THE BRATTLE GROUP

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context, planners and policy makers increasingly recognize that planning for economic- and publicpolicy-driven transmission projects requires consideration of the economic benefits and costs associated with these investments. So-called “non-transmission alternatives”— referred to as “market resource alternatives”—need to be considered as well, which means transmission-related benefits must be considered along with the benefits of alternatives. 6 In RTO regions, where transmission planning involves multiple transmission owners within a single organized market, economic analyses have become more integral to the transmission planning process. Most of these economic analyses rely primarily on the traditional application of production cost simulations to determine whether the production cost savings associated with a transmission project—which are mostly composed of fuel cost savings—outweigh its costs. In some planning regions, the analysis of economic benefits has expanded to consider values beyond production cost savings for at least a subset of transmission projects evaluated within the regional planning process. The additional benefits considered include reduced system losses, the value of increased system reliability, access to lower-cost conventional and renewable generation, reduced reserve margin requirements, and increased market competition, among others. While the importance of considering a wide range of benefits is now recognized by some policy makers, few state regulators are actively engaged in discussions concerning the need for system planners to more fully consider the potential benefits of regional and interregional transmission projects. In addition, as FERC noted in its approval of Southwest Power Pool’s (SPP’s) Highway- Byway transmission tariff, “relying solely on the costs and benefits identified in a quantitative study…may not accurately reflect the [benefits] of a given transmission facility, particularly because such tests do not consider any of the qualitative (i.e., less tangible), regional benefits inherently provided by an [extra-high voltage] transmission network.” 7 The U.S. Department of Energy’s (DOE’s) August 2014 draft release of its “National Electric Transmission Congestion Study” 8 discusses the importance of considering the wide range of transmission-related benefits and the associated costs of inadequate transmission infrastructure. The following quote from the draft congestion study summarizes very well the problems associated with limiting the scope when evaluating transmission investments: Construction of major new transmission facilities…raises unique issues because transmission facilities have long lives—typically 40 years or more. Evaluating the merits of a proposed new facility is challenging, because common practices take into 6 For a discussion of how market resource alternatives (such as distributed generation, storage, demand response, and smart grid technologies), can complement the need for transmission infrastructure investments, see Frayer and Wang, (2014). 7 FERC (2010), 131 FERC 61,252. 8 DOE (2014). 4 | brattle.com
account only those expected costs and benefits from a project that can be quantified with a high degree of perceived certainty. This has two effects: First, it leads to a focus on the subset of cost and benefits that can be readily quantified. Not taking into account the costs and benefits that are hard to quantify has the effect of setting their value to zero in a comparison of costs and benefits. Second, it leads to projections of costs and benefits that are generally based on extrapolations drawn from recent experiences. Projections based only on recent experiences will not value the costs and benefits a transmission project will have under very different assumptions or scenarios regarding the future because they ignore or discount the likelihood of these possibilities. Such a narrow view of the range of costs and benefits that could occur provides a false sense of precision. For example, one of the most strategically significant aspects of major new transmission projects that is seldom taken into account explicitly in the planning phase is the multiple purposes that transmission might serve. That is, a welldesigned transmission system enhancement will not only enable the reliable transfer of electricity from Point A to Point B—it will also strengthen and increase the flexibility of the overall transmission network. Stronger and more flexible networks, in turn, create real options to use the transmission system in ways that were not originally envisioned. In the past, these unexpected uses have often proven to be highly valuable and in some cases have outweighed the original purposes the transmission enhancement was intended to serve. Past examples have included enabling grid operators to adjust smoothly and efficiently to unexpected yet ongoing changes in the relative prices of generation fuels, diverse renewable resource profiles, economic volatility, new environmental requirements, unanticipated outages of major generation and transmission facilities, and natural disasters. The options created by a strong and flexible transmission network are real. Failure to take explicit account of these options in the planning process will severely understate the value of transmission. 9 The North American Electric Reliability Corporation (NERC) has similarly recognized the shortcomings of current transmission planning practices in a discussion at a FERC Technical Conference on reliability in June 2014. While these comments are focused solely on the reliability planning of the Bulk Power System (BPS), they echo the need for improved transmission planning approaches and enhanced planning capabilities to address the rapid changes faced by the industry today: 10 9 Id., pp. xiii–ix. 10 Burgess and Cauley (2014), p. 2. 5 | brattle.com
Page 1 and 2: THE BRATTLE GROUP Johannes Pfeifenb
Page 3 and 4: WIRES Preface Purpose of This Repor
Page 5 and 6: promote low-carbon strategies. 4 Be
Page 7 and 8: een called “anticipatory transmis
Page 9 and 10: Toward More Effective Transmission
Page 11 and 12: Table of Contents Executive Summary
Page 13 and 14: From this perspective, today’s pl
Page 15 and 16: I. Introduction In 2013, WIRES publ
Page 17: The remainder of this report is org
Page 21 and 22: is clear that utilities have made s
Page 23 and 24: III. The High Costs and Risks of In
Page 25 and 26: A. INSUFFICIENT SYSTEM FLEXIBILITY
Page 27 and 28: project were rejected in a planning
Page 29 and 30: As the PVD2 analysis further shows,
Page 31 and 32: other words, building the project w
Page 33 and 34: industry) 21 and has already been e
Page 35 and 36: $12 million. 26 This focus on relia
Page 37 and 38: C. INEFFICIENCIES OF CURRENT PLANNI
Page 39 and 40: planning regions. So far, we find t
Page 41 and 42: interregional transmission capabili
Page 43 and 44: These studies thus suggest that at
Page 45 and 46: generation the estimated benefit of
Page 47 and 48: enefit metrics that are even narrow
Page 49 and 50: investment costs, reduced costs of
Page 51 and 52: long-term flexibility benefits and
Page 53 and 54: actively encourage and support such
Page 55 and 56: List of Acronyms BPS Bulk Power Sys
Page 57 and 58: Bibliography American Transmission
Page 59 and 60: Federal Energy Regulatory Commissio
Page 61 and 62: Pfeifenberger, J., K. Spees, K. Car
Page 63 and 64: Appendix A: Case Study of Transmiss
Page 65 and 66: Figure A‐1 Benefits and Costs of
Page 67 and 68: Figure A-2 also documents the fact
Page 69 and 70:
Figure A‐3 Range of Projected Soc
Page 71 and 72:
Appendix B: Addressing Uncertaintie
Page 73 and 74:
The simulation of short-term uncert
Page 75 and 76:
transmission issues and solutions a
Page 77 and 78:
Expansion Plan (RTEP) criteria; and
Page 79 and 80:
Requiring projects to pass the join
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THE BRATTLE GROUP

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