# Presentation: 411749

## Transmission Independence and Investment Pricing Policy for Efficient Operation and Expansion of the Transmission GridFERC Docket Nos. AD05-5-000 and PL03-1-000

- Technical Conference Remarks of
- Nick Winser
- Group Director, UK and US Transmission

## Part IWhere are we now?

## US Transmission Grid Needs Improvement

- US Investments are falling behind the rest of the world.
- US Investments are not keeping up with needs.
- There is substantial fragmentation of grid ownership and management.
- This has a substantial impact on customers

## US Investment vs. UK Investment

- US planned investment 2004-8 is 4.6 $M/GW/yr (High voltage only)
- This compares to UK equivalent planned investment of 16.5 $M/GW/yr
- UK outspending US by 360%
- This continues trend of last 4 years where UK outspend US by 350%

## Worldwide Investment Rates

- Compared to US rate of < $5 M/GW/yr:
- European countries planned investment 2004-8 $7-12 M/GW/yr
- New Zealand planned investment 2004-8 $22 M/GW/yr
- Investment being made generally under a regulated, independent transmission model

## Is US Investment Keeping up with Need?

- Congestion is still generally rising
- PJM congestion costs per MWHr have increased on average 64% per year and have totaled $2.193 B over the period (1999 – 2004)
- NY congestion costs have increased on average 50% per year over three years period totaling $1.5 B over this period (2001 – 2003) .
- NE constraint costs are roughly $200 M a year which includes reliability compensation to generators.
- In comparison, UK congestion levels reached above $350 M/year during the 1990’s, and through incentives mechanisms have been managed down to less than $50 M/year.
- US Reliability is significantly worse than international comparators
- 0.0066% energy unsupplied vs. European average of 0.001%

## US Transmission is fragmented

- Hundreds of transmission owning entities
- Over 100 separate control areas
- 51+ regulators

## Customer Benefits of Transmission Investment

- Standalone / independent Transmission companies likely to invest more than vertically integrated companies in general.
- Transmission costs only 5-6% of delivered price, but can have bigger effect on the (much larger) wholesale cost of power
- In New England economic benefits of Regional Plan transmission are $150M / yr _in addition to_ reliability benefits
- Cost of 100 basis point adder on total new investment ($2bn) = $16M / yr

## Major Impediments to Transmission Investment

- Structural Issues – Fragmentation & Vertical Integration
- Lack of effective regional planning
- For both reliability and economics
- Including facilitation of fuel diversity such as renewable.
- Lack of clear demarcation between transmission as market platform and market products
- Rate uncertainty – cost allocation and sufficiency of returns
- Divided jurisdiction: PUHCA; Siting; Cost trapping

## Part IIWhere do we need to go?

## Ideal Market Structure

**MARKET**
**OPERATOR**

- Independent Administrator
- Stakeholder Input on Market Rules

**SUPPLY/**
**GENERATION**

**TRANSMISSION**

- Fully competitive
- No requirement for RMRs
- Limited need for regulatory oversight or market monitoring

- Independent platform for market
- For profit, but regulated and under regional planning
- Operational and ownership synergies

## Ideal Market Structure (cont.)

- Get the Basics Right
- secure system operation
- competitive wholesale & retail markets without market power mitigation fixes
- economic benefits to customers
- adequate investment for long term asset/system health
- RTOs are a good start, but not end state
- International Experience
- Not-for-profit transmission administration proving inefficient due to inability to exploit ownership/operations synergies and lack of cost accountability.
- Merchant transmission model is working in limited niche, and re-regulating transmission everywhere else

## Transmission Platform

- Characteristics:  independent, for-profit, asset-owning, regionally planned, regulated
- Benefits
- More transmission will be built
- Smarter, more efficient grid management
- Greater assurance of open access
- More competitive markets

## Part IIIHow do we get there?

## Transmission – Key objectives

- Reliability
- High availability/low disconnections
- Proactive asset replacement
- Efficiency
- New investment to enhance system
- Operational enhancements to mitigate congestion
- Cost-effective performance
- Facilitate markets
- Nondiscriminatory access and approach
- Expand scope of markets & mitigate need for RMR

##  How do we get there?	

- Step 1: Stimulate Transmission Investment
- Action needed now to improve system
- Step 2: Move towards improved Transmission Business structure
- Move towards independence and consolidation
- Step 3: Self-sustaining incentives
- Large independent transmission entities can be incentivised to deliver enhanced performance with Performance Based Rates
- Incentives can be targeted on customer benefits

## Adequate Incentives 

- Incentives for transmission investment
- Ensure return at high end of range of reasonableness
- Should reflect prompt and full recovery of investment
- Does not need to be tied to RTO if appropriate planning
- Incentives for independence and consolidation
- Reward moves in the right direction based on end-state market structure
- A sliding scale is needed to reflect moves which may vary based on particular facts and circumstances

## Forms of incentives

-  ROE based
-  Others
-  PBRs
-  Tax incentives and hold harmless
-  Recovery acceleration
-  CWIP in rates

## Ensuring transmission is a viable business

- Greater functionality for transmission focused companies
- Regional planning -- both reliability and economic
- Recognition that TX is a market platform -- not a market product
- Clarify cost allocation/cost recovery
- Share vision and policy advice with Other Regulators --Congress and States

## Improve 
the Grid

- the Grid

**How it all fits together**

- ROE Adders; CWIP; Accelerated Depreciation

- ROE Adders; Tax Incentives and Hold Harmless

- PBRs

- Business Structure

- Self-sustaining incentives

- General policy ensuring that transmission is a viable business