Electric utilities across the United States are overspending by billions as they’ve ramped up spending on aging transmission lines and other equipment, recent reviews show, with no competition and no upfront scrutiny in many cases.
That means higher electric bills for customers forced to pay off the costs, critics charge. And lives could be saved, as well as dollars, experts add, if rather than merely replacing hulking, out-of-date equipment, innovative technology was installed in wildfire prone areas, for instance.
“Big picture: You can save lots of money potentially by having these technologies included,” said Jon Wellinghoff, former chairman of the Federal Energy Regulatory Commission. ” And potentially yes … you could save lives.”
An estimated $8 billion in savings in five years could be achieved if just a third of all major transmission projects across the nation were opened up to competition, according to a report by the Brattle Group, a global consulting firm that analyzed FERC and regional data from 2013 through 2017.
Just two percent of all projects went through a competitive process, they found. Projects handled by the large utilities escalated costs by 34 percent on average over original estimates, while winning bids by independent companies, when allowed, averaged 40 percent below estimates. Nearly half of the projects did not undergo public review or planning approvals.
In an interview with USA TODAY, current FERC chairman Neil Chatterjee acknowledged the problem and said fixing it was “a priority” for his agency, among others.
“Competition brings more cost discipline,” said Chatterjee. “It can also lead to more creative financing, promote more technologically advanced solutions and lead to new participants.”
But he added, “It’s a complex system and we don’t want to throw out the baby with the bathwater We owe it to consumers to think creatively and get it right.”
The report found U.S. transmission investments have stabilized at about $20 billion per year for the last five years, after rising steadily from $2 billion a year in the 1990s. The growth largely occurred not because of the need for vast, new capacity, but to replace aging infrastructure.
That issue has dogged the northern California utility, Pacific Gas and Electric Company, in particular. It faces criminal investigations and lawsuits following a string of wildfires sparked by its equipment. PG&E, California’s largest power provider, has filed for bankruptcy protection in the face of billions in potential insurance claims.
The utility already spent more than $5 billion on “self-approved” capital additions from 2007 to 2017, according to a presentation by a California Public Utilities Commission attorney at a U.S. Department of Energy workshop on transmission issues in November. It is projected to spend $3.2 billion in the next five years on the projects.
“PG&E is spending over $2 million/day on these projects,” according to a slide from the presentation. “As the Brattle Study shows, it’s a national problem.”
A PG&E spokesperson declined to comment on the reports. A coalition of northern California nonprofit power providers last week told state regulators that in light of PG&E’s “deplorable safety record,” the utility should get out of the business of providing electricity at the retail level, and focus on the “wires” side, fixing its transmission lines and poles that have sparked blazes. PG&E said in its own brief that it “supports consideration” of the idea, though it would be challenging. Company attorneys noted that unlike municipal utilities, PG&E and other investor-owned utilities are allowed to make a “return on equity” profit, which they claim is a strong incentive to boost safety.
More: PG&E Files for Bankruptcy
More: PG&E Overspends by Millions
Critics say the spiraling costs are rooted in history. For decades, six regional transmission organizations that cover large swaths of the U.S. identified major expansion or replacement projects and then gave the largest nearby utility the “right of first refusal” to take on the job.
In 2011, in the face of mounting criticism, FERC issued Order 1000 to open up competition and create incentives for innovative, cost-effective projects. The “right of first refusal” was eliminated, but implementation was left in the hands of the regional operators, whom each use different criteria for how the transmission projects will be awarded. In practice, the lion’s share of projects is still being done by the old utilities.
Wellinghoff, who took the lead on Order 1000, said it’s time to toughen up the rule. Wellinghoff, the former FERC chair who now is an energy policy consultant, said not only money but lives could be saved if PG&E and the other utilities would plan first for what would be most efficient, up-to-date and reliable, rather than just cutting down trees and replacing aging towers or poles.
Technologies include wrapping lines that are likely to spark in fireproof materials, or installing “smart” wires that can read wind speed, temperatures and humidity to accurately predict the risk of wildfire, and either immediately shut down or reverse power flow.
To fix the problem, the Brattle report makes two other recommendations: consistent project criteria and cost tracking across all regions, and drawing from best practices of the least restrictive regional transmission operators.
“If it works in New York, why wouldn’t it work in California or the rest of the country?” said lead author Johannes Pfeifenberger, a Brattle economist and engineer.
The report, titled “Transmission Solutions: Potential Cost Savings Offered by Competitive Planning Processes,” was presented in November to the National Association of Regulatory Commissioners.
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The study was paid for by transmission product companies, and experts said that while it was well done, there are other reasons for large expenses.
“There are some valid points,” said Tyson Slocum, director of the energy program at Public Citizen, a Washington, D.C., consumer advocacy group. But he said “lingering problems” with the Energy Policy Act of 2005 also allow FERC to add “big financial incentives for transmission projects. These … are too generous.”
Chtterjee said he sees opening up the grid system that keeps the lights on across the U.S. as vital to both reducing security risks and tackling climate change, along with keeping electric bills low. Meanwhile, costs for wind, solar and other renewables could come down even further.
“I’m very cognizant that the policies that we put in place with regards to transmission today are going to have a huge impact in shaping the grid of tomorrow,” he said. “Getting these systems right is crucial.”
Janet Wilson writes about the environment for The Desert Sun and authors USA TODAY’s Climate Point. She can be reached at firstname.lastname@example.org and @janetwilson66. Elizabeth Weise of USA TODAY contributed to this story.