• Energizing Transmission Construction in the Electric Industry
  • October 13, 2014 | Author: Elizabeth M. Brereton
  • Law Firm: Snell & Wilmer L.L.P. - Salt Lake City Office
  • With so many personal gadgets needing daily recharging, desktop hard drives running 24 hours a day, and DVRs recording movies that run while we’re asleep, do you wonder where all that electricity is coming from? The next big construction boom may be in electric transmission infrastructure. In 2012, electric utilities invested $90.5 billion in generation, transmission and distribution facilities. Conservatively, some analysts estimate that between now and 2030, up to $320 billion will be needed just to ensure electric transmission infrastructure keeps pace with projected generation and load. If Southern California Edison’s Devers-Colorado River (DCR) project is any indication, however, these projected costs are likely to increase. The Edison Electric Institute reports that the DCR project was initially projected to cost $545.3 million. Since that time, costs increased by 29 percent to an estimated $701.3 million (in real 2005 dollars).

    To some extent, the expected upsurge in transmission infrastructure investment is driven by federal emissions regulations proposed by the Environmental Protection Agency (EPA) and aggressive renewable portfolio standards implemented by the states. Anticipating or facing increasing costs associated with fossil fuel generation, electric utilities are including solar and wind generation in their portfolio mix.

    Adding renewable generation, however, is not simply a matter of building more wind and solar farms. The biggest challenge facing the renewable industry is transmission. In most cases, the economies of scale for solar and wind generation require project siting based on existing transmission capacity. Although there are a number of sites with significant solar and wind potential, generation development will require a huge capital investment in transmission infrastructure. Given the variability of wind and solar generation, transmission lines dedicated to these projects have historically been uneconomical.

    Recently, however, the DC Circuit Court of Appeals upheld FERC Order No. 1000. Under FERC Order No. 1000, regional transmission planning is mandatory for cost recovery under FERC transmission tariffs. Moreover, transmission projects must consider regional “public policy.” Many in the industry have construed this mandate as FERC’s attempt to shoehorn renewable development priorities in a determination traditionally driven exclusively by cost and risk. Most importantly, however, FERC Order No. 1000 eliminates federal rights of first refusal in FERC tariffs. Under the first right of refusal, incumbent utilities maintain a right of first refusal to construct all proposed transmission infrastructure in their territory. Presumably, by eliminating this right, merchant transmission owners and operators will be able to participate in transmission development rendering the process more competitive, and more efficient. Some contend that the cumulative effect of FERC Order No. 1000 will be to loosen states’ grip on transmission siting thereby forcing the industry to take a more regional approach to transmission construction.

    FERC undoubtedly hopes that the mandates imposed under Order No. 1000 will spark more transmission construction, including lines, substations, switchyards and interconnections to support variable generation.

    Renewables are, however, only part of the story. To a large extent, the electric industry is playing “catch up.” Throughout the 1980s and 1990s, investment in transmission infrastructure steadily declined. Many utilities opted to delay construction or upgrade existing transmission facilities. Consequently, transmission capacity on many paths has reached or exceeded its limit. Moreover, existing infrastructure is out-of-date. Unmanned and unmonitored facilities pose operational and security risks to electric industry operations.

    Whether or not renewable generation takes off, transmission infrastructure development is crucial. To effectively capitalize on existing resources, existing transmission infrastructure must be upgraded. Digital protection and control systems providing real time data sharing and telemetry are necessary to implement smart grid technology and load following. Additional capacity must be constructed to alleviate transmission constraints emerging in California and the northwest. All of this portends well for companies in the business of acquiring rights of way and building transmission facilities.