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Transmission Struggles to Keep Pace with Generation

Transmission Struggles to Keep Pace with Generation

With power projects cropping up faster than spring dandelions, an alarming disconnect has occurred between generation and transmission in several regions of the U.S., according to Paul Parshley, director of North American Electric Power for Cambridge Energy Research Associates.

"A big wave has built up in the level of new projects that are announced. In the last two years, about 200,000 GW of electricity has been announced, and it's important to keep in mind that this is an accelerating curve... a hundred gigawatts in the last nine months or so. This is more than is needed, and so the current signs point to misalignments in the degree and the timing and the location of some of these additions."

For instance, he told attendees at Energy Expo 2000 in Houston last week that the Midwest is the only region where all of the power projects announced are not equal to the anticipated need for new capacity. "Conversely, in the Northeast, what you'll see is that there already is under construction more power than we think is needed. What happens here is that you then can anticipate boom-bust cycles, with the bust cycle being a longer stretch than the boom cycle. That's important in thinking about how markets are going to open up and how prices are going to be affected."

In the regulated world, transmission was developed almost in lock step with generation, but a large spate of merchant power plants has thrown that out of whack.

"It's important to keep in mind that there's been a big de-coupling between the investment in generation and the investment in transmission. And this is potentially a source of a big problem," said Parshley. "With [transmission] gridlock there is no one that really has the incentive to make the investments in the grid system that may be necessary to hook up new plants to protect reliability of the system and accomplish a number of other things, not the least of which is facilitating the opening up of competitive markets."

While transmission represents only about 10% of the assets in the power sector, it's been the focus of attention for the industry and regulators for the last six months, Parshley noted, as is evidenced by the debate over regional transmission organizations (RTOs).

"Like with retail choice, there is an uneven rolling out. There are different models. There are different rules. There are different regulations. It's not easy to say how they will all match up well together when they start coming into closer contact, and that's an issue to keep in mind. The sector is in change. There are a lot of oxen that may need to be gored in the process. It's not clear how we're going to get there."

Bringing generation and transmission together could be as tough as getting home on Houston's rush-hour freeways. With its order on RTOs, the Federal Energy Regulatory Commission is leaving much up to industry to decide. "By not forcing the tough issues to a head at this time, FERC is hoping that flexibility, cooperation and reasonableness will prevail. In fact it may turn out they're taking a five-year process and turning it into a 10-year process."

Possible Scenarios

Parshley suggested three possible outcomes for the restructuring industry. One scenario predicts a few large RTOs coming into play.

"Some or all of them will have for-profit components to them. Underlying this is the notion that there really are economies of scale out there in the transmission business and that they can be captured. Capturing them assumes that there's going to be proper alignment between regulatory incentives and those who own and those who control the transmission assets."

Another possibility is what Parshley calls "off-road solutions." It embraces evolving technologies such as distributed generation. "It's the solution that for want of a better term could be viewed as kind of a bypass of the traditional grid system..This is a very different world from the one in which you have bigger, smarter, more efficient grids, and the grid in this case may become somewhat less significant."

Parshley's third and final scenario envisions an industry becoming disillusioned with the idea of transmission as a business, opting for more government involvement.

"We wouldn't be surprised to see a number of fairly bold experiments, companies trying to make a go of it as for-profit transmission entities, but we also would expect to see that the rollout of this will be uneven. It will be a patchwork, and ultimately we may find out that it either works very well or is a frustrating experience that needs to have some alternative solution."

Joe Fisher, Houston

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