One of the key questions that the Federal Energy Regulatory Commission must decide because it considering making drastic changes to its transport rules is whether competition will advance the development of transport.
The answer to the question could affect investment in utilities, consumers’ electricity bills, and the pace of building renewables on the U.S. grid.
U.S. transportation investments reached $ 170.1 billion in 2020, up from $ 95.2 billion in 2014, with only about 3% of transportation projects tendered and about a quarter of expenses occurring in PJM Interconnection’s footprint, the Electricity Transmission Competition Coalition (ETCC) says in a deposit of October 13 to FERC in response to the committee’s prior opinion on a draft transport regulation (RM21-17).
Utilities want a right of first refusal for planned projects
Utilities and the Edison Electric Institute, a trade group for investor-owned utilities (IOU), urged FERC to grant historic utilities the right of first refusal (ROFR) to build regional transmission projects and interregional without tendering process.
Demand could disrupt part of FERC’s ten-year-old program Order 1000, a landmark decision governing transportation planning and cost allocation that aimed to open up transportation construction to competition.
In the order, FERC removed the ROFR for incumbent utilities for regional or interregional transportation projects whose costs could be shared across the region. However, utilities were allowed to continue spending on “urgent need” projects and upgrading their systems without going through a competitive bidding process. Some states, like Minnesota and Texas, have passed laws reinstating the ROFR for their utilities.
“Rather than lead to lower tariffs and increased transmission construction, the removal of the federal ROFR has resulted in uncertainty, increased costs and delays,” he added. EEI told FERC.
Competitive processes for transportation projects have stifled cooperation and collaboration between transportation owners and regional planning entities, the trade group said. They have also made it more difficult and costly to plan regional transportation projects, according to EEI.
“The reestablishment of the federal ROFR will resolve the inefficiencies caused by the competitive process and help build the necessary transmission in a cost effective and timely manner, as it enables entities with the expertise, knowledge of the existing system, relationship with customers and agencies and the obligation to provide a reliable and safe service to build the lines selected in the regional process, ”said EEI.
Being required to hold calls for tenders for regional projects would “significantly” delay the achievement of clean energy targets, according to IOUs and cooperative public services in the footprint of the Midcontinent Independent System Operator.
Transportation spending supports utility revenues
Removing the ROFR could also increase the financial results of utilities. Investments in transportation can be an important source of revenue for utilities, especially those that don’t own power plants, according to Paul Patterson, equity analyst at Glenrock Associates.
Transmission assets, for example, make up 46% of Public Service Electric & Gas Co.’s $ 22 billion rate base, according to a recent report. presentation to investors by its parent company, Public Enterprise Group (PEG). The Newark, New Jersey-based utility currently earns a 9.9% return on equity on its transmission assets.
PSE & G plans to spend around $ 2.5 billion on transportation from 2021 to 2023, or about 27% of its overall expected capital spending for the period, according to PEG’s most recent annual report. The utility has offered an additional $ 1 billion for the transportation of offshore wind.
Increased competition in transmission could hurt PEG’s profits, the company warned in its latest annual report.
“Increased competition for transportation projects could decrease the value of new investments that would be subject to recovery by PSE & G under its rate base, which could have a material negative impact on our financial condition and results of operations.” , PEG said.
Consumers are looking for more competition to reduce costs
In contrast, electricity consumers favor competition because they say it can reduce the costs that end up in their bills.
Transmission projects that go through competitive processes are about a third cheaper than utility-backed proposals, according to the ETCC, which primarily represents large energy users and business groups such as Ford Motor Co., the PJM Industrial Customer Coalition and the Steel Manufacturers Association. .
“ETCC supports adding the necessary transmission capacity at the lowest possible cost, which can be achieved with increased competition in the planning, design and construction of transmissions,” the group said.
FERC should anticipate state ROFR laws, according to the ETCC.
“State ROFR laws are effective enough to protect incumbent transportation owners, nullifying competition and increasing costs to consumers, not only in the state in which the ROFR law is enacted, but in neighboring states where the new transport project can be cost-shared, “ETCC said.
ETCC urged FERC to require transmission projects in all 100kV regions and above to be tendered with some exceptions.
An independent system planner should oversee the tendering processes, according to the ETCC. Regional transport organizations (RTOs) and independent grid operators (ISOs) could fulfill this role in the areas where they operate, the group said. The West, outside of California, and the Southeast are the only regions without RTO or ISO.
In addition, FERC is expected to adopt rules to streamline and speed up tendering processes, according to ETCC.
The California Public Utilities Commission (CPUC) has called for removing exclusions that protect certain types of transportation projects from competition. Since the entry into force of Ordinance 1000, in PJM, spending on local projects that do not face competition has tripled while the value of regional projects has fallen by a third, the organization said. regulatory.
FERC should demand that local projects face competition, according to CPUC.
“This would serve to channel investments into holistic and regional transport planning processes that benefit from a wide range of ideas and perspectives, both from incumbent IOUs and non-incumbent developers,” said CPUC.
Competition is a “huge threat” to public services
The increased competition for transportation investments is a “huge threat” to the utilities industry, which typically invests in areas such as local transportation that do not fall under FERC bidding requirements, according to Patterson of Glenrock.
However, so far the bidding processes are complicated and can be time consuming, Patterson said.
Thinking about revising its rules, FERC will need to decide how quickly it wants to see transportation projects built and what costs they want taxpayers to incur, he said, noting that when independent companies build facilities transport, they face the financial risks of these projects.
If FERC chooses to expand competition for transportation projects, the agency will have to try to remove administrative barriers to quick and efficient tendering processes, Patterson said.
“Planning and developing transportation is a cumbersome, technically complicated and contentious administrative process,” Patterson said.