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You can’t live without it…It’s Electric!

Since the days of Ben Franklin flying his kite during a storm, America has played a large role in harnessing the power of electricity.  In 2003 the National Academy of Engineering declared the electrification of the U.S. the “greatest engineering achievement of the twentieth century”, ahead of even the automobile or airplane.  “Electrification” here refers to the construction of power plants and transmission networks that supply electricity to homes, businesses and factories all across America.  This often-overlooked engineering feat has provided the juice that has helped propel our economy to be foremost among world economies.  So many innovations of the past century have depended on low-cost, widespread electricity.  Computers, light bulbs and the vast array of home appliances that boost our productivity wouldn’t have gained traction without access to electricity. Image

R&D in energy production has allowed us over the course of the last century to unlock a wide variety of potential energy on the planet (coal, oil, gas, uranium, etc) and convert them into a universal form of energy: electricity.  More recently, research has cracked open more innovative methods of renewable electricity generation including photovoltaics (i.e. solar panels) and wind turbines.  Because of the extensive transmission network we’ve developed, we bring energy daily from a variety of power plants to demand centers.  Your computer screen could be powered by a chunk of coal one day, a cloud of gas then next, then a complex nuclear reaction the day after that.  This phenomenon has bolstered energy security and allows for a variety of fuels and methods to power our electric grid.  When the price of one type of fuel increases relative to the others, or when renewables are off-line (no wind or sun), we can shift electricity production to the right plants to moderate shocks to electricity prices and to prevent blackouts.  We depend on our transmission systems to get the power from a growing variety of producers to the consumer.

While the current transmission network served the needs of the last century, it faces serious issues today as its’ complex web must expand to feed an ever-growing demand for electricity.  Our transmission network is lacking adequate investment and is depreciating faster than it can be replaced because of the current regulatory climate.  In many cases, the new transmission projects need approval from a myriad of agencies: The Federal Energy Regulatory Commission (FERC) has to approve transmission rates, projects have to be sited in accordance with public-utility regulators, wholesale-market operators, National Park Service, U.S. Fish and Wildlife Service and state and local agencies concerned with the property at issue.  Even after a project surmounts all these obstacles, it can still face lawsuits from environmental-zealot groups like the Sierra Club and the Natural Resources Defense Council over construction of the lines.  Squabbling and lawsuits result in delays for investors which can last as long as thirteen years (you thought Keystone was bad) and add millions extra to the cost.  Add to this the disproportionately high tax rate that most transmission projects face, a whopping 34% or 38.5% for high-voltage and distribution projects respectively (higher than capital gains taxes or most ordinary income) and it becomes clear why investment is lacking.

The high-cost and uncertainty of transmission investment deters investors who take their dollars elsewhere.  Granting the federal government power to streamline the approval process and override local objections for the regional good would help attract more capital from the private sector.  To this effect, Congress passed the Energy Policy Act of 2005 granting the DOE authority to designate regions where “transmission congestion adversely affects consumers” as National Interest Electric Transmission Corridors (NIETC). 

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Once these corridors are set up, the FERC can invoke eminent domain to build interstate high-voltage projects that benefit the entire region.  Since 2005, the DOE has only designated two such corridors; one in the Northeast stretching between southern New York and northern Virginia.  The other corridor exists surrounding Los Angeles and extending down to San Diego.  These two NIETC’s surround the nation’s two largest cities (New York and Los Angeles) and help streamline the process of getting electricity from generators to the two largest demand centers.  While these efforts have helped, they are a far cry from a comprehensive and nationwide solution to an inherently national issue.  As we work to create a stable regulatory environment for investors, including resolving issues of federal and state regulatory overlap, we will fill the investment gap with much-needed transmission projects that will carry our most important innovation into the 21st century. 

 

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