LSP Transmission Holdings is calling on the Federal Energy Regulatory Commission to act now to expand the scope of transmission projects that garner competitive solicitations. But an ad-hoc group of incumbent transmission developers say it is too soon to make that leap.
FERC has yet to take amend its landmark transmission planning and cost-allocation rule after expressing concerns that the competitive processes built into Order 1000 may be having the unintended consequence of discouraging the development the rule sought to spur.
A docket (AD16-18) on the issue lay mostly dormant since late 2016 until transmission studies released this year with divergent views on the cost savings seen from competitive bidding were submitted for the record. The studies have pitted their respective backers against each other, highlighting conflicts among the many interests at play.
A Brattle Group report prepared for LSP Transmission found that “at an estimated cost savings of 25%, the potential customer value from expanding competitive processes from 3% to 33% of all planned US transmission investments would be approximately $8 billion over the course of five years.”
A study from Concentric Energy Advisors — commissioned by incumbent transmission owners, or TOs, Ameren Corp., Eversource Energy, ITC Holdings Corp., National Grid USA and PSEG Power LLC — challenged those purported cost savings from competitively bid projects when compared with incumbent-developed projects, and suggested pumping the brakes on calls to expand the scope of transmission projects selected through competitive solicitations until there is more data.
No competitively bid projects under Order 1000 have been completed to provide figures on actual final costs.
Overstated estimates
LSP Transmission, a unit of private developer LS Power Group, told FERC on Sept. 11 that incumbent developers had “a lot to lose through competition” with projections for transmission rate base additions over a four-year period topping $80 billion.
“It is understandable that they are continuing to seek ways to discount the benefits of competition,” but “ratepayers have even more to lose as every dollar spent by the incumbent TOs on transmission additions will be paid for by those ratepayers, not the incumbent TOs, or Concentric,” LSP asserted.
Incumbent TOs, however, have stressed that they are not against competition nor are they afraid to compete. Rather, they have argued that there simply is not enough data at this point to justify expanding competition, and advocated for further study on what ratepayers and developers are getting out of the current process.
The Concentric report contends that faulty assumptions about cost overruns in projects developed by incumbent TOs led to the high-cost savings figures in the Brattle report.
Brattle assumed cost overruns ranging from 18% to 70% above initial project cost estimates, based on preliminary cost estimates provided when projects were first proposed. Concentric, using updated cost estimates reflecting actual project engineering specifics that were filed with state regulatory agencies for siting approval, said that final project costs fell between -2.9% and 7% of initial estimates.
LSP Transmission, referencing a subsequent report in which Brattle responds to and asserts flaws with Concentric’s criticism, countered that the complete picture would show the Concentric study relied on “inappropriate and misleading cost comparisons, a misrepresentation of the available transmission cost data and facts, and a misunderstanding of [the Brattle] analysis.”
On the other hand, those behind the Concentric report have accused Brattle and LSP of cherry-picking data, ignoring cost cap exclusions that could allow competitive project costs to rise and putting too much emphasis on early planning estimates instead of more refined design and engineering estimates for cost comparisons.
LSP argued that even if just a quarter of the cost savings claimed in Brattle’s analysis were available, FERC “would still be obligated to act because practices have been identified that are resulting in excess rates.” It urged FERC to act now as “the impact of the lost benefits of competition will negatively impact ratepayers for decades.”
Comments filed in August by an ad-hoc coalition of the incumbent TOs behind the Concentric study said it was important for FERC not to rush to judgment when considering expanding competitive solicitations or otherwise reforming Order 1000.
Policymakers “need accurate information on results to-date — including project costs, cost cap commitments and exclusions,” the coalition said. “In this case, it is simply too soon to determine those final costs, as the majority of projects are still underway.”
Contending that they have not seen data to support an argument that customers are saving money from competition, the coalition cautioned against upending working processes based on speculation about what may or may not happen with competitive projects that have yet to be built.
Jasmin Melvin is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.
