by Larry F. Eisenstat, Dickstein Shapiro LLP
Occasionally we all come up with something we think should be a no-brainer, so we say, “I don’t get why our country isn’t doing this.”
Sometimes the answer comes back, “You really don’t get it!” Maybe that’s true here, but here goes.
We start with what I think is common ground. First, the transmission infrastructure needed to accommodate the nation’s renewable energy potential has broad public benefits, albeit not easy to quantify in all respects.
Second, the necessary build out has been stymied by debates about cost increases and subsidies to and between regions.
Third, many opponents of a broad allocation—for example, interconnectionwide or even regionwide—of all costs of this needed transmission fear they or their constituents will bear far more costs than the benefits they would receive.
And fourth, if we don’t do something soon, we might be in for a world of hurt, and not a world of clean air.
This controversy is puzzling and unnecessary. An increase in the average retail rate of only three-tenths of a cent per kilowatt-hour—from 9.7 cents to 10 cents—would generate $12 billion a year.
This would be enough to support the annual revenue requirement for a capital outlay of $80 billion, a level of transmission that should accommodate upward of a 20 percent RPS.
On a regional basis, an increase in retail rates of three-tenths of a cent per year would support capital outlays of $15 billion in PJM Interconnection and $12 billion in Midwest Independent System Operator (MISO), or nearly $30 billion combined.
How can we possibly let the fear of a three-tenths of a cent increase create such gridlock?
If we could achieve renewable energy penetration of 15 percent and the renewable generation were allowed to displace coal-fired generation, the $12 billion annual increase in retail rates would be offset completely by carbon cost savings alone, assuming that coal-fired generation produces one metric ton of carbon per megawatt-hour at an allowance price of $20 per ton. It’s a cost within the estimate range of the extrinsic cost of carbon adopted by the Environmental Protection Agency for regulatory analyses.
All transmission users benefit from network upgrades constructed for reliability, to meet RPS requirements or to reduce congestion, emissions or both.
Yet, it is presumed as a matter of policy that only reliability upgrades benefit all grid users. For this reason, these upgrades are rolled into rates entirely.
But what is the logic behind treating those upgrades that allow RPS standards to be met or that otherwise improve our security any differently?
Are these policies less important than planning to ensure against a single major blackout over the course of decades?
So even if construction costs were to be allocated broadly and a minimal rate increase were to occur, those costs likely will be offset entirely by benefits that would result in virtually cost-free transmission when its intrinsic and extrinsic value is taken into account.
So, what’s the problem? Because these needed transmission facilities would cross multiple utility systems and states, each with its own parochial interests, there are too many stakeholders involved in solving what should be viewed as a national problem and security imperative.
We must end this insanity. Congress should declare that transmission expansion for clean generation is a national imperative, and it should fund directly whatever rate impact such expansion is determined to have on a state-by-state basis net of benefits—whether in the form of avoided costs or otherwise—i.e., customers will see no increase in electric rates as a result of the build out.
Congress often provides tax or other financial subsidies indirectly to stimulate activities in areas of national significance. Why not do so directly?
An $80 billon outlay won’t even dent a national budget, which stands at nearly $4 trillion.
This amount even is dwarfed by total stimulus funding alone.
Remember, we are spending more than $10 billion a month to prosecute the wars in Iraq and Afghanistan, not to mention how many additional billions are being spent there for other purposes.
Don’t we think the benefits of a national transmission superhighway would contribute as significantly to our long-term national security interests?
Larry Eisenstat is the head of Dickstein Shapiro LLP’s energy practice. Reach him at email@example.com or 202-420-2224.
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