FACT SHEET | March 5, 2009

The Case for a 21st Century Electricity Transmission System

Prior to the passage of the Federal-Aid Highway Act of 1956, and even before New Deal investments in highway construction, our nation had a patchwork highway system that was repressing economic growth and job creation, and was ill-suited to the demographic needs of the future. To meet that challenge, Congress passed the Federal-Aid Highway Act of 1956, which was successful in creating today's interstate highway system, and has contributed to extraordinary economic growth, significant job creation, and the movement of goods and services.

The modernization of the nation's electricity transmission grid provides a similar economic opportunity. The electricity transmission grid in the United States is regionally fragmented, inadequate, and does not offer the state-of-the-art transmission system that is needed to access the country's best renewable energy resources. Some analysts expect that $300 billion (nominal) in public and private transmission investment will be needed by 2030 to modernize the grid so that it can meet the challenges of the 21^st century._[1]

Significant investment in the nation's electricity transmission grid would be an effective tool to spur economic growth and job creation and better position our energy and climate policy for years to come. The challenges in creating a 21^stcentury electricity transmission system were partially addressed in theEconomic Recovery and Reinvestment Act which makes $6 billion in loan guarantees available for electricity power transmission systems and renewable energy; extended $6.5 billion in borrowing authority for the Bonneville Power Administration and Western Power Area Administration ($3.25 billion each) to access its renewable energy resource opportunities; and provided $80 million to the Department of Energy and Federal Energy Regulatory Commission for interconnection-wide planning.

The Economic Recovery and Reinvestment Act represents a good first step, but much more needs to be done to create a 21^st century electricity transmission grid. This Fact Sheet:

• Outlines the regulatory barriers to building interstate transmission;
   
• Explains the relationship between electricity consumption and economic growth;
   
• Describes the estimated future demand for electricity;
   
• Discusses recent federal policy related to the electricity transmission grid;
   
• Includes examples of the challenges associated with the electricity transmission grid; and
   
• Makes the case for investments in the electricity transmission system.

 

Interstate Transmission Regulatory Barriers

The regulatory framework that governs the planning, siting and cost allocation of interstate electricity transmission lines is ill-suited to address our nation's future energy and climate challenges. Today, states have exclusive control over siting transmission lines and dictating what cost allocation scheme transmission owners receive on retail sales (each state has a different system for how they accomplish this). A developer wishing to site an interstate line may have to deal with very different regulatory hurdles in each state. This patchwork of regulatory regimes is discouraging investment in electricity transmission. This may be best illustrated by the fact that since 2000, only 14 interstate transmission lines have been built (668 miles of 230 kV and higher). These problems are unlikely to be resolved unless the federal government and other interested parties establish a more effective process for planning, siting, and allocating cost for electricity transmission projects.

Historically, planning, siting, and cost allocation have been local or state issues. Each electric utility covered its own service territory and built generation and transmission to serve load in its territory, typically within only one or a few states. Over time, the transmission grid evolved into a patchwork of sometimes regional, sometimes state, and sometimes federal involvement in electricity transmission. In some regions, deregulation has dramatically changed the way utilities do business.

Renewable resources are generally located far away from electricity demand. As a result, integrating renewable resources into the transmission grid generally requires multi-state transmission lines. Currently, these transmission projects must go through separate planning, siting, and cost allocation proceedings in each state, which usually creates lengthy delays and local interests tend to trump national needs.

The planning process for future electricity transmission could be improved by coordinating planning on a regional or interconnection-wide basis. Currently, transmission operators under the jurisdiction of the Federal Energy Regulatory Commission are required to engage in open and transparent regional planning._[2]However, the Federal Energy Regulatory Commission planning process does not explicitly seek to increase renewable energy integration on the grid and therefore lacks the national perspective necessary to develop the large-scale electricity transmission that will be needed to access our nation's best renewable energy resources. This is especially important since seventy percent of the country's land mass is serviced by non-Federal Energy Regulatory Commission jurisdictional entities and because several regional planning processes are under way as a result of the combination of this Federal Energy Regulatory Commission requirement and state renewable portfolio requirements.

