The Exchanges

Q with maybe some historical context about transmission in the United States. What has our build rate on transmission been like over the years? Like, how has it changed? Obviously, there was a period of an enormous amount of transmission build out as we were first building out the backbone of the network, but, like, you know, walk me through the kind of medium to long arc of transmission history here.

A Yeah, sure. Yeah, let's do 50 years in 50 seconds here. So, um, yeah, in, like, the seventies, uh, there was A big transmission build out. You had remote, uh, big central station coal, mine mouth coal, and other plants, and earlier, prior to that, you had the hydro, connecting hydro to loads, and those were the, really, the long distance transmission, and then the, the rest was sort of connecting utility to utility. So we've got, you know, we, the industry grew up with 3000 or so independent utilities. They were kind of balkanized little fiefdoms, and they would do their own generation transmission distribution, and Then for reliability, they would get some connections between them, and that was our transmission network, um, overlaid with occasional long-distance hydro connections or coal connections, and the occasional random Pacific-DC intertie connecting the northwest to California. Uh, then for years, we did nothing. The seventies, eighties, nineties, beginning of 2000, Barely any transmission built.

AI assessment note: “The seventies, eighties, nineties, beginning of 2000, Barely any transmission built.”

Q I think this is, to me, this is actually fast becoming maybe the most immediate and acute problem that we've got, which is the ability of a new source of generation, or energy storage for that matter, to connect to the grid is, is taking longer and becoming more expensive. So can you put some context or some numbers to what it looks like to try to interconnect These days?

A Sure. A couple of numbers. So, interconnection to the bulk power system used to take one or two years. Now, it's over four years on, on average. So, it's more than doubled in terms of the, the time frame of processing. Uh, and the cost, uh, has more than doubled as well. It used to be in the hundred dollars a kilowatt range. Now, it's probably over 300, sometimes up to, well, it's maybe, you know, two to 300, and sometimes in places up to 800 or a thousand dollars. Uh, a kilowatt. So, uh, and what's happening here is generators are asked to pay, not just for sort of the driveway to connect to the grid, the Gentai generator tie line, but the deeper network upgrades that, that, um, are needed for them to be fully deliverable. And so if you, if you think about, you know, building a, you know, a new house on the current, you know, Road system. You pay for your driveway, but then you're also being asked to pay for, like, a road that might be, you know, four blocks away or five miles away, and you might be the, you know, the straw that broke the camel's back, triggering the need for that upgrade, and so you're, you're asked to pay for that, which, um, you know, has some economic, uh, elegance to it, but, uh, it really makes no sense for the current resource mix, because, um, Which you have to do is study each individual generator for that, and then you assign, you, you send the bill …

AI assessment note: “interconnection to the bulk power system used to take one or two years. Now, it's over four”

Q And then how much is all this stuff tied up in the question of permitting reform? How much does that matter? Because it, it doesn't, it's not clear to me whether that's actually on the horizon. It may be, but it certainly hasn't happened yet. Do we need it?

A I think, I do think we need it. I mean, you can, You can build things here and there, um, under the current regime, which again, you know, was proven by 10 years ago we, we did it. Um, but there are real limitations, uh, with that. Um, and some of it is this big inter-regional opportunity. Like, we don't really have a system in place to build inter-regional transmission from region to region, MISO to SPP, or SPP to the interior west, or interior west to the coast, all of these neighboring regions, there's a massive untapped value of transmission there, and, you know, we don't have a regional transmission organization with a planning process to deal with that, and, and this whole More macro, looking at the whole industry on a more macro scale, you know, we're evolving out of a industry that started with 3000 utilities doing their local thing in their local fiefdom, uh, without much of a, you know, tie between them, and so we're crafting onto the top this more regional and then interregional approach, and it's a process, a multi-decadal process that we're still working through, and we're nowhere near the end game on that, so we're still working through on that. Permitting reform, at least as, um, uh, set up in the Manchin Barrasso Energy Permitting Reform Act, EPRA, from a couple years ago, it has a transmission title. That has a big focus on interregional transmission planning, …

AI assessment note: “I think, I do think we need it.”

