By Amanda Durish Cook

A recent pair of dueling studies have drawn divergent conclusions about the merits of competitive transmission solicitations. The differences might have something to do with the reports’ respective sponsors.

Both studies appear to be aimed at shaping the discussion around possible changes to FERC’s Order 1000, the 2011 rulemaking that eliminated incumbent transmission owners’ right of first refusal over regional projects and opened transmission planning processes to independent developers.

The first report, released by The Brattle Group in April, found electricity customers could save $8 billion over five years if competitive transmission planning processes expanded to cover 33% of all transmission investments, compared with just 3% today. That study was commissioned by independent transmission developer LSP Transmission Holdings, whose affiliates are developing three competitively bid transmission projects in MISO, PJM and NYISO.

But another study published by Concentric Energy Advisors on Monday concludes there is no basis to expand the scope of competitive solicitations in RTOs and ISOs, claiming incumbent TOs’ initial cost estimates for projects generally prove to be accurate. That study was prepared for Ameren, Eversource Energy, ITC Holdings, National Grid USA and Public Service Electric and Gas — all incumbent TOs in various RTOs.

The two studies come as FERC is signaling a move to reexamine Order 1000. FERC Chair Neil Chatterjee earlier this year acknowledged some industry stakeholders are complaining the rules are not working as intended, with proponents of competitive projects seeking a replacement and opponents hoping for a repeal. (See “Chatterjee: Focused on PURPA, Order 1000 Reforms,” Overheard at the NARUC Winter Policy Summit.)

So far, the commission appears to be in the “replace” camp.

“As we think about addressing Order 1000, I believe we owe it to consumers to put our best effort forward toward spurring competition to work and getting the scope of competition right,” Chatterjee told a gathering of state regulators in February.

Order 1000 Rethink?

But the numbers suggest competitive project developers continue to face barriers despite the aims of Order 1000.

Brattle’s report showed that even seven years after FERC issued the order, 97% of RTO transmission investments are still made outside competitive processes. The study calculated that competitively bid projects only took about $540 million of the average $20 billion in annual transmission investment from 2013 to 2017, despite its finding that competitive projects typically result in cost savings of 20 to 30%.

Brattle took issue with the ongoing limitations faced by competitive developers.

“The tariffs that specify the rules for transmission planning for each region currently exclude the large majority of transmission investments from competitive processes,” Brattle wrote. “We do not see compelling policy reasons for broad limits or having significant differences in criteria used in various regions that directly or indirectly exclude transmission projects from the competitive processes.”

The report advocated federal and state policymakers move to expand the scope of competitive transmission investments to stimulate innovation and increase cost-effectiveness in an industry being transformed by new natural gas and renewable generation investments.

But Concentric contends Brattle’s report doesn’t paint a complete picture, maintaining the benefits of transmission solicitations are still unknown and Brattle’s cost-savings estimates are flawed. Concentric also argues RTO competitive processes are “time- and resource-intensive,” with solicitations involving more than one bidder taking anywhere from 113 to 1,498 days.

Concentric also questioned Brattle’s assumption that incumbent TO projects typically exceed initial cost estimates by anywhere from 18 to 70%, calling that conclusion “false and inconsistent with the empirical evidence.”

Instead, Concentric said it found incumbent TOs’ final project costs only vary from initial investments by a “very modest” -2.9 to 7%.

Concentric said there’s “no credible support for the claim that current transmission processes limit customer savings, or that expansion of competition will yield meaningful additional savings.”

“The Brattle report … uses a limited and unrepresentative sample size of incumbent TO projects to produce its average historical cost escalation estimates, which are significantly overstated,” Concentric added. “Importantly, of the 15 [competitive] projects the Brattle report used to calculate its cost savings estimates, the final cost of the majority of the projects is currently unknown.”

Concentric cautioned against any near-term moves to revise or replace Order 1000.

“If there is interest in expanding solicitations for transmission projects, we advise policymakers to wait until more of the projects selected through such solicitations have been placed in service. At such a time, more information will be available about the actual costs and operational performance of these projects and policymakers would be in a position to make better informed decisions about whether or not to expand such solicitations,” Concentric said.

