1. Transmission: the Critical Link
Delivering the Promise of Industry Restructuring to Customers
Janet Gail Besser, VP, Regulatory Affairs, Transmission
Presentation for MA DOER Roundtable
Boston, MA
September 23, 2005

2. Transmission and Long-Term Resource Adequacy
Transmission often left out of resource adequacy debate*
Role of transmission is misunderstood
Therefore, potential contribution of transmission to resource adequacy is overlooked
*Though it’s subject to much debate on its own

3. Transmission’s Role
Transmission is the critical link for delivering the benefits of restructuring to customers
Transmission is a market facilitator, not a market product
Reliance on market mechanisms to induce transmission investment will lead to inadequate system
Niche role for merchant transmission
Policies that recognize role of transmission as market enabler must be implemented to ensure reliable and economic system

4. Benefits of Restructuring Undermined by Insufficient Transmission Investment
Insufficient transmission preserves protected power markets, diminishes competition, and threatens reliability
Such conditions…
Increase congestion
Create opportunities for market power
Restrict customer choice
Lead to higher costs
Increase need for regulated intervention in the market to avoid reliability problems (and mitigate prices)

5. Transmission Enhances Long-Term Resource Adequacy
Transmission connects capacity and load (with help from distribution)
Larger, more integrated markets / electricity systems enhance reliability
Diversity of loads and load shape
Diversity of generation / capacity resources and availability
Transmission can also lower overall costs of electricity and reduce locational capacity cost differences
Transmission cost is small % of total bill
Robust transmission system is especially important in market context

6. Inadequate Transmission Produces Market Problems
Transmission constraints preserve protected markets and create opportunity for exercise of market power.
This prompts need for mitigation which, in turn, prevents some generators from recovering costs.
Retirements in constrained areas are a concern.
RMR contracts used to preserve reliability
Regulated generation undermines market
NYPSC proceeding to explore policies/requirements governing generation retirements
Inability to recover capital costs leads to dependence on capacity market designs that are often very expensive for customers.

7. Transmission – The Path to Successful Markets
Enhances reliability
Enables trade
Facilitates fuel diversity, including renewable energy
Reduces load pockets
Increases customer choice
Reduces need for regulatory intervention into markets
Leads to lower and more stable overall electricity prices

8. The Roadblocks to Adequate Transmission
Planning and pricing policies that view transmission as a market product vs. market enabling infrastructure
Ignore the “Commons” nature of transmission
Rely on voluntary participant funding
Attempt to identify specific beneficiaries
Fragmented nature of transmission ownership / operation
Lack of independence of transmission from generation
Lack of adequate financial incentives
State vs. federal jurisdictional issues
Siting
Cost recovery

9. Policies That Support Transmission
Robust regional transmission planning processes for reliability and economics
Fair and workable cost allocation processes, recognizing transmission as market enabler
Federal and state cooperation on cost recovery and siting
Incentives to induce adequate investment

10. Regional Transmission Planning
A robust planning process should:
Identify reliability and economic needs of the system
Contain well-defined timelines for approval of cost-effective regulated transmission remedies to identified needs
Fully value the benefits of transmission, including enhanced reliability, reduced market power, lower overall electricity prices, environmental improvements, and facilitating energy policy

11. Upfront Cost Allocation Mechanism
Should be clear, well-defined, repeatable
Avoids case-by-case allocation that invites endless debate and litigation
Costs should be allocated broadly to reflect:
Transmission’s widespread benefits
That transmission’s beneficiaries change over time
Regional cost allocation should include reasonable costs incurred to site projects
New England is a good example
Caution on regional v. local allocation

12. Federal/State Cooperation
FERC and states must work together to provide certainty of cost recovery to transmission owners.
Including incentives for cost-effective transmission investment
States should adopt siting policies that recognize broad benefits of transmission
Contribution to resource adequacy
Delivery of low-cost remote generation
Access to renewable resources
Greater customer choice
Enhanced reliability
Federal backstop authority may be required in some cases

13. Conclusion Transmission is market enabler, not market product
Inadequate transmission investment is key obstacle to delivery of restructuring’s benefits to customers
Policies must recognize role and importance of robust transmission infrastructure
To ensure reliability and long-term resource adequacy
To reduce customer costs
In both organized and traditional electricity markets

14. Questions?
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