Q So absent, let's just assume for a second we don't build out sufficient new capacity to alleviate that congestion, and we see that hockey stick, like, what, what happens then? I guess the result, the natural result of that is we kind of stop building new New generation, and at the same time, retail prices shoot upward. Is that like the scenario you could picture?

A Yep. That's right. Consumers pay the cost, um, and, uh, renewable generators and their investors take a beating in, in markets. Um, we're seeing that now in some regions like SPP. There's a fair amount of curtailment in California, uh, some in MISO in the Midwest. Um, and, uh, It's very hard for them, especially, it's just hard to predict. Um, the, the prospective modeling is usually not very good because in reality, the, you know, the lines are not all in service, and there's a lot more congestion in reality or looking backwards than there usually is in, in prospective modeling. So it's very frustrating for investors in particular to, um, you know, estimate. So that's, that's, uh, you know, likely, likely what we'll see.

AI assessment note: “Yep. That's right. Consumers pay the cost, um, and, uh, renewable generators”

Q Can I pause for a second there? Why, why did we do nothing over that period? Is it because we had built out what we needed, and there wasn't demand, or was it actually bottlenecks?

A Yeah, I mean, largely, you know, you know, load growth had been up to seven percent a year, and then it was relatively flat in those latter decades, in those latter decades of the last century. Um, and we also, um, uh, you know, there was some excess generation capacity, so there wasn't a lot of build-out To connect new generation until right around the turn of the century, and we had that big flood of natural gas, mainly combined cycle, uh, entry, and they didn't need a lot of transmission, but we did have, uh, a little bit of an uptick in transmission then because, you know, we were trying to, the nation was trying to support competitive power markets, and we had restructuring, uh, and there was, when we restructured, we found out, well, there's a lot of Congestion on the grid, and congestion is harmful for markets, and it creates market power in local zones where generators have market power, so there was some build-out then in the early 2000 to remedy that, um, uh, and then, uh, the next phase was sort of 2008 to 13, where there was a pretty significant build-out, mainly wind energy driven, uh, MISO multivalue projects, people, your listeners probably heard about ERCOT, competitive renewable energy zones, CREZ, um, taken together, those led to roughly 4000 miles of high voltage, meaning like 3:45 KV and above, um, trend lines built in the year, just in the year 2013, which …

AI assessment note: “load growth had been up to seven percent a year, and then it was relatively flat”

Q Has there been any movement toward alternative ways to alleviate congestion? For example, putting energy storage strategically placed on the transmission network to alleviate congestion? Does that have a prospect for you?

A Sure. Uh, yeah, there, I think there are really important opportunities along those lines. Uh, you know, not to mention also just, I think, um, you know, smaller renewable generation sites and occasional distribution level connections and things like that. I think there's Gonna have to be a lot of sort of smart placement of projects that fit on little spots on the grid, and everybody will be looking at the, you know, the bulk power version of hosting capacity, you know, where, where can you fit Generation. But also, as you mentioned, uh, storage as transmission could be very helpful. Essentially a battery on either end of a constraint can, can function as a transmission line. And then there's a set of grid enhancing technologies like topology optimization, power flow control, dynamic line ratings that all can, uh, deliver more over existing wires using, you know, monitoring and control technologies on the, on the grid. And those are Usually very quick to deploy and, and much cheaper than other, other options. So I think there is a, um, a great opportunity for those. The challenge, as you and your listeners know, is, is utility incentives on there. We love our utilities. Our utilities love their capital in the rate base. They don't love quite so much cheap things that can solve problems without a lot of capital in the rate base. So that's the problem with, uh, grid enhancing tec…

AI assessment note: “as you mentioned, uh, storage as transmission could be very helpful.”

