On a Mission for Transmission: Has New England Spent Too Much on Electricity Grid Infrastructure?

May 27, 2016

In the previous installment, we reported on recent reductions in the cost of electricity supply in New England. But there’s another charge in your electricity bill that’s been rising steadily over the last decade.

This is a look at why New Englanders pay more for energy transmission than almost anyone else in the country, and at some efforts to change that. 

New England electricity users collectively share the cost of building and maintaining a transmission system that we can rely on to safely move bulk, high-voltage electricity around the region — and keep the lights on. In Maine, consumers pay about 8.5% of that cost. That’s in proportion to how much of the region’s electricity Maine uses.

“We’re paying for a grid that’s reliable and works. And it may not feel that way during ice-storms. But the grid that we have in New England and the United states is the envy of the world in terms of reliability. That’s real. We paid for that. There’s a cost associated with that,” says Tim Schneider, the state’s public advocate.

Residential customer bill summary.
Credit Central Maine Power

His job is protecting consumers’ interests when regulators decide what grid investments are necessary and justifiable. Schneider says reliability is essential. But here in New England, he adds, consumers may pay more than is necessary — and more than consumers do in other regions of the country.

“We have built a lot of transmission in New England,” he says. “And it’s really costly. There don’t appear to be a lot of cost controls. There’s not a lot of transparency around what’s driving those costs.”

Over the last 15 years, major transmission upgrades in New England have more than tripled the portion of Central Maine Power bills that covers those costs. In 2002, it was less than four dollars out of a typical monthly bill; by 2014, it was more than $12.

And a recent report found that between 2010 and 2014, the transmission component of wholesale power prices in New England were anywhere from twice to three times as much as in most of the rest of the country. There’s some history behind that imbalance. Some of it goes back to Depression-era federal investment in transmission and generation in the south and west. Some goes back to investments made in New England after the northeast blackout of 1965. And some is more recent.

“We had the blackout of 2003, says Eric Stinneford, a top executive at Avangrid, CMP’s parent company.

He says after that grid failure the federal government created a rigorous and mandatory set of standards for planning reliability investments. And it gave utilities a big incentive to do it — a boost in the return on equity they could earn on transmission investments — to a total of more than 11%. Since then in New England, there’s been almost $7 billion worth of new grid investments. Other regions, Stinneford says, have spent proportionately less.

“I think it’s a fair question why haven’t other regions seen something similar, and a lot of that has to do with a variety of factors, some of which is geography where in New England we’ve seen a shift of the generation resources getting further away from the population centers where the generation is being consumer,” says Stinneford. “I don’t think that is the case everywhere else.”

Public Advocate Schneider says, though, that some of the other factors for the imbalance can be addressed. First of all, there’s that nice return on equity the utilities can earn. He and other players have argued to the federal government that earning threshold should be reduced, and in a recent decision, it did so — shaving it to 10.6%. A new decision is expected soon in a case that seeks to get the number below 9%.

Other efforts focus on predicting just how much electricity the region will use in the future, a foundation for regional decisions on what’s needed to ensure reliability. New England grid regulators recently decided — at the urging of states and environmentalists — to factor in the effects of state policies that reduce electricity demand. Theodore Paradise is a counselor at ISO-New England, which administers the regional grid.

“Once we factor in that energy efficiency spending by the states and the photo-voltaic subsidies, things like that, we see that that energy curve is really flattening out and that has a direct impact in what kind of transmission we need and where we need it how much we need and what kind of capacity we need and where we need it, and the cost of that,” says Paradise.

There’s more work being done too — to more accurately predict just what kinds of emergency events to plan for, to put transmission developers, rather than consumers, on the hook when a project goes way over cost, or to get more transparency in federal decisions on just what utilities will be allowed to charge for transmission.

And there’s something else to consider, beyond reliability. This region’s transmission investments have also improved access to newer, lower-cost electric generators and allowed older, costlier generators to be retired. That drives down the price of electricity itself, which is a bigger part of our power bills than transmission. Players on all sides of the issue say that going forward, the energy-cost pendulum just might swing New England’s way, as states that have invested less in transmission are forced to play a bit of catch up.