Published Paper Calls For Rules To Unlock Benefits Of Electricity Restructuring
New White Paper Proposes "Horizontal Integration" for the Transmission Sector
Westborough, MA — In a white paper published, National Grid urged federal and state policymakers to enact rules for the nation's transmission system that will unlock the full benefits of electricity restructuring, also called deregulation, and deliver those benefits to consumers.
In the paper, entitled Transmission: the Critical Link, National Grid asserts that restructuring of the electricity industry already has yielded significant benefits for consumers including lower prices and greater supplier choice. Additionally, environmental benefits have resulted from the advent of new, cleaner generating facilities, including renewable energy sources such as wind power.
But National Grid also contends that delivery of restructuring's full benefits is being hampered by several obstacles. Chief among them is an inadequate, underinvested transmission system that was not designed to accommodate the new demands being placed upon it in the restructured industry. This problem is exacerbated by several factors including current policies that view transmission as a market commodity rather than a market enabler, lack of clear and consistent cost allocation and recovery mechanisms, fragmented ownership and management of transmission, lack of regional transmission planning processes in many areas of the country, and an outdated industry structure that does not encourage the incremental investment in transmission that National Grid believes would yield significant customer benefits.
"Transmission is the essential infrastructure needed to support robust competitive markets," said Jeff Scott, National Grid chief operating officer, U.S. Transmission. "Policies must be established that will spur transmission investment and consolidation to enable restructuring to deliver its full benefits to customers." He added, "To be effective, such policies must move the industry in the direction of independent transmission ownership, management and operation over a wide area."
National Grid proposes further restructuring of the industry to achieve a new model featuring a "horizontal integration" of the nation's transmission sector - that is, consolidated ownership, operation and management of the grid under Independent Transmission Companies, or ITCs, operating over a wide area and free of any financial interests in the market or the supply sector. Electricity markets would be administered by a separate, independent entity such as a Regional Transmission Organization or an Independent System Operator. The supply, or generation, sector would then be completely independent of transmission and fully competitive.
Finally, National Grid urges federal and state policymakers to enact the following rules, which recognize transmission's critical role in delivering the full measure of restructuring's benefits to customers:
- Establish robust independent regional system planning processes that identify transmission system needs for reliability and delivery of low-cost electricity to customers.
- Implement fair and workable cost allocation policies for new transmission investment to ensure reliability and to support competitive markets.
- Provide adequate return on equity incentives for cost-effective new transmission investment to produce the required platform for competitive power markets.
- Provide for clear and prompt federal and state cost recovery for transmission investments by regulated utilities through regulated rates.
- Encourage the establishment of for-profit independent transmission entities to consolidate, operate, and make needed investments in the transmission system.
SOURCE: National Grid