Adding up the benefits of infrastructure investments.
Johannes Pfeifenberger is a principal and Delphine Hou is an associate at The Brattle Group. The analysis in this article is based on Chapter IV of the authors’ May 2011 report Employment and Economic Benefits of Transmission Infrastructure Investment in the U.S. and Canada, prepared for the WIRES Group. The authors acknowledge sole responsibility for the content of this article.
The allocation and recovery of transmission costs has proven to be a significant barrier for major regional and interregional transmission projects in many power markets. Attempts to address this barrier often lead to heated discussions over the merits of beneficiary-pays approaches and “socialized” recovery of the transmission investments. In that context, FERC Order 1000 now requires that the allocation of transmission costs be “at least roughly commensurate” with estimated benefits. With the additional mandate that regional and interregional grid planning efforts also consider transmission needs driven by public policy requirements, this places new emphasis on the identification and quantification of transmission benefits.
Benefits of transmission investments range from increased reliability to decreased transmission congestion and generation costs, as well as risk mitigation, renewables integration, economic development, and increased competition in power markets. These benefits often are spread geographically across multiple utility service areas and states, and are diverse in their effects on market participants. They also occur and change over the course of several decades. In fact, the benefits we derive from today’s transmission grid, such as the ability to operate competitive wholesale electricity markets, could barely be imagined when the facilities were built four or five decades ago.