Jim Holodak, National Grid vice president of FERC and wholesale regulatory strategy, agrees with that last point. He said he’s heard a variety of opinions about revisiting Order 1000, ranging from elimination or repeal to a series of slow modifications.

“We’re suggesting we need more time before FERC opens it up,” Holodak told RTO Insider.

He said multiple competitive projects should be completed before cost savings and benefit assumptions are made about them.

“You don’t know what that project will cost until it finally goes into service. Then make that comparison,” Holodak urged.

Concentric’s study pointed out that even the cost caps promised by winning bidders for competitive projects are subject to “exclusions and exceptions.” Holodak noted the caps can contain several exclusions related to siting, regulatory requirements and routing changes.

“There’s a whole host of exclusions for cost caps. … At the end of the day, they’re not taking on any more risk, and the project price for customers is not really capped” any more than for an incumbent TO project, Holodak said.

“It’s as if you’re buying a kitchen remodel based on an ad for a $10,000 kitchen, but you want to add granite countertops and other design features that increase the quote. It would be unreasonable to expect to hold the contractor to the original ad price,” he said.

Holodak also argued the system’s “resiliency and robustness” won’t get the same attention if more project types are opened to competition. Complete competition on every level of transmission “is not the way to go,” he said.

Brattle Responds

Brattle’s conclusions couldn’t differ more.

Johannes Pfeifenberger, one of the authors of the Brattle study, said he still stands by the position that Order 1000 is ready for expansion, even if there are few case studies so far.

“The reality is there are not a lot of competitive projects to study. But the experience with those 15 Order 1000 projects is that those projects were bid below initial cost estimates,” Pfeifenberger said.

While Brattle is only beginning its review of the Concentric report, Pfeifenberger leveled several criticisms at Concentric’s study methodology, saying the competing analysis incorrectly relied on updated cost estimates later filed by the incumbent transmission developers, not true initial cost estimates.

“Since the competitive bids are compared against the initial estimates when the bids come in, the initial estimates are the most appropriate information for comparison,” Pfeifenberger explained.

Pfeifenberger also said the average 20 to 30% cost savings found in the Brattle study is consistent with the savings seen in other areas with transmission competition, including the U.K.; Brazil; Alberta, Canada; and the Path 15 transmission project in California.

He also lightheartedly addressed the cost cap criticisms: “I would say that some cost caps are better than no cost caps.”

Pfeifenberger also pointed out all transmission projects must undergo a process of identification and then study before approval. He said the planning process takes time, with or without bid windows and selection reports.

“The competitive process had only begun a few years ago, and these markets are still in the forming stage, and therefore the first few competitive projects take quite a bit of time to evaluate and approve. But these processes are improving and streamlining over time,” Pfeifenberger said.

“If you can add six months [to the planning process] and save 20%, was that worth it?” he asked rhetorically.

But Holodak maintains early planning estimates at the conceptual design stage shouldn’t serve as a study benchmark for cost savings, noting they often involve standard dollar-per-mile estimates and lack several design and engineering details unique to specific transmission projects.

“Nobody has ever suggested that’s a model you should hold someone to. Brattle’s suggestion that the preliminary planning estimate is a standard someone should be held to, we think it’s completely without merit,” Holodak said.

Brattle report co-author Judy Chang argued planning-level estimates could become more precise.

“It doesn’t make sense that project costs will always escalate based on the initial estimates,” Chang said. “That also means that nobody really cares about the initial estimate. The whole competitive process has induced these transmission owners to sharpen their pencils and really analyze costs they can control and bear the risk of costs coming in higher than they expect. This whole better cost containment is an innovative outcome of the competitive process. This is a benefit.”

Pfeifenberger added if planning-level estimates are made to be exceeded, then competitively bid projects would also consistently exceed those estimates. That’s not the case, he said.

“Beyond trying to confuse the issue, Concentric has not addressed the fact that competitive bids have come in significantly below initial cost estimates while traditionally developed projects of similar type have come in above their initial cost estimates,” he said.