Analysts update report on Order 1000’s impact on project costs ahead of FERC’s transmission order
The Federal Energy Regulatory Commission’s (FERC) long-awaited transmission planning and cost-allocation proposal is being considered on May 13 in a special meeting. Before the introduction of this particular rule, first proposed nearly two years ago, advocacy groups have been debating issues connected to the allocation of costs for transmission projects that cross state lines.
Concentric Energy Advisors published a report earlier this month on behalf of the DATA Coalition to reinforce that opening up the transmission market for competition does not necessarily lead to lower costs. The DATA Coalition is made up of investor-owned utilities that own transmission assets, including Exelon Corp. and Xcel Energy.
“It is overwhelmingly clear competition has not resulted in savings for customers,” said Purvi Patel, Vice President of Regulatory Strategy at ITC Holdings Corp., said in a statement. ITC is also part of the DATA Coalition.
The report, published on April 16, states that Order No. 1000 “still does not offer a foundation for asserting that competition in transmission results in cost savings.” It is the second report Concentric has published of this kind, following transmission projects being developed since competitive bidding was required for transmission development.
Through Order No. 1000, FERC removed the federal right of first refusal (ROFR), requiring public utility transmission providers to solicit transmission projects through competitive bidding processes. Some clean energy advocates argue that the competitive bidding will lead to more players in the market and help drive down the costs of much-needed transmission developments. Since then, several states have upheld their own transmission ROFRs, supported by evidence from reports like Concentric’s July 2019 publication.
“FERC mainly needs to just recognize the reality of certain states’ laws and approaches,” said Rob Gramlich, president of Grid Strategies LLC. “[F]rom FERC’s perspective, when they’re writing nationwide rules, it’s always wise for them to allow for these regional variations.”
Grid Strategies wrote a separate report that was submitted to FERC in February by WIRES, an organization representing electric utilities, as part of a comment on the transmission planning Notice of Proposed Rulemaking (NOPR) docket. Grid Strategies’ report, “Fostering Collaboration Would Help Build Needed Transmission,” references communication gaps in the transmission planning process attributed to the competitive solicitation process.
“The (transmission) network is such a complicated thing, the owners of the grid tend to know more than anybody about all the various factors on that grid and the demands on it, and you know you want them collaborating to the maximum extent possible and collaborating with the regional planners to the maximum extent possible,” Gramlich said.
However, there is still growing support to uphold Order No. 1000, while working out communication and other issues that have been pointed out with the competitive bidding process, according to the Electricity Transmission Competition Coalition. ETCC points to comments in the NOPR docket from the U.S. Department of Justice, the Federal Trade Commission and other state utility commissions in opposition of reinstating the federal ROFRs.
“Competition versus collaboration is a false dichotomy. ETCC welcomes more effective transmission collaboration, particularly among competitive transmission projects developed under Order 1000,” Paul Cicio, chair of ETCC, said in a press release in March.
Concentric analyzed the cost estimates and delays of transmission projects that are at least in the engineering stage of development with cost estimates greater than $50 million. Although projects can appear competitive with a lower cost cap, Concentric’s report suggests that developers are not ultimately tied to those caps.
“[A]ctual costs as compared to capped costs are often markedly different,” the report notes, as nearly all cost caps have exclusions, quoting FERC Commissioner Mark Christie: “The cost cap applies until it doesn’t.”
The first iteration of Concentric’s report, in 2019, had six projects, two of which advanced sufficiently to be updated: NextEra’s Empire State transmission line in Western New York came in service in July 2022. While completed on schedule, it had a higher cost, estimated at a total of $264 million. The second project, Delaney Colorado River/Ten West Link in the CAISO region, a joint venture led by affiliates of Lotus Infrastructure Partners, is expected to enter service four years behind schedule and be twice as high its agreed-to price cap due to a route change, change in interconnection costs, numerous regulatory delays and other unforeseen complications from the COVID-19 pandemic. The updated cost estimate for the project is $553 million.
For the second phase of the report, Concentric analyzed nine transmission projects, of which five are in service. The projects span the country and were based on contracts awarded to incumbent transmission developers as well as ones that weren’t already operating transmission within those regions, or non-incumbents. Order No. 1000 was meant to allow greater competition into the space to deliver better savings from non-incumbent transmission developers.
“We see no evidence that non-incumbent developers who win competitive solicitations generally deliver projects in a more cost-effective or more timely manner than incumbent-developed projects,” the Concentric report states. “While some projects have come in on or under budget, others have come considerably over budget.”
The DATA Coalition sees the report as a reinforcement of the previous study, as the transmission-owning utilities seek to add capacity to the grid as more renewable energy projects are being developed.
“We can’t afford to fall further behind schedule by desperately hoping a failed decade-long experiment will finally work,” Patel said of the competitive solicitation system.
