The $160B Question: Who Should Foot the Bill for Transmission Buildout?

Innovative smart grid technology and ambitious new solar farms can be a lot more thrilling than power line regulation, but it’s the nitty gritty of that third piece that could have a significant effect on how, when and where clean energy projects and smart grid tech end up being deployed.

The Senate Energy and Natural Resources Committee, which has held a series of hearings in the last few weeks related to the national electricity grid, heard testimony today from regulators and utility executives to ferret out answers to three main questions: Does the federal government need more authority (as proposed in separate bills by Senate Majority Leader Harry Reid and the energy committee chaired by Sen. Jeff Bingaman) to approve sites for new transmission lines? What role should state authorities play in siting and permitting interstate transmission lines? And who will pay for the infrastructure buildout?

Those that testified before the committee today fell into two distinct camps when it came to the question of where the funds would come from: one favored interconnection-wide cost allocation (basically everybody in the region where a given line is built has to help pay for it), and the other backed a method in which only ratepayers set to use a transmission project should foot the bill (through extra utility charges, for example).

This is actually a $160 billion question, according to figures cited by James Dickenson, managing director and CEO of Florida utility JEA, who testified today on behalf of the Large Public Power Council. He noted that, while the exact cost of a proposed transmission project remains unknown, a recent study from regional grid operators found that new transmission lines planned to integrate wind resources with the grid in the Eastern Interconnect would cost an estimated $80 billion. Dickenson said he thought twice that amount would be reasonable for a national buildout.

Michael Morris, chairman, president and CEO of energy giant AEP, urged the Senate panel to pursue interconnection-wide cost allocation, arguing that meting out beneficiaries of a given power line would be “difficult, contentious” and prone to “vigorous attempts to shift and re-shift costs among groups of customers.” He went on to say that “wide allocation of cost also will mitigate the individual rate impact of significant transmission investments.”

Dickenson, of Florida’s JEA, offered a different view, saying that interconnection-wide cost allocation is unnecessary to encourage new facilities, and could in fact discourage development of energy efficiency, distributed generation (e.g. rooftop solar panels) and other possible approaches to reducing greenhouse gas emissions from energy production. From Dickenson’s prepared testimony:

[A]llocating the cost of that transmission on an interconnection-wide basis will tilt the playing field dramatically away from any alternatives that do not depend heavily, or at all, on transmission. If the cost of transmission to remote resources is essentially free from a system planner’s standpoint, other alternatives to meeting carbon control requirements will be significantly less economical by comparison. […]The “socialization” of transmission costs would be a costly subsidy that would suppress other, potentially more economical, alternatives to meeting renewable energy and GHG [greenhouse gas] control goals.

Jon Wellinghoff, who chairs the Federal Energy Regulatory Commission — an agency entangled in virtually any national transmission grid debate — doesn’t see it that way. He called for expanded FERC authority to not only site transmission lines, but to also allocate their cost across a region or an entire interconnection. The justification? Broad public interest benefits. Wellinghoff put the stakes in no uncertain terms:

Without broader Federal siting authority to accommodate high levels of renewable electric energy […] it is unlikely that the Nation will be able to achieve energy security and economic stability.