Q inherently a slower thing, because you, you could imagine a scenario where Sort of similar to what we're seeing in other categories, right? Like, uh, hyperscaler wants to build data center and strikes a deal with utility where they can get interconnected faster if they pay for a hundred miles of new seven 65 KV line or something like that. Like, you'd think that kind of thing would be happening.

A Yeah, I think it's just, you know, it's not right in the bullseye of, um, you know, the data center's Immediate need or the utilities immediate need. It's sort of the, you know, the background infrastructure that everybody relies on. And absolutely, you need to build up that network, that backbone network to support all this new load. Um, but it's not the obvious thing. It's not what, you know, incoming officials at the Department of Energy immediately go to as, oh, here's immediately what we need to go focus on. Uh, and it's not, you know, it doesn't catch a lot of the press attention. A lot of the press attention is about, oh, look at this, you know, on-site generation option, or a new, um, you know, now we're doing rice, you know, generators, or this or that, or the other on-site option. Those get, for some reason, more attention, but, I mean, my understanding from the hyperscalers and the data center developers is that they all really, really want the Full network transmission service with all of the good, you know, backup and cushion that that network provides to their operations, and the Five Nines reliability that you only get that way. Um, uh, and so, I think the message is starting to filter through the process. I mean, it was quite dramatic that the Secretary of Energy, Secretary Wright, wrote this letter, uh, to FERC saying, you know, here's a rulemaking I'm putting …

AI assessment note: “it's not right in the bullseye of, um, you know, the data center's Immediate need”

Q Right, but it's not really, it doesn't really have anything about transmission in it, right?

A Well, it's, it's access to, to transmission, and then, so the next, it begs the next, next question of, well, if you care that much to do this dramatic order that's, you know, almost never used authority, um, and take all the, you know, the beating from state regulators who would be losing some just, uh, jurisdiction, if you're willing to do that, well then, You must care about the size of the grid, the actual capacity of the grid. You know, what's access to a grid if it has no capacity for you? So, uh, it, to me, it, it strongly proves the point that the whole, you know, AI industry, if you want to call it that, uh, needs the grid, and that this current administration, which is willing to do anything and everything to support, uh, Uh, AI being done in this country. Um, it proves that the transmission network is critical to that, because they're taking this major action to get access to the transmission grid. So now, now we need to see the next step of, okay, well, let's expand the grid, and all the things that come with that, which is order, 1920, and then inter-regional transmission, and then using the DOE programs, like the transmission facilitation program, we could go on. But there are a lot of things that Uh, FERC and DOE can do, uh, to, uh, you know, actually enable the expansion of the grid.

AI assessment note: “Well, it's, it's access to, to transmission, and then, so the next”

Q the opposite direction, which is that the DOE, the Loan Programs Office, uh, canceled the loan guarantee that was going to be offered to the Greenbelt Express project. So to your point there, it seems from all the other indications that this administration would be super in favor of new transmission build-out. That cancellation seems like an odd decision in, in light of that. What do you make of it?

A Yeah, so many people interpreted that as though maybe they don't care about transmission. I don't interpret it that way. I think that was a very unique circumstance where, uh, a senator decided to use his minutes in the Oval Office to talk about a specific loan to a specific transmission line. Ok, that's not gonna happen very often in our You know, in, in the future. Uh, and if it does, anytime a senator uses his time with the president to talk about a specific loan to a specific line, that project, uh, that loan, anyway, will be in trouble. The project, um, I, I expect will go forward. It's a great project. Um, uh, but that loan is no longer. So, I, I just think, you know, I mean, presidents do things at the request of senators sometimes, and, you know, that's, that's what happened.

AI assessment note: “a senator decided to use his minutes in the Oval Office to talk about a specific loan”

Q to build out all this transmission that was, that was such a big challenge. I think of local opposition ending up being one of the major and that sort of bleeding up into politics and permitting and a bunch of other stuff being one of the death knells for some of those lines. So is that, how do you, how big a problem do you think of that as being?