This patchwork of regulation is also evident in the siting of transmission lines because states have near-exclusive jurisdiction over siting within their borders (exceptions include federal lands, overlapping agency jurisdiction on lands, international transmission lines, and areas where Federal Power Marketing Administrations have eminent domain authority). The resulting state autonomy over siting means that one state's economic, social, or land use principles can undermine an entire region's, or even the nation's, energy and climate goals.

The lack of a federal role in transmission is also apparent in the assignment of appropriate cost allocation for building new transmission. Presently, the states and the Federal Energy Regulatory Commission share cost allocation responsibilities (passing the costs of new transmission onto the rate payers). Building new transmission capacity to allow greater access to renewable energy will likely result in situations where one state or region produces electricity from renewable energy and another state or region consumes it and the environmental and financial benefits of the new electricity from renewable energy will be shared by the nation as a whole. Under today's cost allocation structure, however, a renewable energy generating area could shoulder a large portion of the cost allocation despite the fact that it is not consuming the power and the benefits are being enjoyed by the entire nation. This creates a disincentive for interstate renewable energy electricity transmission construction.

Economic Growth and Future Electricity Demand

In the United States, the consumption of electricity is directly correlated to economic growth, and that correlation can be expected to continue (See Chart 1). The Energy Information Administration's (EIA) 2008 Annual Energy Outlook predicts that by 2030, residential demand for electricity will increase by 27 percent and commercial demand for electricity will increase by 49 percent._[3]The EIA projection assumes no significant change in energy efficiency standards or technological innovation and no new policies to reduce global warming emissions. However, even if all cost-effective energy efficiency investments were to be made in the short-term, and the nation no longer wasted two thirds of the electricity we produce_[4], there will still be significant electricity demands because every region of the country is expected to need additional electricity generation._[5]

Chart 1: Electricity Use and GDP Growth

To meet that expected demand for electricity, a Department of Energy (DOE) analysis concluded that "significant transmission expansion will be required"_[6]and building those transmission lines will be expensive. Additional analysis on transmission found that the cost per mile for transmission typically falls between $1.5 to $2.0 million per mile--lines that run underwater or underground can cost significantly more._[7]To simply keep up with demand between 2010 and 2030, nationwide transmission investment will need to reach $300 billion._[8]To provide 20 percent of our nation's electricity from wind, it is estimated that $60 billion in transmission will be needed between now and 2030._[9]These projected expenditures are especially daunting when one considers that transmission investments between 1975 and 2006 remained relatively flat (See Chart 2). The continuing work to electrify the transportation sector will also raise future demand for electricity.

As noted above, the nation will need more electricity to sustain future economic growth, and more transmission will be needed to keep up with increases in demand. Future transmission investments will be especially important because current projections from the Energy Information Administration indicate that only 14 percent of the nation's electricity will come from renewable energy by 2030._[10]That percentage of electricity from renewable energy would fall far short of our nation's potential and demonstrates the need for more aggressive federal action for transmission expansion and support for more aggressive renewable electricity production.

Chart 2: Annual transmission investments from 1975 through 1999 and projections through 2006

Recent Federal Policy

The federal government's role in electricity transmission underwent significant changes with the passage of the Energy Policy Act of 2005 (P.L. 109-58). Key electricity transmission provisions in the Energy Policy Act of 2005were:

• Section 368 mandated that a number of federal agencies coordinate transmission siting decisions for electricity transmission lines (and other types of energy distribution networks) into their relevant land use and resource management plans;
   
• Section 1211 included mandatory standards for electricity reliability and created new requirements for federal agencies to provide access to electric lines on federal lands;
   
• Section 1221 required the Secretary of Energy to study electric transmission congestion every three years and gave the Secretary of Energy the authority to designate an area as "congested" while also giving FERC backstop authority to approve and issue siting permits for new transmission lines; and
   
• Section 1241 gave public utilities, via authority through the Federal Energy Regulatory Commission, the ability to establish incentive-based rate treatments for transmission.

While the DOE reports that new transmission expenditures have increased since 2005, the expenditures have typically involved upgrades for improved reliability and not the types of investments needed to access renewable energy resources in remote areas._[11]This is not an unexpected outcome though, since today's electricity grid is designed to maximize reliability and affordability and not renewable energy production. To meet the public's demand for renewable energy, we will need to take significant new action to improve our electricity transmission grid.

The Energy Independence and Security Act of 2007 also included electricity transmission provisions that encouraged the integration of more solar energy into the electricity grid as well as "smart grid" provisions that aimed to improve electricity reliability and protect grid infrastructure. The $4.4 billion for smart grid technology and $100 million for smart-grid worker training in the Economic Recovery and Reinvestment Act will help the electricity grid to become more efficient and provide the training necessary to build and maintain the grid. These funds will help create a smart grid that allows customers to manage their energy consumption while giving electricity providers the real-time knowledge necessary to meet electricity demand. The ability to more effectively manage supply and demand is essential to the integration of large-scale renewable resources like wind and solar. A smart grid would also allow power plants to reduce their overall electricity generating requirements and open up the grid to more efficient usage.

 

Key Problems Facing Today's Electricity Transmission Grid

The current electricity grid is composed of "more than 9,200 electric generating units with more than 1,000,000 megawatts of generating capacity connected to more than 300,000 miles of transmission lines."_[12]As discussed earlier, despite expected summer electricity demand reductions caused by the recession, the demand for electricity is expected to increase in the future, and the demands on the electricity grid will also grow.

The realities of an ever-growing body of evidence on climate change and volatile energy prices have also highlighted the need for major investments in a cleaner, greener, and more efficient energy policy. Managing the complex system to meet future demands will present significant challenges including:

• The continued inability to produce and transmit solar, wind, and geothermal energy from remote areas because transmission lines don't reach them. (Click here for potential renewable energy zones in portions of the Western United States)
   
• The overloaded interconnection queue system, which delays development of new generators, including renewable generators like wind;_[13]
   
• The continued inefficiency of the transmission grid in transporting electricity over long distances, which can be a cost-prohibitive factor in developing renewable energy resources;_[14]
   
• The diminished ability to use carbon capture and storage technology, because of inadequate transmission to accessible sites near geologic formations best equipped for carbon dioxide storage;
   
• The limited use of advanced technologies to provide grid flexibility, which limits the ability of grid operators to optimize power flows and reduce transmission congestion. Increased electricity demand, which increases transmission line loading-and increases the potential for blackouts, brownouts, and power quality disturbances which cost the economy $25 to $180 billion annually._[15]
   
• The increased use of very expensive fuel sources like refined oil and natural gas to meet peaking electricity demand needs, especially in congested areas._[16]
   
• The annual regional costs of congestion in the Eastern United States total $1.3 billion for the Upper Midwest, $2.6 billion for Great Lakes/Mid-Atlantic, $2.8 billion for New England, $4.8 billion for the Southeast; $3.7 billion for New York, and $1.2 billion for the Lower Plains;_[17]
   
• Limiting expected transmission congestion—particularly during off-peak periods—in the regions of the country that are integrating wind energy resources into their electricity mix. This is important because transmission is typically constructed to accommodate electricity generation from fossil energy sources, and without upgrades, congestion can occur and help cause electricity prices to rise unnecessarily._[18]
   
• The inability to access cheaper sources of electricity that are made unaffordable or unreachable due to congestion; and
   
• The limited availability of economical, large-scale electricity storage through batteries or other means.
•  

The Case for Investment

Investment in transmission that is geared towards accessing renewable energy resources like wind, solar, and geothermal energy would produce considerable economic and environmental benefits. The following electricity transmission case studies and reports provide reasons why the nation should make considerable investments in the transmission grid.

