A report by Concentric Energy Advisors raises significant doubts about the effectiveness and financial benefits of the competitive bidding process for electricity transmission projects under FERC Order No. 1000, suggesting a potential need for policy revision.
A recent study by Concentric Energy Advisors has challenged the effectiveness of competitive bidding processes for electricity transmission projects as mandated by Federal Energy Regulatory Commission’s (FERC) Order No. 1000. This study, supported by ITC Holdings Corp. and other members of the Developers Advocating Transmission Advancements (DATA) Coalition, indicates significant concerns regarding the purported benefits of these competitive processes, particularly in terms of cost savings and timely project completion.
FERC Order No. 1000, introduced to enhance competition in the planning and development of transmission projects, aimed to reduce costs and improve efficiency by involving non-incumbent developers in the transmission sector. The order represented a transformative shift intended to foster transparency and innovation by eliminating preferential treatment for incumbent utilities and mandating regional and interregional project planning.
However, the findings from the expanded study suggest that these competitive procedures have not only failed to lower costs but have often led to increased financial burden for consumers. For example, a project in California, undertaken by a non-incumbent developer, allegedly exceeded the established cost cap by almost $300 million, contradicting the initial competitive bid promises. Moreover, the supposed benefits of this project have been delayed significantly, falling behind schedule by four years.
Additionally, the study criticizes the cost cap mechanisms that are often championed as a means to protect customers. These caps, according to the report, frequently contain extensive exclusions and limitations that effectively undermine their purpose of shifting financial risk from consumers to developers. In New York, certain exemptions allowed under the cost cap structure have resulted in customer costs more than doubling compared to the initial cap figures.
The Concentric Energy Advisors’ report also highlights that competitive developers might be incentivized to submit low initial bids, only to later exceed these estimates substantially. This could be due to the complexities and unforeseen challenges inherent in large-scale transmission projects which might not be adequately accounted for at the bidding stage.
Contrastingly, incumbent developers reportedly demonstrate higher levels of cost control and schedule adherence. The study indicates that transmission projects managed by incumbent developers tend to stay within or even under budget, and largely on schedule. These findings pose critical questions about the efficacy and overall benefits of injecting competition into the transmission development process as per Order No. 1000.
Purvi Patel, Vice President of Regulatory Strategy at ITC Holdings Corp., emphasized the urgency of robust transmission investments to support the ongoing transition to renewable energy and underscored the inefficacy of the competitive bid process over the past decade, as per the study’s insights.
The outcome of this report calls into question the foundational assumptions of FERC Order No. 1000 and suggests that a reevaluation of strategies for managing and allocating transmission projects might be necessary to truly benefit consumers and accommodate the escalating demand for reliable and efficient energy transmission infrastructure.
This ongoing debate is critical as it impacts the future landscape of energy transmission in the U.S., affecting everything from economic factors to the integration of sustainable energy sources. As such, the industry must consider these findings seriously, potentially prompting policy revisions to align transmission development practices with the true needs and constraints of the modern energy sector.