Low-Energy Fridays: Want Transmission Projects Completed Faster? Try Competition
There’s an old business adage that says if you want a job done, you have to choose whether you want it done good, fast, or cheap (fortunately you are allowed to choose any two of the three). The idea is that there are fundamental trade-offs between how quickly you do something, how much it costs, and the quality of the service, and how improving on one metric often harms you on another.
Perhaps it was this idea that inspired a recent petition by a coalition of electric utilities to the Federal Energy Regulatory Commission (FERC). The petition urges FERC to impose a five-year “pause” on the use of competition in transmission projects, arguing that this is necessary to get projects completed faster.
Currently, many states use a competitive bidding process to select who will build, own, and maintain new transmission infrastructure. Instead, the utilities argue that FERC should impose a policy known as “right of first refusal” (ROFR) in which a local utility is automatically awarded rights to the project.
Competition is a proven way to save consumers money. Research suggests that competitive projects cost 20 to 30 percent less than comparable projects that did not use competition. On the other hand, competitive projects do require additional steps that aren’t present when an incumbent utility is simply awarded the project. Bids must be prepared, submitted, and evaluated, and then a winning bidder must be selected. That takes time, and so you can see why utilities would argue that abandoning competition would be a way to speed up the process. Given the urgent need for many new transmission lines, it arguably could even be worth the extra cost to get the projects done faster.
But new R Street research casts doubt on this argument. In the report, we look at data for recent competitive and non-competitive projects and find that competitive projects actually take less time to complete than their non-competitive counterparts. Despite the initial slower start due to having to complete the competitive bidding process, competitive projects recovered quickly, ultimately requiring fewer days from the initial identification of need to the in-service date. For example, the median completion time for competitive projects in New England was 251 days shorter than for non-competitive projects. While the difference in other regions of the country was not as stark, all regions except the Mid-Atlantic saw shorter average times for competitive projects.
One reason non-competitive projects took longer to complete is that they were more likely to suffer unplanned delays. Delays are a risk for any large infrastructure project, but non-competitive projects seem more at risk of significant delays. In the Midcontinent Independent System Operator (MISO) region which stretches across much of the Midwest, non-competitive projects were delayed for an average of 215 days, while competitive projects actually came in 204 days ahead of schedule, on average. Delays are not the whole story, however. For example, in California, competitive projects experienced greater delays on average than non-competitive projects, yet competitive projects were still completed an average of 889 days faster than non-competitive projects.
What all this suggests is that the old “good, fast, or cheap” adage needs caveats. The saying arose out of a competitive business context, where companies were highly incentivized to deliver across multiple metrics. In that environment, it could well be that improvement in one area would likely come at a cost in another area. The entities known as “monopoly utilities,” by contrast, operate in an environment that is insulated from the consequences of suboptimal performance. If an incumbent utility delivers a product that takes longer or costs more than it should, well, what can you do? Transmission planners who seek to speed up projects by eliminating competition may thus end up in the worst of both worlds, with projects that cost too much and take too long.