Pricing (Cost Allocation)
A Fair Share for A brighter future
Large regional and interregional transmission projects can cost billions of dollars and touch many jurisdictions along the route—determining who pays for those investments remains one of the most divisive topics in transmission planning and policy.
Bridging the gap between supporters and opponents will require alignment on the full value transmission provides. Properly recognizing who benefits from transmission investments will result in equitable cost allocation.
4 Benefits of Transmission Investments
Economic Growth
Transmission investment and construction drives economic growth by enhancing access to reliable electricity and fostering business development.
Reliability & Resilience
Transmission investments reduce the risk of power disruptions, even during extreme weather events or emergencies.
Safety & Security
Transmission investments help protect critical energy assets from an increasing number of cyber and physical threats.
Lower Costs
Transmission investments reduce congestion on the transmission grid and allow the connection of lower-cost energy sources, increasing generation competition and pushing rates down.
The Myth of Competition
Federal and state regulators have debated whether transmission development should be open to “competition,” by implementing bidding processes for the right to construct and own regional transmission projects. In practice, this means that out-of-state entities (such as private equity or large multi-national utilities) will have an inside track to construct what has traditionally been handled by local utilities.
So called “competition” might sound good in theory. In reality, however, this can lead to longer transmission development timelines and higher costs. Recent findings show completed and active competitive transmission projects awarded to non-incumbent developers experienced an average of 12 months in schedule delays and 27% in cost increases. This is a far-cry from the purported 20-30% cost savings claimed by some developers.
Some states have responded to this debate by adopting Right of First Refusal (ROFR) laws, which ensure that local transmission owners with deep knowledge of the system can make decisions with the long-term interest of a state and region’s residents in mind. ROFRs allow local utilities to quickly move ahead with transmission projects once they are selected in a regional plan, saving customers time and money.
A similar rule used to exist at the federal level, but FERC removed the federal ROFR policy in 2011. As a result, in states without ROFRs, entities without deep knowledge of the local system or strong incentives to make decisions with the long-term interest of a state and region’s residents in mind are able to construct and own pieces of the grid within the complex transmission system. This has added a new layer of conflict to the transmission planning process, and only served to delay transmission planning and approval, depriving customers of crucial transmission benefits.
The truth is, ROFRs actually:
- Encourage long-range, collaborative transmission planning
- Reduce project schedule delays
- Cut cost overruns
- Boost local community investment
It’s time for ROFR opponents to take another look.
More Equitable Cost Allocation
One of the challenges in building an integrated regional and interregional grid is determining how to fairly allocate transmission investments among beneficiaries.
One solution comes from the Midcontinent Independent System Operator (MISO), an RTO serving 15 Midwestern states and parts of Canada. For many years, most transmission costs in MISO were assigned primarily to customers in the small geographic zone where a project was located, while a limited number of projects had costs assigned to the entire MISO region.
In 2022, MISO made refinements to this methodology by introducing a new long-range transmission plan (LRTP) with broad cost assignment within subregions benefitting from a regional project. Crucially, MISO ensured that the cost allocation method was established prior to project approval and locked in following the advancement of the new lines, which added certainty to the planning process. Ultimately, this methodology resulted in successful approval of the largest portfolio of regional transmission projects in the country’s history.
MISO’s approach has been identified by federal regulators as a model for regional transmission planning moving forward and could help smooth the fractious debates around cost in the future.
The Consequences of Inaction
Transmission has a cost—but the cost of inaction is far higher. High regional congestion costs and other inefficiencies are already costing consumers billions of dollars each year. And when parts of our grid fail due to extreme weather or a catastrophic event, people lose and the economy suffers.
That shouldn’t happen in America. We have the tools and capabilities to build a grid that can power the technological revolution now underway—we all just need to play our part.