A Yeah, it's a challenge. I mean, a lot of these lines are, are really out in rural areas, and if you can get the landowners to agree with their lease payment, then you can get the lease agreement, and, you know, you can string together contiguous plots of land to, um, to build the line. So there's a lot, certainly on the developer, uh, to do in terms of, uh, you know, where to route the line, which, you know, how to work with the communities. Uh, one, uh, Little provision we got into the Inflation Reduction Act is this, uh, seven hundred sixty million dollar program for, uh, kind of local community economic development, sort of hosting, uh, you know, benefits for, um, counties or local communities. So, um, that's, uh, you know, policies like that can, can help. Certainly outreach, early outreach by developers is, is critical. Um, but, you know, by and large, these lines are not going near many People. Um, it's not like, you know, citing LNG facilities in, you know, towns. Uh, it's, it's a, it's a different type of citing process.

AI assessment note: “Yeah, it's a challenge. I mean, a lot of these lines are, are really out in rural areas”

Q network. So the first two are congestion, transmission congestion on the, on the existing grid. The second being interconnection, getting new resources connected to the existing grid. And then the third, of course, is build out of the network. So, so let's talk through those One by one, starting with congestion. So, how big a problem is congestion on the existing transmission network? How expensive is it, and for whom?

A Sure. Uh, yeah, there are some current symptoms of limited transmission capacity, and congestion and curtailment of, um, renewable projects, um, are among those. And congestion is basically when, uh, there is limited Capacity to, to deliver from point A to point B on the network, uh, in wholesale power markets, that's often reflected by a higher price on the, uh, uh, you know, delivery, the, uh, endpoint side of, of that, and, uh, and a lower price on the source side, so the generator is getting a low price, the load is paying a high price, um, and, uh, that's a cost. That's a, that's a cost, you know, split between the, the, The generation and the, and the load. Um, and we're seeing that rise. Uh, it doubled. We just put out a grid strategies report saying it, uh, finding it doubled from a 2020 to 20 21, and pretty soon we'll get 20 22 data. Anecdotally, I'm hearing from renewable generators that it's, it's rising, uh, still more. And, and this is not surprising because it's kind of cyclical. After we built that Uh, slug of transmission 10 years ago, we had had congestion and curtailment, and then it declined significantly for about five years, uh, you know, because we kind of got ahead of the problem with transmission, but then, you know, we've been lagging on transmission development, so now, um, uh, you know, the generation and load are catching up, and then, and now all of…

AI assessment note: “generator is getting a low price, the load is paying a high price”

Q How many, okay, I guess the way to ask this question is, you said before, like, okay, to the extent that we built anything out recently, it's been stuff that was in the works for the past 10 years, etc. So, presumably, we should have pretty good visibility then into how much we will build for the next two, three, four, five years. How much is it?

A Yeah, I think it's looking pretty good. I mean, you've got, um, seven 65 KV AC plans. We mentioned SPP, but MISO in the more of the, like, the Great Lakes part of the Midwest, uh, and is looking at seven 65 PJM as well, and they just came out with a new, uh, very much more ambitious plan than we've seen from them. In the Mid-Atlantic, and ERCOT in Texas also have a seven-sixty-five KV plan, so that's four regions who are, for the first time in many decades, doing the highest AC voltage transmission lines that we have. So, you know, those take time, but those are, uh, now being planned, and there were also plans that, you know, started more like five, seven years ago, the MISO, um, long-range transmission plan, um, Some of these are still facing some challenges, like that one has, there's a challenge at, at FERC with some states, um, but, uh, hopefully that will go forward. California ISO has continued. They've been, um, cranking along quietly for many years. Pretty much they're the only ones who have kind of gone nonstop on transmission. Uh, so every year they're, uh, they're doing more, and it's bringing in, you know, resources from around the West. Um, so I,

AI assessment note: “Yeah, I think it's looking pretty good. I mean, you've got, um, seven 65”