 

Southwest Power Transmission Study.The consulting firm of CRA International performed an analysis on a planned 1,200 mile, 765 kilovolt transmission project located in Texas, Oklahoma, and Kansas. The study, performed on behalf of Electric Transmission America, OGE Energy Corp. and Westar Energy, found that the project would yield "substantial net benefits" to the Southwest Power Pool. These benefits include_[19]

• The creation of 1,400 megawatts (MW) of wind energy throughout Kansas (5,601 MW), Texas (4,026 MW), Oklahoma (3,268 MW), Missouri (701 MW), and New Mexico (480 MW);
   
• The creation of more than 10,000 jobs throughout Texas (2,497 jobs), Kansas (4,131 jobs), Oklahoma (3,247), and New Mexico (351 jobs) during construction;
   
• The creation of approximately 5,500 jobs throughout Texas (1,654 jobs), Kansas (1,955 jobs), Oklahoma (1,610 jobs), and New Mexico (351 jobs) during operations;
   
• The annual addition of $60 million in property taxes and $500 million in economic output;
   
• The annual avoided emission of nearly 30 million tons of carbon dioxide; and
   
• The annual net power supply benefit of $2.8 billion (measured in 20008 dollars).

 

Green Power Express Transmission Project. ITC Holdings Corporation recently announced the launch of the "Green Power Express" transmission project. The proposed transmission project will access renewable energy sources in North Dakota, South Dakota, Minnesota, Iowa, Wisconsin, Illinois, and Indiana and when completed will be almost 3,000 miles long (765 kV extra-high voltage). The benefits of the project, which is expected to cost between $10 and $12 billion include_[20]:

• The creation of 12,000 MW of renewable electricity that will be used primarily by high-demand population centers in the Mid-west like Chicago and Minneapolis.
   
• The reduction of up to 34 million metric tons of carbon emissions.

 

20% Wind Energy by 2030.The Department of Energy completed a study in July of 2008 that studied the challenges and benefits of meeting 20 percent of the nation's electricity needs from wind energy by 2030. The study concluded thatgenerating 20 percent of the nation's electricity from wind could be achieved if, among other things, $60 billion were invested in transmission between now and 2030. The benefits of the "20% Wind Energy by 2030" strategy include_[21]:

• A cumulative total of 7,600 million metric tons of CO2 emissions would be avoided by 2030;A reduction of 4 trillion gallons of water (8 percent) of water consumption by the electricity sector through 2030; and
   
• The ability to reduce energy imports from foreign countries, particularly liquefied natural gas. This is important because imports of liquefied natural gas are expected to peak at 1.5 trillion cubic feet in 2018but almost 60 percent of uncommitted natural gas reserves are in Iran, Qatar, and Russia._[22]&[23]

 

High Plains Express Project. In June 2008, seven electric utilities, three state agencies, and an independent transmission development company conducted an initial technical and economic report on the High Plains Express Project. Their report analyzed the benefits of the planned 1,280 mile (500 kilovolt alternating current) transmission project in Wyoming, Colorado, New Mexico, and Arizona. The benefits of the project include:_[24]

• The ability of Arizona to increase its in-state production of renewable energy and its ability to import renewable from surrounding states;
   
• The ability of Colorado and New Mexico to further develop their generation of renewable energy for in-state production and export to surrounding states; and
   
• The ability of Wyoming to export high quality wind energy resources to Arizona, New Mexico, and Colorado.

 

Midwest Independent Transmission Expansion Plan. In November 2008, the Midwest Independent Transmission System Operator (Midwest MISO; covers fifteen states) evaluated the cost of increasing the MISO's use of wind energy by 16,000 MW and adding about 5,000 miles of 765 kV transmission lines from the Dakotas to the New York/New Jersey region. In total, the project was estimated to cost $13 billion and produce $600 million in annual savings._[25]

Arrowhead-Weston Benefits Report.In February 2009, American Transmission Company announced the completion of its 220 mile (345 kV) Arrowhead-Weston transmission line project that runs from Minnesota to Wisconsin. The benefits of the project, which cost $436 million, include:_[26]

• 2,560 jobs generated or supported; 5.3 million tons of carbon dioxide emissions will be avoided;
   
• $9.5 million in tax revenue generated; and
   
• $464 million in total economic impact.
   

Conclusion

Like the construction of the National Highway System, the development of a 21^stcentury electricity transmission grid would spur economic growth and job creation. However, in order to create a 21^st century electricity transmission grid the nation will need to invest in transmission and smart technologies and provide clearer federal authority to overcome today's regulatory barriers around planning, siting, and cost allocation.
 

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