Socializing the Costs of Transmission

Transmission is the component of the electricity system that often gets overlooked, but it shouldn’t be. In fact, understanding the cost of delivering the power our nation’s utilities produce – and who pays those costs – is becoming more important than ever. The U.S. will spend $14 billion this year alone to upgrade its aging transmission infrastructure.

Consider the case of Iowa, where the Federal Energy Regulatory Commission (FERC) is considering whether customers of Interstate Power & Light Co. in Iowa and Minnesota should be forced to pay a substantial portion of the costs for new transmission to connect wind farms to the grid. The cost is substantial, saddling half a million customers with $170.5 million over a nine-year period.

Or Michigan, where electricity rate payers were asked to cough up 20% of the costs – over $3 billion – to build transmission lines for wind farms outside of the state, even though state laws disallows renewable power generated outside of Michigan from counting toward the state’s Renewable Portfolio Standard. What benefit did those customers get for their investment? The warm and fuzzy feeling that someone, somewhere was drying their laundry with wind power?

The confusion stems, in part, from FERC’s Order 1000, that allows regulators to spread the cost of building new transmission fairly liberally, even to customers that don’t really see the benefit. This is termed “cost socialization” and appears to FERC’s preference, at least for now, for paying the nearly $150 billion it could cost to connect onshore and offshore wind turbines to the grid. Turns out that while the wind itself is free, it is frighteningly expensive to get it into your light bulb.

The Wall Street Journal calls cost socialization “like arguing that Oklahomans should pay to fix potholes in Manhattan.” That’s a good analogy, but here’s a real-life example. Customers of Entergy in places like Mississippi and Louisiana will soon be part of a regional transmission organization that stretches across the Midwest in 15 states and even into Canada. But will power customers as far south as New Orleans have no choice but to pay the cost of building transmission lines for wind farms in Minnesota that satisfy Renewable Portfolio Standards in Illinois, Iowa, and Missouri? It certainly seems so.

In other words, through Order 1000’s system of cost socialization, you could soon be asked to pay the cost of renewable energy mandates whether you like it or not. It’s time for our energy policy makers in Washington, DC, to work with FERC to make sure that doesn’t happen.