The Hidden Cost of Energy: Overpaying for an Outdated System
In June, 2016, The Acadia Center published its report “The Hidden Cost of Energy.” This report has informed our team in its approach to shedding light on the flawed transmission siting process and its regulatory framework. Below, find some of the highlights, or read the whole report here.
Summary of Conclusions:
…a key cause of increasing (electricity) prices is usually ignored: the high cost of moving—or transmitting—electricity from power plants to consumers. Transmission charges have skyrocketed and continue to climb. Since 2002 consumers have footed the bill for $12 billion in transmission projects in New England, where transmission spending is higher relative to the rest of the country and steadily growing
The way electricity transmission is planned and financed does not work in the best interest of consumers, but does motivate utilities to maximize spending on transmission. The system is broken: New England consumers are paying rich rewards to transmission companies for billions of dollars of infrastructure while lower cost solutions are not being utilized.
Four fundamental problems in need of reform:
Transmission owners receive disproportionately large returns
In New England, utilities receive as much as 11.74% on transmission investments2 —far higher than on other investments, such as running the local distribution utility (7–8%), or achieving energy efficiency goals (4–5% performance reward).
Outdated rules give states an economic incentive to approve expensive transmission projects over lower cost alternatives
…each state has an incentive to choose the more expensive transmission proposal instead of lower cost options that save money for the whole region
Controls to prevent transmission project cost overruns are lacking
Lack of cost control is a problem that was highlighted in 2014 and 2015 when ISO-New England (ISO-NE) weighed two competing bids to build a new high-voltage transmission project to serve Boston and southern New Hampshire. Eversource and National Grid bid their joint plan at an estimated cost of $510 million, while NextEra proposed a guaranteed $770 million plan with no charges to ratepayers for cost overruns…Without strong incentives to maintain costs, transmission projects are likely to continue to substantially exceed their bid prices, further driving up electric costs.
Imprecise energy forecasts can produce unnecessary transmission projects
ISO-NE’s forecasting methodology continues to consistently over-predict energy demand…ISO-NE heavily discounts the benefits of energy efficiency and distributed generation…The forecast has gradually improved in the last few years, but is still predicting peak demand and energy growth on trajectories substantially higher than recent trends.
You can find the full Acadia Center report here.
The Acadia Center is a non-profit, research and advocacy organization committed to advancing the clean energy future, with an approach characterized by reliable information, comprehensive advocacy and problem solving through innovation and collaboration.