbent utilities to build five similar projects.
In PJM, competitive transmission lines took about 20% longer to plan and bring into service than comparable incumbent projects, according to the analysis.
Incumbent transmission projects generally faced delays while greenfield competitive projects in MISO, ISO-NE, the New York Independent System Operator and PJM came in ahead of schedule, according to the report.
“Incumbent projects across the country come in well past their original expected in-service dates,” the report’s authors wrote. “The exception to this observation is PJM, where incumbent developers of greenfield transmission lines only miss their expected in-service dates by a few weeks on average.”
Competitive and incumbent developers in CAISO and SPP placed their transmission projects into service late, with comparable delays, the report’s authors said.
“Delays may be region-specific (at least in CAISO), and evidence suggests the causes may impact competitive and incumbent projects similarly,” they said.
Competitive transmission projects could be built more quickly if solicitation processes were shorter, the report’s authors noted.
The analysis found that while final project costs tend to be higher than bids or initial estimates for competitive and incumbent projects, competitive projects are about 30% less expensive than incumbent projects.
“Consistent cost increases during development for both competitive and incumbent projects suggest industry-wide factors rather than developer-specific drivers,” the report said.
