Don’t Like New Power Lines? How About Using Dynamic Retail Pricing Instead?

Lynne Kiesling

Today’s New York Times has an article about a possible new transmission project from northern New York southeast into Orange County (registration required). Here’s the deal: for the past decade there has been increasing anxiety about the ability of the existing high-voltage transmission network to support the increasingly distributed commercial transactions that have grown. One factor that was a big focus of the Energy Policy Act of 2005 was the within-state policymaker incentives that frequently block the construction of wires that would benefit customers in neighboring states. EPAct2005 kicks the decision-making up to the federal level (at FERC) if the transmission project is designated a “national interest electric transmission corridor”.

That provision allows the Department of Energy to designate almost any area of the country a “national interest electric transmission corridor” if it determines that building new transmission lines there would eliminate congestion and relieve electricity bottlenecks. Within those corridors, federal regulators could pre-empt state jurisdiction in the siting of transmission lines and private builders could be granted the power of eminent domain to get the right of way on private property.

Still, the mismatch between the local interests and the NIMBY and the more regional interests persist. This article provides an example from New York state.

The battle here is over a proposed private commercial project that would run a 190-mile-long chain of high-voltage transmission towers from near Utica, within sight of parts of the ruggedly beautiful Upper Delaware River to Orange County, north of New York City.

When completed in 2011, the project, which would cost $1.6 billion to build, would transport surplus electricity from upstate New York to downstate power companies to meet the city’s growing energy needs.

But opponents say the towers, averaging 120 feet tall, would be an unsightly blight and hinder tourism in the region near the Upper Delaware, a federally designated wild and scenic river that is home to nesting bald eagles. They are also concerned about the effect on property values and the potential health effects of the high-voltage lines.

The New York corridor crosses a range of types of communities and areas: villages, towns, farmland, forests, mountain ridges, and so on. The problem is that downstate demand continues to increase:

Conservation and load management efforts in the city over the last few years have helped to curb electricity consumption. But demand is growing, and there are times when existing transmission lines become congested, creating bottlenecks that can threaten the entire system.

“This is about a better transfer of power from upstate to downstate,” Mr. May said. An added benefit is that surplus upstate power is cheaper and could provide energy cost savings in the city, but electricity prices upstate will probably increase as downstate users drive up demand.

The author, Anthony DePalma, did get one thing wrong in his otherwise very thorough article: “Only the Texas electricity grid was exempted from the provision after elected officials from that state helped push through the 2005 law.” Wrong implication of causation. Texas’ grid does not fall under FERC jurisdiction because its boundaries are entirely contained within the state of Texas. The Texas Congressional team has nothing to do with it (thank God).

BUT: the whole article begs the question. Ask these same folks who object to the construction of new transmission lines if they would prefer instead to have dynamic pricing, retail customer choice, and end-user prices that more accurately reflect the actual costs of providing power and the fluctuations in that cost over time. They would probably say NO! I want my fixed, stable rates. The reality is that if you don’t use price to manage consumption, then you will continue to have peaks, and you will have to have more wires to carry power to meet those peaks (unless you build more generation downstate, which is a non-starter).

Put another way: take regulated retail prices, no transmission construction, and no blackouts. You may be able to achieve two of the three, but not all three. And what’s worse for the incentives here, the people who would bear the brunt of the blackout (downstate) are not the same people as bear the brunt of the transmission construction (upstate).

My recommendation: New York already has some proto-retail competition. I would encourage the New York Public Service Commission to explore rate innovation and dynamic pricing for downstate customers, building on the foundation within the state of proto-retail competition and effective wholesale market/reliability demand response programs for large customers. Such economic innovation will forestall the need for more transmission construction in the face of growing demand for electricity.