Texas is in the midst of its largest transmission expansion in more than a decade. According to the findings in a new study, bidding out the projects could save ratepayers billions of dollars.
In fact, applying competitive bidding to ERCOT’s upcoming high-voltage transmission projects could lower upfront construction costs by $3 billion to $9 billion, according to a new report by Aurora Energy Research released by Texans for Affordable Transmission, a project of Conservative Texans for Energy Innovation. Over the life of the projects, ratepayers could save between $7 billion and $ 22 billion total, or about $206 to $660 per household.
ERCOT’s 2024 and 2025 Regional Transmission Plans outline about $36 billion in estimated costs for the Strategic Transmission Expansion Plan (STEP), which includes a new 765-kilovolt “backbone.” Transmission charges already make up as much as 15% of a typical residential bill in ERCOT, and they have risen about 34% in the past two years. The study notes that under current Texas law, new transmission is generally assigned to incumbent utilities through a right-of-first-refusal framework, meaning these projects would be built without competitive bidding.
“Texas is about to spend tens of billions of dollars on new transmission, and ratepayers will carry that cost for decades. This study shows that when developers compete and are held to binding cost commitments, projects come in on time and on budget. Texans deserve that same benefit”, said Barry Smitherman, Chairman of Texans for Affordable Transmission.
Aurora compared 47 completed transmission projects across six U.S. markets: SPP, MISO, CAISO, PJM, NYISO, and ERCOT’s own Competitive Renewable Energy Zones (CREZ) program. Twenty were competitively procured, and 27 were not. Projects were chosen to be comparable in length, terrain, and voltage class.
On average, competitive projects finished ahead of their promised in-service dates in five of six markets, the study found. Three-quarters of competitive projects had no material delay, compared with just over a third of non-competitive projects. The researchers argue that when competitive projects did fall behind, the causes were “external and documented,” such as permitting, cost-allocation disputes, and COVID. Nearly one in five non-competitive projects reported no cause for delay at all in public filings.
In SPP and MISO, completed competitive projects came in about 25% below the grid operator’s initial cost estimates on average. That benchmark became the basis for the study’s Texas savings projections.
ERCOT’s CREZ program, which built about 3,600 miles of lines to deliver West Texas wind power, allowed new-entrant developers to compete alongside incumbents. The new entrants’ projects cost about $150,000 less per mile on average. Their final costs came in 9% below developer estimates, while incumbent projects ran 7% over. Lone Star Transmission’s 330-mile line, the first CREZ project completed, finished ahead of schedule and 7% under its developer estimate.
The study stresses that competition alone does not guarantee savings. Instead, researchers found that the strongest outcomes came from three variables utilized together:
- A “procurement” model, where the grid operator defines the project and developers compete to build it.
- Hard cost caps backed by financial penalties, such as reductions to allowed return on equity for delays.
- Public disclosure of developer commitments.
The report compares two projects from the same developer: In SPP, the Crossroads-Hobbs-Roadrunner line came in exactly at its $291 million hard cap, which allowed no exceptions. In New York, the Empire State Line’s exceptions to its $110 million cap allowed costs passed to consumers to reach $249 million.
The study identifies four STEP components as candidates for competitive procurement because they are high-voltage greenfield lines with “broad regional benefits,” including:
- Eastern Backbone: about $20.5 billion with no developers selected and no certificates filed.
- Central Texas Euclid-Hillje line: about $1.4 billion with no developers selected and no certificates filed.
- Western Loop: about $0.7 billion with no developers selected and no certificates filed.
- Permian Basin Reliability Import Paths: about $13.8 billion. Incumbent utilities have filed certificates. The study estimates that reopening the Permian 765-kV lines to competition could add nearly $3 billion in upfront savings.
The low end of the savings range ($3 billion upfront, $7 billion lifetime) covers only the 765-kV lines outside the Permian plan. The high end ($9 billion upfront, $22 billion lifetime) assumes the complete STEP program is competitively procured.
Read the full report here.
Can we all benefit from transmission competition?
The debut episode of the Factor This Policycast, hosted by Factor This content director Paul Gerke, features Caitlin Marquis, managing director at Advanced Energy United, and Paul Cicio, chair of the Electricity Transmission Competition Coalition (ETCC). Both are advocates for competitive transmission and share findings to support their case. They discuss how utilities request to ban competition outright, talk about FERC’s role in keeping rates affordable, and explore the finer points complicating broader transmission build-out- at a time we really need it.
About 15 years ago, the Federal Energy Regulatory Commission, or FERC, mandated that utilities competitively bid out such projects, but that mandate isn’t being enforced, for reasons discussed on the program. New data from the think tank R Street highlights tremendous benefits of competitive transmission, though, including billions of dollars ultimately saved by ratepayers. Detractors argue the bidding process delays timelines and subjects projects to hidden costs, and a group of Midwest utilities has even asked FERC to halt bidding in MISO and SPP.
Watch the full episode below:
