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FAiluRE to ACt The economic impacT of current Investment trends InElEctricityInfrastructure

This report was prepared for the American Society of Civil Engineers by Economic Development Research Group, Inc. in association with La Capra Associates.

The report was funded by a generous grant from the ASCE Foundation.

American Society of Civil Engineers1801 Alexander Bell DriveReston, Virginia, 20191-4400World Headquarters

101 Constitution Avenue, NWSuite 375 EastWashington, DC 20001Washington Office

[email protected]/failuretoact

Economic Development Research Group, Inc.2 Oliver Street, 9th Floor Boston, MA 02109

www.edrgroup.com

La Capra AssociatesOne Washington Mall, 9th FloorBoston, MA 02108

www.lacapra.com

Copyright © 2011 by the American Society of Civil Engineers. All Rights Reserved.

2 American Society of Civil Engineers

★|Figuresandtables Figures1 ElementsofGeneration,Transmission,and

DistributionSystems

2 ProjectedNeedsandGapbyYearComparedwith2001–10AverageInvestmentLevels

3 NERC’sRegionalEntities

4 FuelSourceofU.S.ElectricityGeneration,2009

5 TheU.S.ElectricityTransmissionGrid

6 MapofCongestedPathsinElectricTransmissionSystems

7 ComparisonofNERCandEIAProjectionsforU.S.SummerCapacity,through2040

8 NERCProjectionofPlanningReserveMarginsbyRegion,2011–21

9 NERCProjectionofPlanningReserveMarginsbyRegion,2021–40

10 ActualandPlannedTransmissionInfrastructure,1990–2015

11 DistributionExpendituresfrom1980ShowCompoundAnnualGrowthRatesof1.5%to2%

12 DistributionAdditions,NERCRegions’ShareoftheNationalTotal,2001–9

13 ElectricityIntensitybyIndustry

Tables1 AnnualAverageConstructionExpenditures

forGeneration,Transmission,andDistribution:2001–10

2 NationalElectricityInfrastructureGap:Estimatedat$107Billionby2020

3 RegionalBreakdownofElectricDistributionInvestmentGap,2020and2040

4 CumulativeImpactsbyRegion,2012,2012–20,and2012–40

5 EffectsonU.S.GDPandJobs,2011–40

6 U.S.DemandforElectricEnergyIsExpectedtoIncrease8%between2011and2020

7 ConstructionExpendituresforGeneration,Transmission,andDistribution:2001–10

8 ProjectedNeedsandGapbyYearComparedwith2001–10AverageInvestmentLevels

9 ProportionofRelianceonElectricityGenerationTechnologiesbyRegion

10 AdditionsofNewCapacityExpectedbyRegionforElectricityGenerationTechnologies

11 ProjectedChangesinU.S.ElectricEnergyDemand,2010,2020,and2040

12 PeakDemandProjections,2010,2011,2020,and2040

13 GenerationSupplyForecast—NationalAggregations

14 ElectricGenerationInvestmentGap:Estimatedat$12Billionby2020and$401Billionby2040

15 ElectricTransmissionInvestmentGap:Estimatedat$37Billionby2020and$112Billionby2040

16 ElectricDistributionInvestmentGap:Estimatedat$57Billionby2020and$219Billionby2040

17 RegionalBreakdownofElectricDistributionInvestmentGap,2020and2040

18 AverageCostofPowerInterruptionsperHouseholdandperBusiness

19 ComparisonofAnnualImpactsofInadequateElectricityDelivery,SelectedStudyYears

20CumulativeImpactsbySector,2012,2012–20,and2012–40

21 JobLossesbySector,2020and2040

Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 3

ThepurposeoftheFailure to Actreportseriesistoprovideanobjectiveanalysisoftheeco-nomicimplicationsfortheUnitedStatesofitscontinuedunderinvestmentininfrastructure.Thereportsintheseriesassesstheimplicationsofpresenttrendsininfrastructureinvestmentfortheproductivityofindustries,nationalcompetitiveness,andthecostsforhouseholds.TheFailure to Actseriesanalyzestwotypesofinfrastructureneeds:

1. Buildingnewinfrastructuretoserviceincreasingpopulationsandexpandedeconomicactivity;and

2. Maintainingorrebuildingexistinginfra-structurethatneedsrepairorreplacement.

Everyfouryears,theAmericanSocietyofCivilEngineers(ASCE)publishesThe Report Card for America’s Infrastructure,whichgradesthecurrentstateof15nationalinfrastructurecategoriesonascaleofAthroughF.ASCE’s2009Report Cardgavethenation’senergyinfrastructureaD+.ThepresentreportanswersthequestionofhowtheconditionoftheU.S.infrastructuresystemaffectsournation’seconomicperformance.Inotherwords,howdoesaD+affectAmerica’seconomicfuture?

★|PreFaCe

Thefocusofthisreportisonelectricity,includinggeneration,transmission,andthedistributioninfrastructurethatprovideselec-tricitytoournation’shomesandbusinesses.Mostelementsofelectricityinfrastructureareprivatelyownedandpubliclyregulatedutilities.

ThisisthethirdreportinASCE’sFailure to Actseries.Thefirstreport,Failure to Act: The Economic Impact of Current Investment Trends in Surface Transportation Infrastructure,encompasseshighways,bridges,rail,andtransit.Thesecondreport,Failure to Act: The Economic Impact of Current Investment Trends in Water and Wastewater Treatment Infrastructure,addressesthedeliveryofpotablewaterandwastewatertreatment.Thenextreportwilladdressairportsandmarineports.


eXeCutiVesuMMarY

Thisreportillustratestheimportanceofelectricpowergeneration,transmissionanddistributionsystemstothenationaleconomy.Theanalysisperformedfocusesonatrend scenariothatpresumesthemixofelectricitygenerationtechnologies(e.g.electricitygenerationfromoil,naturalgas,coal,nuclear,hydro,wind,solar)continuestoevolveasreflectedinrecenttrends,includingalong-termevolutiontowardssmartgridtechnologies.1

ContextElectricityreliesonaninterconnectedsystemthatiscomposedofthreedistinctelements,asdescribedbelowandillustratedbyFigure1:

1. Generationfacilities—includingapproximately5,800majorpowerplantsandnumerousothersmallergenerationfacilities;2

2. High-voltagetransmissionlines—anetworkofover450,000milesthatconnectsgenerationfacilitieswithmajorpopulationcenters;3and

3. Localdistributionsystemsthatbringelectricpowerintohomesandbusinessesviaover-headlinesorundergroundcables.Thefirsttwoelementsareusuallyreferredtoasthebulkpowersystem.

TheUnitedStates’systemofgeneration,trans-missionanddistributionfacilitieswasbuiltoverthecourseofacentury.Centralizedelectricgeneratingplantswithlocaldistributionnet-workswerestartedinthe1880sandthegridofinterconnectedtransmissionlineswasstartedinthe1920s.Today,wehaveacomplexpatchworksystemofregionalandlocalpowerplants,powerlinesandtransformersthathavewidelyvaryingages,conditions,andcapacities.

Theagingofequipmentexplainssomeoftheequipmentfailuresthatleadtointermittentfailuresinpowerqualityandavailability.Thecapacityofequipmentexplainswhytherearesomebottlenecksinthegridthatcanalsoleadtobrownoutsandoccasionalblackouts.Theseconcernsmakeitcriticaltounderstandwhatinvestmentsmaybeneededtokeepthesysteminastateofgoodrepair,andwhatimplicationsanyshortfallcouldhaveonthenation’seconomy.

Duringthepastdecade,electricenergyinfra-structurehasimprovedthroughanupturnininvestment,andthenegativeeconomicimpactsnotedinstudiesof10and20yearsagohavebeenpartiallymitigated.However,moreinvestmentisneededtofurtherreducetheincidenceofservicedisruptionstohouseholdsandbusinesses.Theneedstomaintainandupdateexistingelectricenergyinfrastructure,toadoptnewtechnologies,andtomeetthedemandsofagrowingpopulationandevolvingeconomyoverthenext30yearswillimposesignificantrequirementsfornewenergyinfrastructureinvestment.

ProjectedDemandforElectricityInthenearterm,thereisclosetoadequatecapacitytomeetdemand.Overtheshorttermfrom2011through2020,nationalgrowthingenerationisexpectedtobe8%anddemandforelectricityinallregionsisexpectedtoaverage8%or9%basedonprojectionsfromtheU.S.EnergyInformationAgency.DivergenceacrossdifferentareasintheUnitedStatesisnotexpecteduntilthe2021-2040period.Overthelong-termthereisexpectedtobesignificantregionaldifferencesasuseisexpectedtoincreaseby39%inFlorida,34%inWesternstatesand20%intheMid-Atlanticarea.


RecentInvestmentTrendsInvestmentinelectricityinfrastructurehasincreasedinthepastdecade.From2001through2010,annualcapitalinvestmentaveraged$62.9billion,including$35.4billioningeneration,$7.7billionintransmission,and$19.8billioninlocaldistributionsystems(in2010dollars).

Theaveragerateofthisinvestmentisusedasthebasisforcalculatingthegapbetweeninvestmentratesandexpectedfutureincreasesininvestmentneeds.However,itisimportanttonotethewidelyvaryingannualinvestmentlevelsfrom2001to2010,whichrangedfrom$44billionto$101billion.Spendingforgenerationshowedthewidestrange,whiledistributionwasthemostnarrowinrange.Overtherecenttenyearperiod,estimatedinvestmentinelectric

generationfacilitiesvariedfrom$18billionto$72billion,whiletransmissionanddistributioninvestmentsvariedfrom$6billionto$10billionand$17billionto$22billion,respectively(alldollarsadjustedto2010value).

ThePotentialInvestmentGapforElectricInfrastructureNationally,extendingcurrenttrendsleadstofundinggapsinelectricgeneration,transmis-sion,anddistributionthatareprojectedtogrowovertimetoalevelof$107billionby2020,about$11billionperyear,andalmost$732billionby2040,asshowninTable2,andtheflowofannualexpendituresthrough2040isillustratedbyFigure2.

FIGuRE 1★ElementsofGeneration,Transmission,andDistributionSystems

sourCeFederalEnergyRegulatoryCommission,2006.

RED Generation

BluE Transmission

PInk Distribution

GeneratingStation

GeneratingStepupTransformer

TransmissionCustomer138kVor230kV

Transmissionlines765,500,345,230,and138kV

SubstationStepDownTransformer

SubtransmissionCustomer26kVand69kV

PrimaryCustomer13kVand4kV

SecondaryCustomer120Vand240V


TyPEoFInFRaSTRuCTuRE CumulaTIVEnEED

2020 2040

Generation 12.3 401.1

Transmission 37.3 111.8

Distribution 57.4 219.0

U.S.TOTAL 107.0 731.8

sourCesEIA,NERC,EasternInterconnectionPlanningCollaborative,PhaseIReport,December2011,RenewableEnergyTransmissionInitiativeElectricPowerResearchInstituteandFederalEnergyRegulatoryCommission.CalculationsbyLaCapraAssociatesandEDRGroup.

TaBlE 2★NationalElectricityInfrastructureGap:Estimatedat$732Billionby2040(in billions of 2010 dollars)

TyPEoFExPEnDITuRES aVERaGEannual lowannual HIGHannual

Generation 35.4 17.7 71.6

Transmission 7.7 5.6 10.2

Distribution 19.8 16.9 22.3

AverageTOTAL 62.9 44.2 101.0

noteLowandhighannual“total”expendituresrepresenttheaveragetotalspendingfrom2001to2010,andarenotsumsoftheannualaverageexpendituresofthethreecomponentsoftheelectricinfrastructuresystem.

sourCesTransmissionanddistributionnumbersfromEdisonElectricInstitute,2012 Report,table9–1;generationinvestmentwasestimatedfromreportingformsoftheEIAandFederalEnergyRegulatoryCommission,withaveragesappliedforinvestmentcostperkWhforapplicablegeneratingtechnologies.

TaBlE 1★AnnualAverageConstructionExpendituresforGeneration,Transmission,andDistribution:2001–10(in billions of 2010 dollars)

Today,wehaveacomplexpatchworksystemofregionalandlocalpowerplants,powerlinesandtransformersthathavewidelyvaryingages,conditions,andcapacities.


FIGuRE 2★ProjectedNeedsandGapbyYearComparedwith2001–10AverageInvestmentLevels(in billions of 2010 dollars)

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REGIon CumulaTIVEGaPESTImaTEByREGIon

2011–2020 2011–2040

Texas 14.6 56.0

Florida 4.2 18.2

Midwest 4.4 45.3

Northeast 8.0 51.2

Mid-Atlantic 18.2 130.3

Southeast 29.7 225.6

Southwest 2.4 9.2

West 25.5 196.0

U.S.Total 107.0 731.8

noteRegionaldescriptionsareapproximationsofNERCRegions.

sourCeEIAAnnualEnergyOutlook2011(years2008-2035)andNERC 2011 Long-term Reliability Report.

TaBlE 3★ RegionalBreakdownofElectricDistributionInvestmentGap,2020and2040(billions of 2010 dollars)

nAdditionalNeed nBase

sourCeEIAAnnualEnergyOutlook2011(years2008-2035)andNERC2011Long-termReliabilityReport,EasternInterconnectionPlanningCollaborative,PhaseIReport,December2011,RenewableEnergyTransmissionInitiativeElectricPowerResearchInstituteandFederalEnergyRegulatoryCommission.CalculationsbyLaCapraAssociatesandEDRGroup


In 2020, distribution and transmission infra-structure are expected to account for more than 88% of the investment gap while generation infrastructure represent roughly 11.5%. By 2040, however, generation infrastructure is potentially the most costly element of the gap, accounting for 55% of the total, with transmission account-ing for 15%, and distribution accounting for 30%. This is a reversal from 2020, when generation is expected to be the best funded element of electricity infrastructure.

The cumulative total investment gap adds the generation, transmission, and distribution infra-structure gaps. Those results are shown by region in Table 3, and indicate that the investment fund-ing gap will be highest in the Southeast, the West,

and the Mid-Atlantic area, and lowest in the Southwest and Florida. Growth alone does not appear to be driving the gap, but rather a combi-nation of supply, technologies, and demand.

Estimate of Future Costs IncurredA projected investment gap will be some combination of aging equipment and capacity bottlenecks that lead to the same general outcome—a greater incidence of electricity interruptions. The interruptions may occur in the form of equipment failures, intermittent voltage surges and power quality irregularities due to equipment insufficiency, and/or blackouts or brownouts as demand exceeds capacity for periods of time. The periods of time can be unpredictable in terms of frequency and length, but the end result is a loss of reliability in electricity supply which imposes direct costs to households and businesses.

REgIon 2012 CumulatIvE, 2012–20 CumulatIvE, 2012–40

Florida 0.7 8 32

Midwest 0.8 9 59

Northeast 2.0 17 79

Mid-Atlantic 3.0 36 194

Southeast 5.0 59 297

Southwest 0.5 6 18

Texas 0.5 18 80

West 4.0 44 239

TOTAL 17 197 998

SourceS Calculations by La Capra and EDR Group based on data from EIA and Electric Power Research Institute.

tablE 4 ★ Cumulative Impacts by Region, 2012, 2012–20, and 2012–40 (in billions of 2010 dollars)


Afailuretomeettheprojectedgapwillcosthouseholds$6billionin2012,$71billionby2020,and$354billionby2040.Itwillcostbusinesses$10billionin2012,$126billionby2020,and$641billionby2040.Annualcoststotheeconomywillaverage$20billionthrough2020and$33billionthrough2040.Itisnotablethattheseestimatedimpactsaresignificantlylowerthantheimpactsestimatedfromstudiesconductedinthe1990sand2000s.

Thesecostsincurredbyfailingtoclosetheinvestmentgaparehigherthantheinvestmentitself.Thismeansthatitiseconomicallyineffi-cientforhouseholdsandbusinessestoallowthishighercostscenariotooccur.Evenifsufficientinvestmentismadetoclosetheinvestmentgap,theresultwillnotbeaperfectnetworkforelec-tricitygenerationanddelivery,butratheronethathasdramaticallyreduced,thoughnoteliminated,powerqualityandavailabilityinterruptions.

annualImPaCTS 2020 2040

GDP -$70 billion -$79 billion

Jobs -529,000 -366,000

Business Sales -$119 billion -$159 billion

Disposable Personal Income -$91 billion -$86 billion

aVERaGEyEaR 2012–2020 2021–2040

GDP -$55 billion -461,000

Jobs -461,000 -588,000



CumulaTIVEloSSES 2012–2020 2021–2040

GDP -$496 billion -1.95 trillion

Jobs NA NA

Business Sales -$847 billion -$3.6 trillion

Disposable Personal Income -$656 billion -$2.3 trillion

noteLossesinbusinesssalesandGDPreflectimpactsinagivenyearagainsttotalnationalbusinesssalesandGDPinthatyear.Thesemeasuresdonotindicatedeclinesfrom2010levels.

sourCesEDRGroupandLIFTmodel,UniversityofMaryland,INFORUMGroup,2012.

TaBlE 5★EffectsonU.S.GDPandJobs,2011–40


Table4breaksdowntheestimatedimpactbyregion.ThesecostsarenotfeltequallyacrosstheUnitedStates.CumulativecostincreasesintheSoutheastwillbe30%ofthetotalandcostsintheWestwillbe22%ofthetotal.

FutureImpactonEconomyIffutureinvestmentneedsarenotaddressedtoupgradeournation’selectricgeneration,trans-mission,anddistributionsystems,theeconomywillsuffer.Costsmayoccurintheformofhighercostsforelectricpower,orcostsincurredbecauseofpowerunreliability,orcostsassoci-atedwithadoptingmoreexpensiveindustrialprocesses.Ultimately,thesecostsallleadtothesameeconomicimpact:diversionofhousehold

incomefromotherusesandareductioninthecompetitivenessofU.S.businessesinworldeconomicmarkets.

Ascoststohouseholdsandbusinessesasso-ciatedwithserviceinterruptionsrise,GDPwillfallbyatotalof$496billionby2020.TheU.S.economywillendupwithanaverageof529,000fewerjobsthanitwouldotherwisehaveby2020.AsshowninTable5,evenwitheconomicadjustmentsoccurringlateron,withcatch-upinvestments,theresultwouldstillbe366,000fewerjobsin2040.Inaddition,personalincomeintheU.S.willfallbyatotalof$656billionfromexpectedlevelsby2020.

ConclusionThecumulativeneed,basedonanticipatedinvestmentlevelsandtheestimatedinvestmentgap,willbe$673billionby2020,anaverageofabout$75billionperyear.Basedoninvestmentoverthepastdecade,closingthegapiswithinreach:theaverageannualneedprojectedfrom2012through2020fallswithintherangeofannualinvestmenttotalsinthelastdecade,andthereisnotasingleyearthrough2020thatisprojectedtobeoutsidethatrange.

Reliableelectricityisessentialforthefunc-tioningofmanyaspectsofhouseholdandeconomicactivitytoday.Asthenationmovestowardsincreasinglysophisticateduseofinfor-mationtechnology,computerizedcontrolsandsensitiveelectronics,theneedforelectricityreliabilitybecomesevengreater.Fortheentiresystemtofunction,generationfacilitiesneedtomeetloaddemand,transmissionlinesmustbeabletotransportelectricityfromgenerationplantstolocaldistributionequipment,andthedecentralizeddistributionnetworksmustbekeptingoodrepairtoensurereliablefinaldelivery.Deficienciesorshortfallsinanyoneofthesethreeelementsofelectricityinfrastruc-turecanaffectournation’sfutureeconomicgrowthandstandardofliving.

aprojectedinvestmentgapwillbesomecombinationofagingequipmentandcapacitybottlenecksthatleadtothesamegeneraloutcome—agreaterincidenceofelectricityinterruptions.


introduCtion

Ournation’ssystemofelectricitygeneration,transmissionanddis-

tributionfacilitieswasbuiltoverthecourseofacentury.Centralized

electricgeneratingplantswithlocaldistributionnetworkswere

firstbuiltinthe1880s,andthegridofinterconnectedtransmission

linesbegantobebuiltinthe1920s.Today,wehaveacomplex

networkofregionalandlocalpowerplants,powerlinesandtrans-

formersthathavewidelyvaryingages,conditionsandcapacities.

1

Theanalysispresentedinthisreportillus-tratesthecontinuingimportanceofelectricpowergeneration,transmissionanddistribu-tionsystemstothenationaleconomy.Thisinfrastructureisneededingoodworkingordertoassurethatsupplyofelectricitycanmeetdemand,andthattheelectricitycanbedeliveredreliablytohouseholdsandbusi-nesses.Bothdeficienciesintheperformanceofagingequipmentandinsufficienciesinelectricsystemcapacitycanleadtodifficultymeetingprojecteddemandandreliability

standards,whichcanimposecostsonhouse-holdsandbusinesses.Thisreporthighlightsthenatureofthepotentialinvestmentgap,andthewaysthatitcanaffecttheproductiv-ityandcompetitivenessofindustriesalongwiththeprosperityofhouseholds.

Thisreport’seconomicanalysisisbasedondocumentationofelectricitysystemconditionsfrom2011,dataonrecentinvestmenttrendsinelectricityinfrastructure,andprojectionsoftheprobableimplicationsofemergingtrendsextendingoutto2040.Theneedstomaintain


andupdateexistingelectricenergyinfrastruc-ture,toadoptnewtechnologies,andtomeetthedemandsofagrowingpopulationandevolvingeconomyinthenext30yearswillimposesignifi-cantrequirementsfornewenergyinfrastructureinvestment.Duringthepastdecade,electricenergyinfrastructurehasbeenimprovedthroughanupturnininvestment,andthenega-tiveeconomicimpactsnotedinstudiesof10and20yearsagohavebeenpartiallymitigated.Moreinvestmentisneeded,however,tofurtherreducetheincidenceofservicedisruptionsbornebyhouseholdsandbusinesses.

Theextentoftheeffortthatismadetorespondtotheseneedsandenhanceinvestmentinthisinfrastructurecanhavemajorconse-quencesforindustries’competitivenessandperformance,alongwithimpactsonthestandardoflivingforAmericanhouseholds.

Theanalysispresentedinthisreportillus-trateshowdeficienciesinelectricgeneration,transmission,anddistributionaffecttheU.S.economyandwillcontinuetodosointhefuturewithoutachangeininvestmentpatterns.Thereportthusseekstohighlighthowdeficientelectricenergydeliverysystemsimposecostsonhouseholdsandbusinesses,andhowthesecostsaffecttheproductivityandcompetitivenessofindustries,alongwiththewell-beingofhouse-holds.Thisreportincludesthefollowingtopics:

★ Anoverviewofelectricityinfrastructure,★ Electricitydemandbyregionandtheseg-mentationofconsumers,

★ Thecurrentandprojectedshortfall(gap)inelectricenergyinfrastructureinvestment,

★ Thenationalandregionalimplicationsofthisshortfall,

★ Anoverviewofthemethodologyemployedtoassesseconomicperformance,and

★ Implicationsoftheshortfallininfrastructureinvestmentfornationaleconomicperformance.

Thefinalsectionsincludeadiscussionoflong-termuncertainties,conclusions,thesourcesandmethodologyused,andacknowledgments.

TheprimarybasisfortheeconomicanalysisisdocumentationprovidedbytheU.S.Depart-mentofEnergy,theNorthAmericanElectricReliabilityCorporation,theEdisonElectricInstitute,andtheElectricPowerResearchInstitute.EachyeartheU.S.EnergyInforma-tionAdministration(EIA)releasesanAnnual Energy Outlookthatprojectslong-termenergysupply,demandandpricesbasedonresultsfromEIA’sNationalEnergyModelingSystem(NEMS).Annual Energy Outlook 2011,publishedinApril2011,presentsactualandprojectedtotalelectricsalesbrokendownbygenerationtechnologyfor2008–2035.ForthisstudywepresumetheEIAprojectionsrepresent“trendsextended”or“businessasusual”to2040.

RegionalapproachElectricitydataarereportedbyvariousregionalstructures.ThisreportusestheNorthAmericanElectricReliabilityCorporation(NERC)regions,whichdividesthecontiguousUnitedStatesintoeightregionsforreliabilityplanning(Figure3).NotethattheNERCregionscoveringtheWest,MidwestandNortheastincludeCanada.DatainthisreporthasbeenfilteredtoincludeonlytheUnitedStates,exceptforgenerationplantsandtransmissionlinesthatoriginateinCanadatoserveU.S.markets.

TheU.S.EnergyInformationAdministration(EIA)sometimesreportsdatabrokendowninto22ElectricityMarketModule(EMM)regions.Incaseswheredatawerereportedusingotherregionalstructures,suchasinEMMregions,estimatesweredevelopedtoplacethesedatainconsistentNERCregions.


FIGuRE 3★NERCRegionalEntities

FRCC(Florida) Florida Reliability Coordinating Council

mRo(midwest) Midwest Coordinating Organization

nPCC(northeast) Northeast Power Coordinating Council

RFC(mid-atlantic) Reliability First Corporation

SERC(Southeast) Southeast Reliability Corporation

SPP(Southwest) Southwest Power Pool Regional Entity

TRE(Texas) Texas Reliability Approach

wECC(west) Western Electricity Coordinating Council

FRCC

SERC

RFC

TRE

wECC

SPP

mRo nPCC

sourCewww.nerc.com


objectivesandlimitationsofThisStudyThepurposeofthisstudyistosurveytheeco-nomiceffectsofcurrentinvestmenttrendsinAmerica’senergyinfrastructure.Thisreportdoesnotaddresstheavailabilityorshortagesorchangingpricesofenergyresources,thedesir-abilityorcostsofexplorationandextraction,anditisnotintendedtoproposeorimplyprescriptivepolicychanges.Inaddition,thereportdoesnotaddresswhichfuels,orcombinationoffuels,arebestforthenation’senergyfuture,orthecostsandbenefitsofenergyfuelsecurity.Thisstudyislimitedtotheinfrastructuresystemsthatgenerateelectricityandconveyittobusinesses,institutions,andhouseholds.

Itisdifficulttopredictfuturelevelsofcapitalspendingbecauseawiderangeoffactorswillexertaninfluenceduringthecomingdecades.Theanalysisfocusesonatrend scenariothatpresumesthatthemixofelectricitygenerationtechnologies(electricitygenerationfromoil,naturalgas,coal,nuclear,hydro,wind,solar,etc.)continuestoevolveasreflectedinEIAdata,withacontinuedlong-termevolutiontowardsmart

gridtechnologies.1Futureinvestmentinelectricenergyinfrastructurewilllikelyvaryfromyeartoyear,reflectingvariationovertimeintheaverageageandconsequentneedforreplacementofvari-ouselementsofequipment,facilities,andpowerlines.Inaddition,capitalspendingwilltendtorisetomeettherequirementsofnewlawsandregula-tions,thepaceofconversiontorenewableenergysources,thecostsofconnectingnewenergysourcestotheexistingenergygrid,andconver-siontomorereliablesmartgridtechnologies.

Thecapitalgapisthedifferencebetweenthelevelofdollarsinvestedininfrastructureunderthetrendscenario(extendingcurrentinvestmenttrends)andthelevelofinvest-mentrequiredtoreplace,expand,orimproveinfrastructureasdemandgrowsandexistingequipmentages.Regardlessofthereason,fail-uretocarryoutneededinvestmentscanresultinshortages—notnecessarilyinresources,butintheabilitytodeliverreliableelectricitytocustomersduetoinefficientorinsufficientgeneration,transmission,anddistributioninfrastructuresystemsthatultimatelycompro-misetheabilityofcustomerstoreceivereliableelectricity.Anysuchshortageswillresultinthepriceofelectricitybeingraisedsothatthesupplycanmeetthedemand.(Thisisinadditiontothecostsofthefuelsthemselves.)Thus,theunmetcostsofmeetingenergyinfra-structurerequirementscanbeseenasaddingfuturecostsforhouseholdsandforbusinessoperationsintheU.S.

AspartoftheFailure to Actseries,thisreportfocusesontheeconomicconsequencesofnotmakingneededinvestmentsinelectricityinfrastructure,becausetheseinvestmentsfundamentallyaffecttheproductivityandglobalcompetitivenessoftheU.S.economyandhencelong-termjobandincomegrowth.Thisanalysisdoesnotconsidertheshort-termimpactsofmoneyflowsassociatedwithspend-ingonconstruction,installationandoperationofadditionalinfrastructure.

Thecapitalgapisthedifferencebetweenthelevelofdollarsinvestedininfrastructureunderthetrendscenario(extendingcurrentinvestmenttrends)andthelevelofinvestmentrequiredtoreplace,expand,orimproveinfrastructureasdemandgrowsandexistingequipmentages.


oVerVieWoFthe eleCtriCitYinFrastruCture

America’selectricityenergyinfrastructureiscomposed

ofthreedistinctelements:

1.Electricitygenerationfacilities—includingapproximately

5,800majorpowerplantsandnumerousothersmaller

generationfacilities;2

2.High-voltagetransmissionlines—anetworkofover

450,000milesthatconnectsgenerationfacilitieswith

majorpopulationcenters;3and

3.Localdistributionsystemsthatbringelectricpowerinto

homesandbusinessesviaoverheadlinesorunderground

cables.Thefirsttwoelementsareusuallyreferredtoas

thebulkpowersystem.Theinterconnectivityofelectricity

infrastructureelementsisillustratedbyFigure1.

2

CommonElementsofInfrastructureAllformsofinfrastructurehavefeaturesincommon.Ingeneral,infrastructureinvolvesbuiltfacilitieslocatedacrossthecountrythatareusedbyhouseholdsandbusinesses,orareusedbyserviceprovidersforhouse-holdsandbusiness.Infrastructureisalsoa“publicgood,”meaningthatmuchofthepopulationandeconomyeitherdirectlyorindirectlybenefitfromitsexistence.Theelec-tricityinfrastructureissimilartosurface

transportationinfrastructureinthatbothinvolveanetworkofcross-borderandinter-stateconnections,aswellasstateorregionaltransmissionnetworksandlocaldistributionsystems.Energyinfrastructureisalsosimilartowaterinfrastructureinthatbothcom-monlyutilizecentralized facilitiestogenerateorprocessaproductthatisdistributedtohomesandbusinesslocations,thoughinbothcases,asmallsubsetofhouseholdsandbusinessesinsteadprovideforthemselves.


keyDifferencesfromotherInfrastructureTypesItisimportanttonotethattheelectricenergyinfrastructureisdifferentfromtransportationandwaterandwastewaterinfrastructure,whichwereanalyzedinpreviousFailure to Actreports,infourways:1. Private ownership.Onedistinguishingfeature

oftheelectricenergyinfrastructure(includingbothbulkpowerandlocaldistribution)isthatmostofitisprivatelyowned.Aportionoftheinfrastructureisownedbyfederalagencies,municipalgovernments,andruralcooperatives.Butthevastmajorityisownedbyfor-profit,investor-ownedutilities.Therearealsoprivatelyowned“independentpowerproducers.”Yetevenwithprivateownershipandoperation,theratesthatlocalutilitieschargeisgenerallyregulatedbystateagencies,andthereisalsofederalandstateregulatoryoversightoftheoperationofgeneratingfacili-tiesandtransmissionsystems.

2. The breadth of technologies for electricity generation.AseconddistinguishingfeatureofAmerica’selectricenergyinfrastructureisthewidevariationintechnologiesbeingemployed.Thewiderangeoftechnologiesismostevidentforgeneratingfacilities,whichcanemploynuclearpower,thecombustionofcarbon-based“fossilfuels”(includingcoal,oil,diesel,andnaturalgas),orrenewablepower(includinghydro,wind,solar,geo-thermal,orbiomass)asshowninFigure4.Centralpowerplantsmayemployanyofthesetechnologies,andthemixvariesacrossregionsoftheU.S.Inaddition,somelargebusinessesoperatedistributedgenerationfacilities,whichareeither“cogeneration”powerplantsthatemploysteam,heat,orbiomassrefusegeneratedfromindustrialprocesses,or“self-generation”facilitiesusingcombustion,wind,orsolarpowerforeitherprimaryorbackuppower.

FIGuRE 1★ElementsofGeneration,Transmission,andDistributionSystems

sourCeFederalEnergyRegulatoryCommission,2006.

RED Generation

BluE Transmission

PInk Distribution

GeneratingStation

GeneratingStepupTransformer

TransmissionCustomer138kVor230kV

Transmissionlines765,500,345,230,and138kV

SubstationStepDownTransformer

SubtransmissionCustomer26kVand69kV

PrimaryCustomer13kVand4kV

SecondaryCustomer120Vand240V


3. The rate of change.Athirddistinguishingaspectofelectricenergyinfrastructureisthecomplexcombinationofownershiparrangementsandoperatingsystemsthatareconstantlyevolving,inadditiontothevariationoftechnologiesdescribedabove.Thishasimportantimplications.Ononehand,thediversificationoffuelandtechnol-ogyrelianceprovidesadegreeofprotectionagainstunforeseenfutureissueswithanyonetypeofgeneration.Ontheotherhand,uncertaintyaboutfuturepricesoffossilfuels,regulationscontrollinggreenhousegasemissions,andrateofadoptionformorerenewablepowerportfoliosoptionscanallmakeitmoredifficulttoforecastthefuturetechnologymixanditscostimplica-tions.Anticipatedfuturechangesregardingthefeasibilityandimplementationofdistributedgenerationandsmartgrid

technologiesalsoadduncertaintyaboutwhatfutureinfrastructuresystemwilllooklike.4

4. Deregulation of system elements.Afourthdistinguishingaspectofelectricenergyinfra-structureisderegulation,whichhasresultedinthethreeelements(generation,trans-mission,anddistribution)beingoperatedbydifferentparties,facilitatingthegrowthofindependentpowerproductionanddis-tributedgeneration.5Today,householdsandbusinessestypicallyreceiveitemizedelectricbillsthatchargeseparatelyforeachofthethreeelements.However,asmallbutgrowingnumberofbusinessesandhouseholdsnowhavetheirowngenerationequipmentthatminimizesoreliminatestheirrelianceoncentralpowergenerationandtransmissionsystemsatleastpartofthetime,andsomeofthemalsosellpowerbacktoutilities.6

FIGuRE 4★FuelSourceofU.S.ElectricityGeneration,2009

sourCeU.S.EnergyInformationAdministration,2009.

NATURALGAS

NUCLEAR

HYDROELECTRIC

CONvENTIONAL

OTHERRENEwABLEPETROLEUm

COAL

Petroleum 1%

Other Renewables 4%

Hydroelectric Conventional 7%

Nuclear 20%

Natural Gas 23%

Coal 45%


keyIssuesPowerplantsuseavarietyofdifferenttech-nologieswithwidelydifferentfuelneedsandoperatingcoststhatleadthemtoservebaseload,peakload,orbackupfunctions.ThesefuelmixesvarywidelyacrossregionsoftheU.S.Thetransmissionlineshaveavarietyofdiffer-entvoltage(power)andcapacity(electricity)characteristicsthatleadthemtoservedifferentfunctionsinthemovementofelectricityfromgenerationplantstolocalload(distribution)centers.Moreover,localutilitycustomersare

servedbyawidevarietyofdifferenttransformertypes,ofdifferentagesandcapacities,whichprogressivelystepdownpowerfromhighertolowervoltagestoservelocalutilitycustomers.

Altogether,ournation’selectricenergyinfrastructureisapatchworksystemthathasevolvedoveralongperiodoftime,withequipmentofwidelydifferingagesandcapaci-ties.Forexample,about51%ofthegeneratingcapacityoftheU.S.isinplantsthatwereatleast30yearsoldattheendof2010.Mostgas-firedcapacityislessthan10yearsold,while

FIGuRE 5★TheU.S.ElectricityTransmissionGrid

sourCeU.S.FederalEmergencyManagementAgency.

115kV138kV161kV

230kV345kV500kV


FIGuRE 6★mapofCongestedPathsinElectricTransmissionSystems

sourCeU.S.DepartmentofEnergy,National Electric Transmission Congestion Study,December2009.

noteThesemapsareavailablebecauseCongressdirectedtheU.S.DepartmentofEnergytoconductastudyeverythreeyearsonelectrictransmissioncongestionandconstraintswithintheEasternandWesternInterconnectionsintheEnergyPolicyActof2005.

EasternInterconnectionwesternInterconnection

73%ofallcoal-firedcapacityis30yearsorolder.7Moreover,nationally,70%oftransmis-sionlinesandpowertransformersare25yearsorolder,while60%ofcircuitbreakersaremorethan30yearsold.8

Theagingofequipmentexplainssomeoftheequipmentfailuresthatleadtointermittentfailuresinpowerqualityandavailability.Thelimitedcapacityofolderequipmentalsoexplainswhytherearecongestionpointsinthe

gridthatcanalsoleadtobrownoutsandocca-sionalblackouts.Theseconcernsmakeitcriticaltounderstandthenatureofthecurrentandprojectedfutureshortfall,orgap,betweensystemsupplyanddemand.ThespatialpatternofcongestionisshownthroughFigure5thatillustratestheU.S.transmissiongrid,andFig-ure6,whichshowscriticallycongestedareasontheelectricgridoftheEasternInterconnectionandtheWesternInterconnection.

Seattle

Portland

SacramentoSanFrancisco

SanJose

losangeles

SanDiego

RiversidePhoenix

Tucson

Denver

DetroitCleveland

Cincinnati

Pittsburgh

Boston

newyork

Philadelphia

BaltimorewashingtonDC

atlanta

orlandoTampa

miami

CriticalCongestionarea

CongestionareaofConcern


suPPlYanddeMand

ElectricityDemand

Demandforelectricitygenerationhastwokeymetrics:

“peakdemand,”representingthekilowatts(kw)ofcapacity

neededonthesystemtomeetthegreatesthourofdemand,

and“load,”representingthetotalkilowatt-hours(kwh)

ofelectricenergydemanded.

OnthebasisofprojectionsmadebytheU.S.Energy

InformationAgency(EIA),electricityuseisexpectedto

increasenationallyby26%from2011to2040(seeTable6).9

Overthelongterm,significantregionaldifferencesare

expectedasuseincreasesby39%inFlorida,34%inthe

westernstates,and20%inthemid-Atlanticarea.Itis

importanttonotethat,overtheshortterm,from2011

through2020,nationalgrowthofelectricitydemand

isexpectedtobe8%andtheincreaseddemandinall

regionsisexpectedtoaverage8%or9%.Divergence

acrossdifferentgeographicalareasintheUnitedStates

isnotexpecteduntilthe2021–40period.

3


TaBlE 6★U.S.DemandforElectricEnergyisExpectedtoIncrease8%between2011and2020

DEmanD 2011 2020 2040

U.S. demand In terawatt-hours 3,692 3,976 4,658

Percent residential 37% 35% 36%

Percent nonresidential 63% 65% 64%

oVERallPERCEnTGRowTH

2011–20 8%

2021–40 17%

2011–40 26%

sourCesEIA,Annual Energy Outlook 2011 (for2008–35);calculationsbyLaCapraAssociatestoextendtheanalysisto2040.

FIGuRE 7★ComparisonofCompleteNERCandEIAProjectionsforU.S.SummerCapacity,extendedthrough2040(gigawatts)

nEIAnextended

950.0

1012.5

1075.0

1137.5

1200.0

2040203520302025202020152010

sourCeNERC, 2011 Long-Term Reliability Report.

note“Anticipated”referstothemostconservativesupplyestimatefromNERC,basedonexistingresourcesplusfutureplannedcapacityresources.

nNERCAnticipatednextended

nNERCProspectivenextended

nNERCAdjustedPotentialnextended


ElectricitySupplyTheprimarysourcesfordataonexistingandprojectedpowergeneration,alsocalledsupplycapacity,areEIAandNERC.Bothprovideesti-matesofexistingandprojectedpowergenerationduringthenext25and10years,respectively.TheirestimatesofU.S.totalsummercapacityarecomparedinFigure7.Notethatfadedlinesindicatethetrendsextendedtotheyear2040.

RecentInvestmentTrendsFrom2001through2010,annualcapitalinvestmentintransmissionanddistributioninfrastructureaveraged$62.9billion,including$35.4billioningeneration,$7.7billionintrans-mission,and$19.8billioninlocaldistribution(in2010dollars).

AsseeninTable7,investmentfortransmis-sionhasbeengrowingannuallysince2001atnearlya7%annualgrowthrate.Forgeneration,investmentlevelshavevariedwidelyfromyeartoyear,withthelowestlevelsinthe2004–06timeperiod.Forlocaldistribution,however,national-levelinvestmentpeakedin2006andhassincedeclinedtolessthanthelevelobservedin1991.

Theaverageratesoftheseinvestmentsareusedinthenextchapterasabasisforcalculatingthegapbetweeninvestmentratesandexpectedfutureincreasesininvestmentneeds.However,itisimportanttonotethewidelyvaryingannualinvestmentlevelsfrom2001to2010,asshowninTable1,whichrangedfrom$44billionto$101billion.Spendingforgenerationshowedthewidestrange,whiledistributionwasthemostnarrowinrange.Overtherecenttenyearperiod,estimatedinvestmentinelectricgenerationfacilitiesvariedfrom$18billionto$72billion,whiletransmissionanddistributioninvestmentsvariedfrom$6billionto$10billionand$17billionto$22billion,respectively(alldollarsadjustedto2010value).

Thebulkpowersystemisdesignedandplannedtomeetseasonalpeakdemandinadditiontoacertainreservemargin.AnnualpeakstendtooccurinthesummerinmostpartsoftheU.S.,duetocoolingloads,andtheelectricsystemneedstobesizedtomeettheseloads.However,insomelocations,peakdemandoccursinthewinter.10NERChasanalternativeandhigherforecastofgrowthinpeakdemand,whichindicatesariseof13%from2011to2020,comparedwiththeEIA’sprojectionof8%forthesameyears.11

overtherecenttenyearperiod,estimatedinvestmentinelectricgenerationfacilitiesvariedfrom$18billionto$72billion,whiletransmissionanddistributioninvestmentsvariedfrom$6to$10billionand$17billionto$22billion.


ExPEnDITuRES 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001

Generation 28.9 38.9 71.6 49.5 18.1 24.4 17.7 25.0 37.0 43.0

Transmission 10.2 9.9 9.0 8.5 8.2 7.5 6.3 6.2 5.7 5.6

Distribution 16.9 17.7 20.3 20.8 22.3 21.1 20.2 19.3 19.9 19.7

Total 56.0 66.4 101.0 78.8 48.6 53.0 44.2 50.5 62.6 68.2

sourCesElectric Power Annual 2011,U.S.EnergyInformationAdministration;and2012 Statistical Yearbook of the Electric Power Industry,EdisonElectricInstitute.

noteNumbersmaynotaddduetorounding.

TaBlE 7★ConstructionExpendituresforGeneration,Transmission,andDistribution:2001–10(in billions of 2010 dollars)

TyPEoFExPEnDITuRES aVERaGEannual lowannual HIGHannual

Generation 35.4 17.7 71.6

Transmission 7.7 5.6 10.2

Distribution 19.8 16.9 22.3

AverageTOTAL 62.9 44.2 101.0

noteLowandhighannual“total”expendituresrepresenttheaveragetotalspendingfrom2001to2010,andarenotsumsoftheannualaverageexpendituresofthethreecomponentsoftheelectricinfrastructuresystem.Numbersmaynotaddduetorounding.

sourCesTransmissionanddistributionnumbersfromEdisonElectricInstitute,2012 Report,table9–1;generationinvestmentwasestimatedfromreportingformsoftheEIAandFederalEnergyRegulatoryCommission,withaveragesappliedforinvestmentcostperkWhforapplicablegeneratingtechnologies.

TaBlE 1★AnnualAverageConstructionExpendituresforGeneration,Transmission,andDistribution:2001–10(in billions of 2010 dollars)


thePotentialinVestMentgaP

Thischaptersummarizesthedata,assumptions,andmethod-

ologyunderlyingthedifferencebetweentheinvestmentlevels

expectedannuallythrough2040andtheinvestmentlevelsthat

willbeneededtoassurethereliabledeliveryofelectricityto

businesses,households,andotherusers.Theanalysisofthis

potentialinvestmentgapthatfollowsconsidersrecentinvestment

trends,projectedfutureinvestmentrates,andtheextentofthe

shortfallbetweenexpectedinvestmentratesandforecastedfuture

investmentrequirements.Itisconductedseparatelyforeachof

thethreeelementsofgeneration,transmission,anddistribution

systems.Thetablespresenttheresultsforatrendscenario

thatisbasedonEIAprojectionsandassumesacontinuing

shiftinthemixofgenerationtechnologies,andfurther

implementationofsmartgridtechnologies.

4

From2011through2040,theaveragesof2001–10investmentsareassumedandthegaprepresentsannualexpendituresabovetheaveragesforgeneration,transmission,anddistribution(seeTable1).Itisimportanttonotethatinanygivenyear,thetotalneedmaybewithintherangesof2001–10investmentsbutexceedtheaverageannualexpenditures.Forexample,neededgenerationinvestmentsfrom2011to2040willrangefrom$35bil-lionto$61billion.Foreveryyear,thetotaliswithinthe2001–10rangeofgeneration

expenditures,although$61billionisabout$25billionabovetheaverageseenduringthelastdecade.

overviewofkeyFindingsNationally,extendingcurrenttrendsleadstofundinggapsinelectricgeneration,trans-mission,anddistributionthatareprojectedtogrowovertimetoalevelof$107billionby2020andalmost$732billionby2040,asshowninTable2.Thesearetotalsabovetheaveragesforpastexpenditures.In2020,


TyPEoFInFRaSTRuCTuRE CumulaTIVEGaP

2020 2040

Generation 12.3 401.1

Transmission 37.3 111.8

Distribution 57.4 219.0

U.S.TOTAL 107.0 731.8sourCesEIA,NERC,EasternInterconnectionPlanningCollaborative,PhaseIReport,December2011,RenewableEnergyTransmissionInitiativeElectricPowerResearchInstituteandFederalEnergyRegulatoryCommission.CalculationsbyLaCapraAssociatesandEDRGroup.


TaBlE 2★NationalElectricityInfrastructureGap:Estimatedat$107Billionby2020(in billions of 2010 dollars)

distributionandtransmissioninfrastructureareexpectedtoaccountformorethan88%oftheinvestmentgap,whilegenerationinfra-structurewillrepresentroughly11.5%.By2040,however,generationinfrastructureisseenaspotentiallythemostcostlyelementofthegap,accountingfor55%ofthetotal,withtrans-missionaccountingfor15%,anddistributionaccountingfor30%.Thisisareversalfrom2020,whengenerationisexpectedtobethebest-fundedelementofelectricityinfrastructure.Byitself,thisfundingdoesnotnecessarilymeanthattherewillbeafutureshortageofelectricityavailable.Rather,itindicatesthatfutureinvest-mentneedswillbegreater.

Thegapiscalculatedastotalestimatedneedsperyearminusthe2001–10averageannualinvestmentlevelsandsummedtoaggregatelevelsin2020and2040.Table8illustratesthecalculationsforfivespecifiedyears.

GenerationGenerationTechnologiesTable9showstherelianceofeachNERCregiononvariouspower-producingtechnologiesasof2011.Notetheprominenceofcoalineveryregion,especiallyintheMidwest.TheTexas,Florida,andNortheastregionsusethehighestproportion

ofnaturalgas,whiletheMidwestusestheleast.Nuclearpowerisspreadoutamongallregions,anditisreliedonmostintheNortheastandleastintheSouthwest.NotealsothatrenewablesourcesaremostprominentintheWesternstatesandarealsoemployedintheNortheastandMidwest,thoughtheyareinsignificantinotherregions.Conversely,oilgenerationisminimalasaproportionofcurrentpowerusage.

Table10showstheincreaseineachregionoftheplantadditionsthatareexpectedthrough2040.Asdisplayed,mostregionsareanticipatedtobuildsignificantcapacityingasplants(andlimitedcoalplants).Notetheprominenceofgasineveryregion,butespeciallyFlorida,theNorth-east,andtheMid-Atlanticregion.Conversely,newrenewablesourcesareprominentinfourregionsandminimalintheotherfour,andnuclearpowerisprominentintheSoutheast.

InvestmentneedElectricityinfrastructureatthewholesalelevelisregulatedbytheFederalEnergyRegulatoryCommission(FERC)andNERC.FERCregu-latesmarketsandincentivesforinfrastructureinvestment,whileNERC(asauthorizedbyFERC)monitorsreliabilitylevels.Systemsaremaintainedtoa“1dayin10years”loss-of-load


aSPECToFnEEDS 2012 2015 2020 2030 2040

Projectednationalneeds

Generation 35.4 38.3 37.8 54.1 61.0

Transmission 11.4 11.4 11.4 11.4 11.4

Distribution 24.6 25.4 26.8 30.2 28.9

TOTAL 71.5 75.1 76.0 95.8 101.3

Baseline2001–10averages

Generation 35.4 35.4 35.4 35.4 35.4

Transmission 7.7 7.7 7.7 7.7 7.7

Distribution 19.8 19.8 19.8 19.8 19.8

TOTAL 62.9 62.9 62.9 62.9 62.9

Calculatedgapbyyear*

Generation 0 2.9 2.3 18.7 25.6

Transmission 3.7 3.7 3.7 3.7 3.7

Distribution 4.8 5.6 7.0 10.4 9.1

TOTAL 8.5 12.2 13.1 32.8 38.4*Calculatedasthedifferencebetweenprojectednationalneedsandbaseline2001-10averages.

noteThegenerationportionof“projectednationalneeds”isbasedoneachregiongenerating115%ofexpectedelectricitydemand(seeFigures8&9).The15%reservemarginisincludedtoensurereliability.Numbersmaynotaddduetorounding.

sourCeEIAAnnualEnergyOutlook2011(years2008-2035)andNERC2011Long-termReliabilityReport,EasternInterconnectionPlanningCollaborative,PhaseIReport,December2011,RenewableEnergyTransmissionInitiativeElectricPowerResearchInstituteandFederalEnergyRegulatoryCommission.CalculationsbyLaCapraAssociatesandEDRGroup

TaBlE 8★ProjectedNeedsandGapbyYearComparedwith2001–10AverageInvestmentLevels(in billions of 2010 dollars)

expectation.Thehistoryororiginofthisstandardisnotwelldocumented,butisbelievedtohaveoriginatedwithacademicpaperswritteninthe1940s.12Asutilitiesbegantostudytheuseofthisstandardandfinditacceptable,moreandmoreutilitiesbegantoincorporateitintotheirplanningdepartments.Itwaseven-tuallyacceptedbyNERCasthestandardthatshouldbefollowedthroughoutthecountry.

Utilitiesandindependentsystemoperatorsplantohaveresourcesavailabletomeetthis

expectation.Assuch,reliabilityatthelevelofthebulkpowersystemisusuallygood(andbet-terthanatthelevelofthedistributionsystem),somajoroutagesatthelevelsofthegenerationandtransmissionsystemarenowrelativelyrare.Forthisanalysis,asimplifiedreliabilityanaly-sisbasedonplanningreservemarginswasused,whichrepresentsthepercentageofadditionalresourcesbeyondpeakdemandlevelsthatareneededtomeettheloss-of-loadexpectation.


TECHnoloGy REGIon

noRTH- mID- SouTH- SouTH-

TExaS FloRIDa mIDwEST EaST aTlanTIC EaST wEST wEST

Coal 37 31 70 10 59 52 57 29

Petroleum 0 6 0 2 1 0 0 0

Natural Gas 42 44 3 41 12 16 32 26

Nuclear 12 16 13 31 27 27 5 11

Pumped Storage/Other 0 1 0 1 0 0 0 0

Renewables 8 1 14 14 2 5 6 34

Distributed Generation 0 0 0 0 0 0 0 0

TotalbyRegion 100% 100% 100% 100% 100% 100% 100% 100%

sourCeEIA,Annual Energy Outlook,2011.

TaBlE 9★ProportionofRelianceonElectricityGenerationTechnologiesbyRegion(percent)

TECHnoloGy REGIon

noRTH- mID- SouTH- SouTH-

TExaS FloRIDa mIDwEST EaST aTlanTIC EaST wEST wEST

Coal 14 0 16 0 0 8 0 2

Oil and natural gas steam 0 0 0 0 0 14 0 0

Combined-cycle gas 32 99 19 60 70 18 28 35

Combustion turbine/diesel 44 0 40 9 23 52 25 15

Nuclear power 0 0 0 0 0 16 0 0

Renewable sources 5 0 21 31 4 6 46 44

Distributed generation 5 0 3 0 3 15 0 4

Totalnewcapacitybyregion 100% 100% 100% 100% 100% 100% 100% 100%

noteProjectionsbytheEIAarethrough2035andareassumedfor2040.Additionsareintermsofmegawattsexpectedtobeadded.

sourCeEIA,Annual Energy Outlook,2011.

TaBlE 10★ AdditionsofNewCapacityExpectedbyRegionforElectricityGenerationTechnologies(percent)


Nevertheless,thereareoutagesatthedistribu-tionlevel,whichusuallyarenotbuilttomeetvaryingstateandlocalstandards.

Forecastsoffutureelectricdemandarepro-videdbytheEIA.Itsforecasts,showninTable11,portrayfuturedemandforelectricpowergivenexpectedchangesinpopulation,economicactivity,andenergy-efficienttechnologies.ThedatashowsthattheEIAexpectscontinuedmod-estgrowthinfuturedemandforelectricity(an8%increaseby2040).Duringthe2011–40period,demandinallregionsisexpectedtogrowat1.0%orlessperyearandonly0.7%peryearfortheU.S.asawhole.Muchofthislowdemandgrowthisexpectedtobeduetoenergyefficiencyandanoveralldeclineinenergyintensityperdollarofgrossdomesticproduct.Thoughitisusefultoanalyzeenergydemand,electricsys-temsareplannedtomeetpeakloads.However,itisnoteworthythattheelectricenergydemandedbybusinessesandinstitutionsisexpectedtoincreasecomparedwithsalestohouseholds.In2010,61%ofelectricenergypurchasesweremadebynonresidentialcustomers,andin2020and2040,thisproportionisexpectedtogrowto65%andthenfallslightlyto64%.

Table12showstwoconceptsofpeakdemand.ThetoprowsofthetableshowEIA’ssupplyfore-cast,whichessentiallyrepresentsaforecastofgenerationinvestmentneed,becausetheEIAassumesthatNERCplanningstandardsaremet.ThebottomrowsofthetablegiveaforecastfromNERC.Thefirstimportantpointisthediffer-encebetweenthetwonationaltotals.Thetopsetofdataisbasedonhistorical,existinggenera-tionandhowdemandlevelsandothermarketorpolicyfactorsaffectgenerationbuild-out,andincludesanygenerationcapacitythatisusedtomeetthereservemargins.

Thebottomsetofdatarepresentsactualinter-nalregionalpeakdemandforecasts(byNERC)withoutreservemargins.OnedrawbackoftheNERCforecastisthatdataareonlyavailablethrough2021,comparedwith2035forEIAdata.Moreover,theNERCforecastofdemandismuch

higherthantheEIA’sdemandforecast(whichisbasedongenerationsupply).Fordataconsis-tencypurposesandtoaccountforthecurrentgenerationoversupplythatisreflectedintheEIAforecasts,the2016–21NERCgrowthrateswereusedratherthanthegrowthratefortheentire2010–21periodtoprojectdemandto2040.Thisresultsinalowerforecasted“need”figure,butonethatislikelymoreplausiblethanthevaluefortheentire2010–21period.

ForecastedSupplyForelectricitygeneration,thesupplyforecastwasdevelopedbyexaminingrecenttrendsinsupplyandcontinuingthesetrendsintothefuturebyapplyingtheNERCsupplyforecasttotheNERCdemandforecastofinternalpeakloads.Threesupplyforecastscategorizethelikelihoodofsupplyinto“anticipated,”“pro-spective,”and“conceptual,”with“anticipated”providingthelowest,mostconservativeout-look.Thisanalysisusesthemoreconservativeestimateof“anticipated”supplystream,thoughtheotherforecastscanalsobeused.Tomain-tainconsistencywithprojecteddemandtrends,theaveraged2016–21growthratewasappliedtodeterminethesupplyforecastto2040.

Areliableelectricitygenerationsystemmusthavemorecapacityresourcesthananticipatedpeakdemand,toaccountforunanticipatedout-agesandhigher-than-anticipatedpeakdemand.Theamountthatcapacityresourcesexceedpeakdemandisknownastheplanningreservemar-gin.NERCisprimarilyresponsibleforensuringthatplanningreservemarginsaremaintainedatalevelsufficienttoensuresystemreliabil-ity.Althoughitcanvarybylocality,NERC’sreferencemarginlevelis15%,meaningthatgenerationof115%ofexpectedpeakdemandisneededtoensurereliabilityofsupply.Duetocapacitysurpluses,mostregionsandthecountryasawholearecurrentlyprojectedtoexceedthe115%marginthrough2020,withtheexceptionofTexas.13


DEmanDPRoJECTIon annualToTalS(GIGawaTTS) ComPounDannualGRowTHRaTE(%)

2010 2011 2020 2040 2010–20 2020–40 2010–40

1,014 1,023 1,028 1,174 0.1 0.7 0.5

2011 2020 2040 2011–20 2021–40 2011–40

1,551 1,759 2,256 1.4 1.3 1.3

noteNetsummercapacityisthesteadyhourlyoutputthatgeneratingequipmentisexpectedtosupplytosystemloadexclusiveofauxiliarypower),asdemonstratedbytestsduringsummerpeakdemand.Includeselectricutilities,smallpowerproducers,andexemptwholesalegenerators.

annualToTalS/PRoJECTIonS

(TERawaTT-HouRS) ComPounDannualGRowTH(%)

maRkETSEGmEnT 2010 2020 2040 2010–20 2020–40 2010–40

Total electricity sales 3,749 3,976 4,658 0.6 0.8 0.7

Electricity sales, residential 1,455 1,394 1,692 -0.4 1.0 0.5

Electricity sales, nonresidential 2,293 2,583 2,966 1.2 0.7 0.9

Percent demand, nonresidential 61 65 64

note1terawatt-hour=1billionkilowatt-hours.Estimatesfor2035–40assumeanannualgrowthrateequaltotheaverage2030–35annualgrowthrate.

sourCeEIA,Annual Energy Outlook 2011 (for2008–35).

TaBlE 11★ ProjectedChangesinU.S.ElectricEnergyDemand,2010,2020,and2040

SCEnaRIo 2011 2020 2040

Anticipated peak capacity resources 986 1,043 1,074

Prospective peak capacity resources 1,017 1,081 1,125

Adjusted potential capacity resources 1,018 1,102 1,163

sourCeNERC,2011 Long-Term Reliability Report.

TaBlE 12★ PeakDemandProjections,2010,2011,2020,and2040

Electricgeneratingcapacity,EIA,AnnualEnergyOutlook2011projection

FromNERC,2011Long-TermReliabilityReport

TaBlE 13★GenerationSupplyForecast—NationalAggregations(in Gigawatts)


FIGuRE 8★NERCProjectionofPlanningReservemarginsbyRegion,2011–21

FIGuRE 9★NERCProjectionofPlanningReservemarginsbyRegion,2021–40

Texas Florida

Midwest Northeast

Mid-Atlantic Southeast

Southwest West

Texas Florida

Midwest Northeast

Mid-Atlantic Southeast

Southwest West

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

20212020201920182017201620152014201320122011

-20%-15%-10%-5%0%5%10%15%20%25%30%

20402035203020252021

sourCeNERC2011Long-termReliabilityAssessmentto2021andtrendlinecalculationsbyLaCapraandEDRGroupto2040.

sourCeNERC2011Long-termReliabilityAssessmentto2021andtrendlinecalculationsbyLaCapraandEDRGroupto2040.


Ingeneral,thenationiscurrentlyfacinganoversupplyphaseofelectricgeneration,andtheEIA’sAnnual Energy Outlook 2011 forecastdatafordemandandsupplydiscussedaboveassumesthatthisoversupply,coupledwithimprovementsinelectricenergyefficiency,willnotleadtoabsoluteshortagesbefore2024.Thegappre-dictedforgenerationin2020isbecausesupplyintheTexasregionisexpectedtofallbelowa15%reservemargin(or115%ofexpecteddemand)beforethatyear(Table14).ExtendingcurrenttrendsindicatesthatthegenerationofelectricityforfiveoftheNERCregions(Texas,Southeast,Mid-Atlantic,West,andNortheast)willfallbelow100%ofdemandby2040,withonlytheSouthwestarearemainingabovethe115%planningreservemargin.ThesetrendsaregraphicallyrepresentedinFigures8and9.

Figure8showscapacitybyregioncomparedwithretainingatleast100%capacityandtheadditional15%marginfrom2011–2021,basedontrendsextendedfordemandandelectricitygeneration.

Figure9extendsthisoverview,andshowsexpectedgenerationcapacitycomparedwithdemandfrom2021–40.Aspreviouslymentioned,onlytheSouthwestareaisexpectedtomaintaingenerationcapacitythatis15%abovedemand.Twootherregions,FloridaandtheMidwest,areexpectedtogenerateelectricitytomeetdemandoverthedurationofthe20-yeartimespan,butwillfallbeneaththe15%marginforreliability.Generationofelectricityforfiveotherregionsisexpectedtofallbelowdemandby2040:theNortheast,theSoutheast,Texas,theMid-Atlantic,andWesternstates.

GenerationGapanalysisWithsupplyanddemandforecastsfromaconsis-tentsource,thegapiscalculatedastheamountofadditionalgeneration(ingigawatts,GWs)neces-sarytomeetregionaldemandforecastsplusthenecessaryreservemarginsof15percent.Thedatashowthatinitiallyallregionsarewellabovethereferencereservemargins,withonlytheTexasregionindangeroffallingbelowreferencelevelsoverthenearterm.However,bothcurrentinvest-menttrendsandratesofprojectedfuturedemandgrowthdifferbyregion,solong-termneedsandtheassociatedgapswillgrowatdifferentratesaroundthecountry.

Tocalculatepotentialfuturegenerationneed,theprojectedfuturedemand(plusreservemargin)isforecastintermsofGWsforeachregionandthencomparedwiththesupplyforecasttocalculateaGWneedforeachyearoftheforecastperiod.OncethegapinGWiscalculated,generationneedsaretranslatedintodollarstreams.ItwasassumedfirstthattheneedwouldbemetaccordingtothecostsoftechnologymixesprojectedbytheAnnual Energy Outlook 2011 thatsupplyelectricenergybyregionto2035.14ThisvaluewasmultipliedbythenumberofGWsneededineachregiontoproducethedol-larstreamofinfrastructureinvestmentneeds.Notethatthisstreamonlyconsistsofcapitalcost,andnooperationandmaintenancecostsareincluded.

Overall,thisgenerationgapanalysisconsiderstheamountofgenerationspendingthatisneces-sarytomeetthereliabilitycriterion(asrepresentedbymeetingreservemarginreferencelevels).Withinthetrend scenario,thegapisexpectedtogrowovertimetoalevelof$401billionby2040.AbreakdownofthisgapbyregionisshowninTable14.

ThegenerationgapisbasedonpeakdemandforecastsfromNERC,andisassumedtogrowattheannualrateprojectedfrom2016–21.ThegapalsoisbasedonNERCreferencelevelsforreservecapacity,meaningthatthegapcalculationsarebasedonregionalattainmentof115%ofprojectedpeakcapacity.Asdiscussedabove,thereisamini-malgapshownthrough2020duetoacurrentoversupplyofgenerationcapacity.


incentivesprovidedbyFERCandsupportedbymandatesorplanningstudiesbystatesandregionaltransmissionorganizationshaveledtoanuptickininvestmentplanning.Second,aggressiveenergyefficiencydeploymentinmanyregions,coupledwiththerecenteconomicdownturn,hasreducedloadrequirements.

ThischangeinthelevelofconcerncanbeseenbycomparinglanguageinthereliabilityassessmentsthatareproducedannuallybyNERC.Forexample,inthe2007versionofthatreport,thefollowingstatementwashighlighted:“ArecentNERCsurveyofindustryprofession-alsrankedaginginfrastructureandlimitednewconstructionasthenumber one challenge to reliability—bothinlikelihoodofoccurrenceandpotentialseverity.”15Bycontrast,notethelanguageinthisreport’s2011version:“Trans-missiongrowthisrespondingtoincreasedplansforintegratinganddeliveringnewresources(i.e.,renewables);constructedtransmissionis

REGIon GEnERaTIonGaPESTImaTE

2020 2040

Florida 0 3.5

Midwest 0 29.5

Northeast 0 22.1

Mid-Atlantic 0 66.1

Southeast 0 121.2

Southwest 0 0

Texas 12.3 47.3

West 0 111.3

U.S.TOTAL 12.3 401.1noteThegenerationgapisdefinedastheinvestmentthatisnecessarytoensurethatregionsachievea15%planningreservemargin.Numbersmaynotaddduetorounding.

sourCesNERC;calculationsbyLaCapraandEDRGroup.

TaBlE 14★ ElectricGenerationInvestmentGap:Estimatedat$12Billionby2020and$401Billionby2040(in billions of 2010 dollars)

TransmissionTransmissionandgenerationareconsideredastwopartsofthe“bulkpowersystem”andarealmostexclusivelyusedforwholesalemarkettransactions.Veryfew(andverylarge)customersdirectlyaccessthetransmissionsystem.Asaresult,transmissionsystemsareregulatedatthefederallevel.Thedistributionsystemiswheremostreliabilityproblemsoccur;itisregulatedbyindividualstatesanddiscussedinasubsequentsection.

InvestmentneedformeetingloadGrowthandReliabilityTransmissioninvestmenthasincreasedsignifi-cantlyinthepastfewyears,onbothanationalandregionalbasis.Asaresult,manyoftheconcernsthatwereexpressedinthemiddletolate2000sconcerningthelackofinvestmentinthetransmissionsystemintermsofdemandgrowthhaveessentiallybeeneliminated.First,


FIGuRE 10★ActualandPlannedTransmissionInfrastructure,1990–2015

onpacewithprojections”and“ananalysisofthepast15yearsshowsthatadditionaltransmis-sion(greaterthan200kV)duringthenextfiveyearswouldnearlytripletheaveragemilesthathashistoricallybeenconstructedduringafive-yearperiod.”16

Figure10showsthattheplannedinvestmentintransmissioninfrastructurepickedupsig-nificantlystartinginthe2006–10period.Beforethistime,investmentwasmoreorlessconstant,intherangeof6,000–8,000circuit-milesperperiod.Futureinvestmentisexpectedtoreachcloseto18,000circuit-miles,whichrepresentsadramaticincreaseininfrastructureinvest-ment.Inaddition,itisimportanttopointoutthatthecalculationofthegapisbasedontrendsextended,notonlywithregardstodemandforelectricityandintechnologytrendsandregu-lations,butalsothatprivately-ownedutilityinvestmentsinthecoming30yearswillbeatthe

sourCeNERC,2011 Long-Term Reliability Assessment.

0

5000

10000

15000

20000

250002

01

1-1

5

20

10

-14

20

09

-13

20

08

-12

20

07

-11

20

06

-10

20

05

-09

20

04

-08

20

03

-07

20

02

-06

20

01

-05

20

00

-04

19

99

-03

19

98

-02

19

97

-01

19

96

-00

19

95

-99

19

94

-98

19

93

-97

19

92

-96

19

91

-95

19

90

-94

5 Year Plan Actual Miles Added Over 5-Year Period

Theplannedinvestmentintransmissioninfrastructurepickedupsignificantlystartinginthe2006–10period.Beforethistime,investmentwasmoreorlessconstant.


annualaverageratesforgeneration,transmissionanddistributionthatwereseenduring2001–10.

Thisconclusionshouldnotbeinterpretedasmeaningthatthereisnoneedorvalueinaddi-tionaltransmissioninfrastructure.Itonlymeansthattheaggregatelevelofactualspendingontransmissioninfrastructureisnowtrackingwithplannedlevelsofinvestment.Localizedissuescanstillbepresent.Forexample,therecanbeopportunitiesforenhancingconnectionsbetweenNERC’sregions,whichwouldhavebeneficialimpactsoncongestionmanagement,reliability,andgreaterdeliverabilityofrenew-ablesfromresource-richregions,suchastheMidwestandOklahoma/Texasarea,tourbancentersintheEasternUnitedStates.

TransmissionGapanalysisThetransmissiongapanalysisisbasedonpro-jecteddemandto2040andinvestmenttrendsforeachregion.DemandisbasedonpeakdemandforecastsfromNERCandisassumedtogrowatannualgrowthratefoundin2016–21period.Supplyisassumedtogrowathistoricalgrowthratebasedonfive-yearmovingaveragesofthe1999–2010periodandbasedonNERCcircuit-miledataforeachregion.Thegapiscalculatedasthedifferencebetweentheratesofdemandandsupplyforeachregion,anditassumesaconstant$2.375million(inconstant2010dollars)costpercircuit-mile,whichisspreadoutevenlyduringthe2011–40period.

Withthistrendscenario,thegapintransmis-sioninvestmentisprojectedtogrowovertimetoalevelofnearly$112billionby2040,asshowninTable15.Anumberoffactorscanaffectthesizeofthisinvestmentgap,mostnotablytheratesofchangeinthemixofgeneratingtechnologiesandtheircorrespondinglocationsrelativetopowersourcesandpopulationcenters.17

localDistributionTheagingoflocaldistributionnetworkshasreceivedparticularattentioninmanyareas,giventhatintermittentpowerfailuresarecom-monlyassociatedwithdownedpowerlines,

transformermalfunctions,andundergroundequipmentfailures.Althoughinvestmentinelectricdistributioninfrastructurehasrecentlyincreasedandnowexceedshistoricalloadgrowth,itisalsoimportanttoassesstheade-quacyofthisinvestmenttomeetgrowingneedsforgreaterreliabilityandcapacitytoaddressthechangingnatureofelectricityuse.Investmentinortheexpansionofelectricdistributioninfra-structureisundertakenbylocaldistributioncompanies,whichcanbeownedbyinvestorsormunicipalities.Usually,investor-ownedutili-tiesinvesttomeetlocallyacceptablestandardsandthenseektorecovertheirinvestmentcoststhroughrateincreases.Somestatesdoallowrecoveryoutsideformalrateincreaseproceed-ings.Thesestandardsaresetbyeachutilityaccordingtoitscapitalbudgetingprocess,withregulatoryoversightbystates,andthisprocessvarieswidely,withsomestatesactivelypenal-izingutilitiesforpoorreliabilityorcustomerserviceperformanceandotherstateshavingnopenaltiesbutmaintainingtheabilitytodenycostrecoveryforimprudentinvestments.

Figure11showstheannualrateofinvest-mentinlocalelectricitydistributionnetworks,expressedasthree-yearandfive-yearmovingaverages.Overall,itshowscompoundedannualgrowthratesintherangeof1.5%to2%,whichisupconsiderablyfromtherateoccurringintheearlyandmiddle1990s.

Thetrend scenarioforinvestmentinlocaldistributioninfrastructureisbasedonthelevelofconstructionexpendituresbyshareholder-ownedutilitiesfortheperiod1980–2008.18Althoughtheactualtrendvariesfromyeartoyeartoreflecteconomiccycles,theaverageannualgrowthrateforthemostrecentfive-yearperiodisactuallysimilartotheaveragerateduringtheentire28-yearperiod.Projectionsfor2009–40business-as-usualexpenditureswerebasedontwofactors.Onewasthemostrecentfive-yearaveragerateof1.05%,whichisslightlylowerthanthemovingaveragefiguresdiscussedabove.Theotheristheincrementalcostofgrad-uallyimplementingsmartgridtechnologies


REGIon TRanSmISSIonGaPESTImaTE

2020 2040

Florida 1.8 5.5

Midwest 1.4 4.3

Northeast 1.6 4.7


Southeast 10.9 32.7

Southwest 0 0

Texas 0 0

West 15.2 45.5

U.S.TOTAL 37.3 111.8

sourCesNERC;EasternInterconnectionPlanningCollaborative,“PhaseIReport,December2011”;RenewableEnergyTransmissionInitiative;calculationsbyLaCapraAssociatesandEDRGroup.


TaBlE 15★ ElectricTransmissionInvestmentGap:Estimatedat$37Billionby2020and$112Billionby2040(in billions of 2010 dollars)

FIGuRE 11★ DistributionExpendituresfrom1980ShowCompoundAnnualGrowthRatesof1.5%to2%

sourCeEdisonElectricInstitute,Statistical Yearbook 2009.

10000

12800

15600

18400

21200

24000

200820062004200220001998199619941992199019881986198419821980

5 Year Moving Average

3 Year Moving Average

Annual Distribution Expenditures


duringtheperiodupto2040,tomaintainandupgradereliabilityasrequiredbyincreasinglysophisticatedelectronicequipment.ThelatterwasbasedonestimatesfromanElectricPowerResearchInstitutestudyfortheincrementalcoststoimplementthesmartgrid,19whichprovideslowandhighestimatesoftotal20-yearcostsforthetransmission,distribution,andcustomeraspects.20

Theregionalpatternofinvestmentinlocaldistributioninfrastructureisestimatedbasedonanallocationthatrepresentshistoricalpatterns,asshowninFigure12.

DistributionGapanalysisUnderthetrendscenario,theinvestmentgapforlocaldistributioninfrastructureisprojectedtogrowovertime,toalevelof$57billionby2020and$219billionby2040.AbreakdownoftheseneedsbyregionispresentedinTable16.

Thisgapcanwidenifadditionalinvestmentsarerequiredtoallowfortheacceleratedgrowthoflocallydistributedpower,withaccordinglyhigherrequirementsforafasterimplementationofsmartgridtechnologiestoaddresstheirinter-mittentsupplycharacteristics.

overallGap:SummaryThecumulativetotalinvestmentgapaddstogetherthegeneration,transmission,anddis-tributioninfrastructuregaps.ThoseresultsareshownbyregioninTable17,andindicatethattheinvestmentfundinggapwillbehighestintheSoutheast,theWesternstates,andtheMid-Atlanticarea,andlowestintheSouthwestandFlorida.Itdoesnotappeartobegrowthalonedrivingthegap,butratheracombinationofsupply,technologies,anddemand,asreviewedearlierinthisreport.

FIGuRE 12★DistributionAdditions,NERCRegions’ShareoftheNationalTotal,2001–9

Florida Midwest Northeast

Mid-Atlantic Southeast Southwest

Texas Unknown West

0%

5%

10%

15%

20%

25%

30%

200920082007200620052004200320022001

sourCeFederalEnergyRegulatoryCommission(FERCForm1Data).CalculationsbyLaCapraassociatestofitdataintoNERCregions.


REGIon DISTRIBuTIonGaPESTImaTE

2020 2040

Florida 2.4 9.2

Midwest 3.0 11.5

Northeast 6.4 24.4


Southeast 18.8 71.7

Southwest 2.4 9.2

Texas 2.3 8.7

West 10.3 39.3

U.S.TOTAL 57.4 219.0sourCesEdisonElectricInstitute,FERC,ElectricPowerResearchInstitute.


TaBlE 16★ ElectricDistributionInvestmentGap:Estimatedat$57Billionby2020and$219billionby2040(in billions of 2010 dollars)

REGIon DISTRIBuTIonGaPESTImaTE

2020 2040

Florida 4.2 18.2

Midwest 4.4 45.3

Northeast 8.0 51.2


Southeast 29.7 225.6

Southwest 2.4 9.2

Texas 14.6 56.0

West 25.5 196.0

U.S.TOTAL 107.0 731.8sourCesEdisonElectricInstitute,FERC,ElectricPowerResearchInstitute.


TaBlE 17★ RegionalBreakdownofElectricDistributionInvestmentGap,2020and2040(in billions of 2010 dollars)


theCostinCurred bYaFailuretoinVest5

TheChainofImpacts

Failuretoclosetheinvestmentgapandadequatelyinvestinour

nation’selectricityinfrastructurecanoccurformanyreasons,

includingdisagreementsoverconstructionplansforgenera-

tionfacilitiesoradditionaltransmissionlines,orthefailureto

allowfortheelectricityratelevelsneededtosupportmoreefficient

energyuse,technologyadoption,orinvestment.whateverthe

reason,theresultofagrowinginvestmentgapwillbesomecombi-

nationofagingequipmentandcapacitybottlenecksthatleadstothe

samegeneraloutcome:agreaterincidenceofelectricityinterruptions.

Theinterruptionsmayoccurintheformofequipmentfailures,intermittentvoltagesurges,andpowerqualityirregularitiesduetoequipmentinsufficiency,and/orblackoutsorbrownoutsasdemandexceedscapacityforparticularperiods.Theseperiodscanbeunpredictableintermsoffrequencyandlength.Regardlessofthesedetails,theresultisalossofreliabilityinelectricitysupply,whichimposesdirectcostsonbothhouseholdsandbusinesses.

Thesecostscantakeseveraldistinctforms,including(1)damagetoagrowing

portionofequipmentmadewithsensitiveelectroniccircuitsthatcanbeaffectedbyvoltagespikesandsurges;(2)spoilageoffoodandotheritemsthatareheated,refrigerated,orkeptincontrolledconditions;(3)wasted,unproductivetimeforworkersataffectedbusinessmanufacturingandservicefacilitieswhenproductionprocessesaretemporarilyidled;and(4)addedcostsincurredbyanincreasedrelianceon(anduseof)backupgenerators,powerqualitymonitoringandconditioningequipment,orreschedulingofproductionshifts.


PriorStudiesoftheCostsofElectricityInterruptionsThebestwaytoestimatethemagnitudeofthecoststobeincurredbyhouseholdsandbusinessesiftheinvestmentgapgrowsinthefutureistoconsiderinterruptionsandthescaleofcostsalreadybeingincurred.Nationally,a2004studyfoundthatcustomersarefacedwith4.3momen-taryoutagesoflessthan5minutesthatcosttheU.S.morethan$50billioneachyearand1.2sus-tainedoutagesof5minutesormorethataccountforanadditional$29billion,totaling$79billionannuallyin2002dollars.Thestudyalsofoundthattheaveragelengthofsustainedoutageswere106minuteseach.21Aseparatelyconducted2003studyconcludedthatonaverageU.S.electriccustomersexperience1.5to2outagesperyear,withaveragedurationslastingtwohours.22

Thesecostscausedbyelectricityinterruptionsoccurintheformofidleworkertime,productspoilage,equipmentdamage,andreplacementcosts.Theaforementioned2004studyfoundthatindustrialfirmscaneachloseabout$2,000to$5,000perpowerinterruption,commercialestablishmentscanlose$700to$1,300,andhouse-holdseachloselessthan$5peroccurrence,asshowninTable18.23

Aseriesofstudiescompletedinthe1990sandfirstdecadeofthe2000sestimatedthetotalannualcostofpoweroutagesandreliabilityforournationaleconomy.Whennormalizedto2010dollars,estimatesoftheannualcosttoournationrangedfrom$39billionto$201billionperyear,asillustratedinTable19.Thereasonsforthevariationweredifferencesinmethodologyandtherangeofcostsbeingincluded.However,itshouldbenotedthattheconditionofelectricityinfrastructurehasimprovedmarkedlyduringthepastdecadesincethosestudieswereconducted.Improvementsinqualityhavebeenparticularlysignificantingenerationandtransmissionsystemsduetosignificantinvestmentsmadesince2005,andthenationalinvestmentgapisnowsmallerthaninearlierdecades.

EstimationofFutureCostsIncurredbyFailingtoClosetheInvestmentGapForthisstudy,thecostsassociatedwithmain-tainingandimprovingelectricityadequacyandreliabilitywerecalculatedbasedon(1)estimatesoftheregionallong-terminvestmentneedsforgeneration,transmission,anddistributioninfra-structure;and(2)estimatesoftheaddedcostsandforgonebenefitsincurrediftheyarenotmade,drawingonstudiesbytheEIAandElectricPower

DuRaTIonoFInTERRuPTIon RESIDEnTIal CommERCIal InDuSTRIal

Momentary 2.64 733 2,294

1 hour 3.27 1,074 3,943

Sustained Interruption* 3.62 1,293 5,124

*Themeantimeofsustainedinterruptionsis106minutes(whendataweretrimmedofoutliers).Costswerereportedin2002dollarsandwereinflatedto2010dollarsforthistable.Thestudyestimatedtotalannuallossesat$79billionorarangeof$22billionto$135billionin2002dollars.

sourCeLaCommareandEto,2004.

TaBlE 18★ AverageCostofPowerInterruptionsperHouseholdandperBusiness(in constant 2010 dollars)


ResearchInstitute.Itwasassumedthatsmall,locallybasedsourcesofdistributedgenerationwouldberequiredtofilltheelectricityavailabilitygap,resultinginsomeassociatedhighercosts.24

Thefindingisthatafailuretomeettheprojectedinvestmentgapwillresultinacosttobusinessesandhouseholds,startingat$17billionin2012andgrowingannuallyto$23billionby2020and$44billionby2040.Thecumulativecostsapproach$200millionby2020and$1trillionby2040.Annualcoststotheeconomywillaverage$20billionthough2020and$33billionthrough2040.Theseestimatedimpactsaresignificantlylowerthantheimpactsestimatedfromstudiesconductedinthe1990sand2000s,presentedaboveinTable19.

Table20showstheestimatedcostimpactbyeconomicsector.Table4breaksdowntheesti-matedimpactbyregion.Itisnotablethatthesecostsincurredbyfailingtoclosetheinvest-mentgapareactuallyhigherthantheavoidedinvestment.Thismeansthatitiseconomicallyinefficientforhouseholdsandbusinessestoallowthishighercostscenariotooccur.Itshouldalsobemadeclearthatevenifsufficientinvest-mentismadetoavoidtheinvestmentgap,theresultwillnotbeaperfectnetworkforelectricitygenerationanddelivery,butratheronethathasdramaticallyreduced(thoughnoteliminated)powerqualityandavailabilityinterruptions.

TaBlE 19★ ComparisonofAnnualImpactsofInadequateElectricityDelivery,SelectedStudyYears

REPoRTED aDJuSTED

DollaR STuDy ToConSTanT

amounT yEaR 2010DollaRS CoSTSInCluDED auTHoR/SouRCE

$26 1993 $39 Limited to power- J. Clemmensen, Electric Power Research billion billion quality analysis and Institute, “Estimating the Cost of Power manufacturing sector Quality,” IEEE Spectrum, 1993.

$150 1998 $201 Accounts for U.S. S. Swaminathan and R. K. Sen, Reviewbillion billion industry, but does not of Power Quality Applications of Energy include commercial or Storage Systems, Report SAND98–1513 household sectors (Sandia National Laboratories, 1998).

$119 2001 $147 Includes business Primen, The Cost of Power Disturbancesbillion billion sectors but not to Industrial and Digital Economy households Companies, Report TR-1006274 (Electric Power Research Institute, 2001).

$79 2002 $96 Includes households, K. H. LaCommare and J. H. Eto, billion billion commercial and Understanding the Cost of Power Industrial Interruptions to U.S. Electricity Customers, Report LBNL-55718 (Lawrence Berkeley National Laboratory, 2004).


EConomICSECToR 2012 CumulaTIVE,2012–20 CumulaTIVE,2012–40

Residential 6 71 354

Commercial/other 6 74 402

Industrial 4 52 239

Transportation 0.03 0.38 3.82

TOTAL 17 197 998

sourCesCalculationsbyLaCapraandEDRGroupbasedondatafromEIAandElectricPowerResearchInstitute.

TaBlE 20★CumulativeImpactsbySector,2012,2012–20,and2012–40(in billions of 2010 dollars)

REGIon 2012 CumulaTIVE,2012–20 CumulaTIVE,2012–40

Florida 0.7 8 32

Midwest 0.8 9 59

Northeast 2.0 17 79

Mid-Atlantic 3.0 36 194

Southeast 5.0 59 297

Southwest 0.5 6 18

Texas 0.5 18 80

West 4.0 44 239

TOTAL 17 197 998

sourCesCalculationsbyLaCapraandEDRGroupbasedondatafromEIAandElectricPowerResearchInstitute.

TaBlE 4★CumulativeImpactsbyRegion,2012,2012–20,and2012–40(in billions of 2010 dollars)

Failuretomeettheprojectedinvestmentgapwillresultinacosttobusinessesandhouseholds,startingat$17billionin2012andgrowingannuallyto$23billionby2020and$44billionby2040.


eConoMiCiMPaCts

Iffutureinvestmentneedsarenotaddressedtoreplaceand

upgradeournation’selectricgeneration,transmission,and

distributionsystems,thencostswillbebornebybothhouseholds

andbusinesses.Thesecostsmayoccurintheformofhigher

costsforelectricpower,orcostsincurredbecauseofpower

unreliability,orcostsassociatedwithadoptingmoreexpensive

industrialprocesses.Ultimately,theyallleadtothesame

economicimpact:diversionofhouseholdincomefromother

usesandareductioninthecompetitivenessofU.S.businesses

inworldeconomicmarkets.

6

Ifannualinvestmentsinelectricenergyinfrastructurethrough2040continuetoaverage$63billion,astheydidduringthepastdecade,thenby2020thecumulativedeficit(gap)forinvestmentinelectricityinfrastructurewillbe$107billion,andthiswouldincreaseto$732billionby2040.Thedirectcosttobusinessesandhouseholdswouldbeevengreaterthanthemissedinvest-ment,risingto$197billionby2020and$998billionby2040.Nationally,thesecostsarepassedintothenationaleconomyintheformofbusinessexpenses,lostproductionandhouseholdspendingdivertedtosatisfyingdemandforelectricalpower.ThesebroaderimpactsontheU.S.economywouldrepresent

acumulativelossofgrossdomesticproduct(GDP)amountingto$496billionby2020and$1.95trillionby2040.

Thelossofcompetitivenessforbusinessesthatselltooverseasmarkets,andthehigherpricespaidforforeignimports,wouldalsoleadtoalossofjobs.Theseestimatedjob“losses”willoccurintheformofalowerrateofnationaleconomicgrowth,andhencealowerrateofjobgrowth.Overall,theU.S.economywillendupwithanaverageof529,000fewerjobsthanitwouldotherwisehaveby2020.Andevenwitheconomicadjustmentsoccur-ringlateron,withcatch-upinvestments,theresultwouldstillbe366,000fewerjobsin2040,asshowninTable5.


annualImPaCTS 2020 2040

GDP -$70 billion -$79 billion

Jobs -529,000 -366,000



aVERaGEyEaR 2012–2020 2021–2040

GDP -$55 billion -461,000

Jobs -461,000 -588,000



CumulaTIVEloSSES 2012–2020 2021–2040

GDP -$496 billion -1.95 trillion

Jobs NA NA

Business Sales -$847 billion -$3.6 trillion

Disposable Personal Income -$656 billion -$2.3 trillion

noteLossesinbusinesssalesandGDPreflectimpactsinagivenyearagainsttotalnationalbusinesssalesandGDPinthatyear.Thesemeasuresdonotindicatedeclinesfrom2010levels.

sourCesEDRGroupandLIFTmodel,UniversityofMaryland,INFORUMGroup,2012

TaBlE 5★EffectsonU.S.GDPandJobs,2011–40

Table21illustratesthatjoblosseswillfallheavilyontheretailandotherconsumerspend-ingsectorsduetotheexpecteddiversionofhouseholdspending.Personalconsumptionexpenditures25areprojectedtobereducedbyacumulative$400billionby2020and$2.1trillionby2040(in2010dollars).Moreover,servicedis-ruptionsthatforcebusinessestoshutdownwillhaveadisproportionalimpactonhourlyworkersandalsoonbusinesslocationsthatrequiredirectpersonalinteraction,suchasstoresandrestaurants.Lastly,retailisthenation’slargesteconomicsectorintermsofnumbersofjobs.Therefore,jobimpactswillbedisproportionately

Evenwitheconomicadjustmentsoccurringlateron,withcatch-upinvestments,theresultwouldstillbe366,000fewerjobsin2040.


assumedinthatsectorcomparedtoothersthatmightcontributemoretoGDPorbemoreenergyintensive.

Substantiallossesinmanufacturingsectorsarealsoanticipatedduetolessreliableelectricityservicewithashortfallinelectricityinfrastruc-tureinvestment.TheselosseswillsignifyreducedcompetitivenessofU.S.industries.Figure13indicateswhichindustrieswillbemostharmed.

By2020,thepotentialinvestmentneedsininfrastructuremaycausetheU.S.tolose$10billioninexports,whichcouldgrowto$40billionby2040(in2010dollars).Thehardest-hitindustrialsectorswillbe:

★ Aerospace,★ Electroniccomponents,and★ Airtransportation.

EnergyIntensiveIndustriesIndustriesvarytotheextentthattheydependonareliablesupplyofelectricity.OnewaytomeasuretherelativeenergydependenceofU.S.industriesistocomparetheamountofelectricitythateachsectorpurchases.Figure13isanindexofreflectingtherelativerelianceonelectricityamongindividualindustries,rep-resentedasaproportionofthenationalaverageelectricitypurchasedbyeachindustry.Nation-ally,purchasesof“electricpowergeneration,transmission,anddistribution”averageof6.8%oftotalindustryrevenue.Intheindexpresentedbelow,avalueof“100”issettothenationalaverage.Avaluegreaterthan100indicatesthatindustriesuseahigherportionoftheirrevenuesforelectricityandanindexvaluelessthan100indicatesthatelectricservicesconsumeasmallerthanaverageportionofbusinessrevenues.

2020 2040SECToR JoBImPaCTS PERCEnT JoBImPaCTS PERCEnT

Retail trade/restaurants and bars 213,000 40 136,000 37

Business and professional services 101,000 19 94,000 26

Manufacturing 59,000 11 55,000 15

Construction 52,000 10 38,000 11

Other 105,000 20 42,000 12

TOTAL 529,000 100 366,000 100

noteLossesinjobsreflectimpactsinagivenyearagainsttotalnationalbusinesssalesandGDPinthatyear.Thesemeasuresdonotindicatedeclinesfrom2010levels.

sourCesEDRGroupandLIFTmodel,UniversityofMaryland,INFORUMGroup,2012.

TaBlE 21★ JobLossesbySector,2020and2040


FIGuRE 13★ElectricityIntensitybyIndustry

0 50 100 150 200 250 300 350 400

Capital gap

Capital spending

Information

Construction

Transportation Eqp Mfg

Transportation & Warehousing

Prof, Scientific & Technical Services

Wholesale Trade

Misc Mfg

Finance, Insruance & Real Estate

Computers & Electronics

Machinery Mfg

Retail Trade

Furniture

Electrical Equipment

Medical Services

Fabricated Metals

Petroleum & Coal Products

Printing

Leasing

Textiles & Apparel

Mining

Plastics

Wood Products

Food & Beverage Mfg

Agriculture & Forrestry

Chemical Products

Education

Accommodation & Food

Paper

Non-Metal Minerals

Primary Metals

sourCesBureauofEconomicAnalysis,U.S.DepartmentofCommerce,aggregatedbyMinnesotaIMPLANGroup,Inc.,2009.CalculationsbyEDRGroup

nMoreelectricityintensivenLesselectricityintensive


ConClusions7

Reliableelectricityisessentialforthefunctioningofmany

aspectsofhouseholdandeconomicactivitytoday.Asthenation

movestowardsincreasinglysophisticateduseofinformation

technology,computerizedcontrolsandsensitiveelectronics,

theneedforelectricityreliabilitybecomesevengreater.In

addition,overalldemandforenergyisexpectedtoincrease

astheUnitedStateseconomyandpopulationgrowsbetween

todayandtheyear2040.

Toobtaintheneededelectricpower,householdsandbusinessesdependtoalargeextentonmaintainingandupdatingthethreekeyelementsofelectricityinfrastructure:(1)generationplants,(2)transmissionlinesand(3)localdistributionequipment.Fortheentiresystemtofunction,generationfacilitiesneedtomeetloaddemand,transmissionlinesmustbeabletotransportelectricityfromgenerationplantstolocaldistributionequip-ment,andthedecentralizeddistributionnetworksmustbekeptingoodrepairtoensurereliablefinaldelivery.Connectionsamongthedifferentelementsofthisbroader

systemarecrucialtomeetregionalandnationalenergyneedsaswellastosupportemergingchangesinthespatialpatternofpowersourcesandpopulationlocations.Deficienciesorshortfallsinanyoneofthesethreeelementsofelectricityinfrastructurecanaffectournation’sfutureeconomicgrowthandstandardofliving.

Threekeyfactorsaffectthesufficiencyandreliabilityofelectricityinfrastructure:(1)theageofinfrastructure,(2)thecapacityofinfrastructure,and(3)thespatialpatternofinfrastructurerelativetothelocationsofelec-tricitygenerationandconsumption.Allthree


affectrequirementsforfutureinvestmentinelectricityinfrastructure.Thisstudyexaminedthemagnitudeofexpectedneedforfutureinvestmentinelectricityinfrastructureandcomparedittorecentinvestmenttrends(assum-ingacontinuingevolutionoftechnologies).Althoughrecentinvestmenttrendsshowadis-tinctimprovementininfrastructureinvestmentoverearlierdecades,evencontinuingtherateofaverageannualinvestmentseenoverthepastdecadeisnotexpectedtocoveralloftheincreaseindemandforelectricity.Thisreport,conductedaftersignificantannualinvestmentincreasesbyprivately-ownedutilitiessince2005weremade,estimatestheannualcosttobusinesses,house-holds,andinstitutionsatabout$16billionin2012andaveraging$33billionannuallythrough2040undercurrentinvestmenttrends.

Thisanalysisshowedthatifcurrenttrendsaretocontinue,thenthenationwillfaceacumu-lativeelectricityinfrastructurefundinggapof$107billionby2020,risingto$732billionby2040.Inturn,aninvestmentshortfallofthatmagnitudewillcostbusinessesandhouseholdsacumulative$197billionby2020and$998bil-lionby2040.ThesecostsarepassedintotheU.S.economyintheformofincreasedbusinessandhouseholdexpenses,whichwillalsoaffectthenation’scompetitivenessineconomictrade.Economicmodelsindicatethatthiscouldulti-matelyresultina$500billioncumulativelossinGDPby2020andabout$2.5trillionby2040.

long-TermuncertaintyItisdifficulttopredictfuturelevelsofcapitalspendinginelectricityinfrastructurebecauseawiderangeoffactorswillexertaninfluenceoverthecomingdecadesoccurringinsupplyanddemandfactors—suchastherelativecostoravailabilityofoilornaturalgas,regulatoryactionstopromotegreenhousegasreduction,otherenvironmentalconcerns,andnew

technologychangesthatincreaseordecreasetherateofinvestmentrequiredtodeliversufficientservicestomeetthedemandforelectricity.

Thethreeaspectsoftheelectricityinfrastructurenetwork—generation,trans-mission,anddistribution—areconnectedandmutuallydependent.Changesinoneofthethreemayrequireinvestmentintheothertwotoensurethatthesupplyofelectricityeffectivelyreachescustomers.

Theinvestmentsrequiredforgenerationcouldincreaseifitbecomesnecessarytoreplaceshortfallsintheavailabilityofelementsoftheexistingfuelmixortomeetenvironmentalconcerns.Ifgenerationtechnologieschange,thenitislikelythatadditionaltransmissioninvestmentwillberequiredtoconnectthenewpowersourcestothedistributiongrid.Moreover,ifadditionalinvestmentsarerequiredinthegenerationandtransmissionnetworks—forexample,toallowforthecostoftheacceleratedgrowthoflocallydistributedsolarandwindpower,withaccordinglyhigherrequirementsforsmartgridtechnologiestoaddresstheirintermittentsupplycharacteristics—thenlocaldistributioninfrastructureinvestmentneedsmayalsorise.

Sinceelectricitygeneration,transmissionanddistributionareallmadebyprivatecompaniesoperatingunderpublicoversight,thefundinggapisnotasimplematterofincreasingpublicexpenditures.Rather,thenatureandmagnitudeofprivateinvestmentinelectricityinfrastructureisaffectedbyprivatecapitalloanandbondmarkets,perceivedeconomicrisksanduncertainties,andpublicpoliciesgoverningregulation,approvalofelectricityrates,andfacilitysitingprocesses.Publicpolicies,regulationsandprocessescanplayaroleaffectingthepace,locationandnatureofelectricinfrastructureinvestments.


for2008–2035.ForthisstudywepresumetheEIAprojectionsrepresent“trendsextended”or“businessasusual”to2040.

Aftercalculatingcapitalneeds,severalassumptionsweremadetotranslatecapitalneedsintoeconomiccosts,andarediscussedinSection5.Keysourcesandassumptionsinclude:

★ Generation.Thisanalysiswasbuiltassum-ingthatdecentralizeddistributivegenerationwouldfillinthegenerationgapthatwouldnotbemet.DistributedgenerationcapitalcostassumptionscamefromEIA.ACalifor-niastudywasusedtocalculatefuelandO&Mcosts(Itron,Inc,2011).Thesumofcapital,O&M,andfuelwereusedtocalculatecosts.

★ Transmission.Fortransmission,regionsemploydifferentassumptionsaboutwhatforegonebenefit(oropportunitycost)isanacceptableandreasonablebasisforuse.Forexample,theMid-Atlanticutilizeamini-mumthresholdof1.25/1,whiletheMidwestspecifiesratiosvaryingfrom1to3depend-ingonthetypeoftransmissionprojectandhowcloseoneistothein-servicedate(Fink,S.,2011andMISO,2011).Thisstudyusedtherationof1.25asasinglemeasureacrossregions,although,itispossiblethatthisundervaluesthebenefitsoftransmission.Forexample,arecentBrattlestudypositedthattransmissioncost-analysestendtounder-estimatebenefitsbecausetheyarehardtoquantify,butyetarereal,economicbenefits.

★ Distribution.ElectricPowerResearchInstituteprovidedbenefitestimatesofthesmartgridbyincludingdifferentattributes(EPRI,2011).Weremovedthe“softer”attri-butesthatwouldtendnottobeincludedinbillstocustomersandremovedsomeoftheattributesthatwouldbealreadycountedintheothergapanalysis.Theresultisasetofbenefittocostratiosthatarelowerthanthestudybutthatismorecredibleforinputtoaneconomicmodel.

Thisstudyillustrateswhatcouldhappentothenationaleconomyifhouseholdsandbusinessesdonothavereliableenergyservice.Economicimpactsarebasedon:(1)forecastdemandforelectricity;(2)currentandprojectedmixofelec-tricitygenerationtechnologies;and(3)observedinvestmentpatternsforgeneration,transmissionanddistributioninfrastructure.ConsistentwithguidelinesfromtheNorthAmericanEnergyReliabilityCorporation(NERC),a15%bufferisusedasameanstoincorporatereliabilityinprojectedsupplyanddemandcalculations.Theanalysisapproachcomparestwoscenarios:

★ Theimpliedbasecaseinwhichsufficientinvestmentismadeperregiontomaintainelectricitygeneration,transmissiondis-tributioninfrastructuresystemstomeetanticipatedfutureneedsandreliabilitystandards,and

★ TheFailure to Actscenarioinwhichmain-tainingcurrentinvestmenttrendsleadtoagrowinggapbetweentheperformanceofregionalelectricityinfrastructureandtheregions’anticipatedneeds.

Capitalneedsandexpendituresforallthreepartsofelectricityinfrastructurearebasedonfederalgovernmentandindustrysources.TheprimarybasisfortheeconomicanalysisisdocumentationprovidedbytheU.S.DepartmentofEnergy(2011Annual Energy Outlook),theNorthAmericanElectricReliabilityCorporation,theEdisonElectricInstitute,andtheElectricPowerResearchInstitute.

EachyeartheU.S.EnergyInformationAdministration(EIA)releasesanAnnualEnergyOutlookthatprojectslong-termenergysupply,demandandpricesbasedonresultsfromEIA’sNationalEnergyModelingSystem(NEMS).AnnualEnergyOutlook2011,publishedinApril2011,presentsactualandprojectedtotalelectricsalesbrokendownbygenerationtechnology

★|aboutthestudY


Followingcalculationofthecapitalgapandexpectedcoststocustomers,theeconomicanalysisprocesshasthreesteps:

1. Theaddedcostsincurredbyhouseholdsandbusinessesduetoincreasinglyinadequateinfrastructurearecalculatedonayear-by-yearbasedonthedifferenceofthetwoscenarios.

2. Thoseaddedcostsaredistributedamongsthouseholdsandvarioussectorsoftheecon-omyinaccordancewiththeirlocationandelectricityusepatterns.

3. AneconomicmodeloftheU.S.economyisusedtocalculatehowhouseholds’incomeandexpenditurepatterns,aswellasbusinessproductivity,isaffectedandleadtochangesinournation’scompetitivenessandeconomicgrowth.Theresultsareprovidedintermsoflong-termchangesinjobsandincomeintheU.S.ThissequencemakesuseoftheLIFTmodel(Long-termInter-industryForecastingTool),anationalpolicyandimpactfore-castingsystemdevelopedbyINFORUM—aresearchcenterwithintheDepartmentofEconomicsattheUniversityofMaryland,CollegePark.

Economicimpactsforpurchaseanddeploy-mentoftechnologiesbeyondatrendsextendedapproach,suchincreasedemphasisonrenewableenergysourcestomeetenvironmentalorenergyindependencegoalsorintensifyingextractionanduseofnaturalgasbeyondwhatisnowinplaceandpredictedwouldchangetheinvest-mentscenariosandresultsofthisstudy.

★|endnotes1.“Smartgrid”referstotechnologiesthatmodernizetheelectricityutilitygridandimprovehowelectricityisdeliv-eredtoconsumers.Ituses“computer-basedremotecontrolandautomation”with“sensorstogatherdata(powermeters,voltagesensors,faultdetectors,etc.),plustwo-waydigitalcommunicationbetweenthedeviceinthefieldandtheutility’snetworkoperationscenter.Akeyfeatureofthesmartgridisautomationtechnologythatletstheutilityadjustandcontroleachindividualdeviceormillionsofdevicesfromacentrallocation.”(Source:http://energy.gov/oe/technology-development/smart-grid)Italsoprovidesameanstodynamicallyoptimizeelectricitysupplyanddemand,providesformorewidelydistributedgenerationandenablesgreatersystemreliability.Source:TitleXIIIoftheEnergyIndependenceandSecurityActof2007(EISAprovidedlegislativesupportforDOE’ssmartgridactivitiescoordinatingnationalgridmodernizationefforts).

2.Majorpowerplantsaredefinedhereasoperationalpowerplantsthatgenerateatleast1MWofpower.Source:Electric Power Annual 2010,table5.1.

3.Thereareover450,000milesoftransmissionlinesover100,000volts,whichincludeover150,000milesoftransmissionlinesover230,000volts.Thelatternumberisreferencedinthe2009ASCEReportCardonAmerica’sInfrastructureandisreferencedbytheU.S.GovernmentAccountabilityOffice.Source:U.S.GovernmentAccountabilityOffice,www.gao.gov/products/GAO-08-347R.

4.Asthecost-effectivenessofsmall-scalegenerationequipmentincreases,thereisapotentialformore“distributedgeneration,”with“microgrids”thatcanreducetheneedforfutureinvestmentinlargecentralgenerationplantsandassociatedtransmissionlinesservingthem.Assophisticated“smartgrid”computersystemsbecomemoreavailabletodigitallymonitorandinstantaneouslyshiftdemandorreroutepower(tooffsetequipmentfailuresorothersuddensupplyanddemandchanges),thereisalsoapotentialforchangeinfutureneedsfortransmissionanddistributioninvestments.Intheory,thetwoemergingtechnologiescanbecomplementary.However,bothtechnologiesrequireaddedinvestmentinaparticulartypeofequipmentthatcanpotentiallyreduceneedsforothertypesofequipment.Andthoughbothcanpotentiallyprovidegreaterreliabilityandflexibilityformeetingfutureneeds,therateoftheirfutureimplementationwillalsodependonvariousregulatory,institutional,andeconomicfactorsthathaveyettobeplayedout.

5.“Distributedgeneration”referstodecentralizedenergygenerationthatisproducedbymanysmallenergysources,oftenlocatedonbusinessorhouseholdpremisesorincloseproximitytothem.Itisacategorythatcanalsoencompasson-sitegeneration,cogeneration,dispersedgeneration,embeddedgenerationanddecentralizedgeneration.


6.Distributedgenerationtechnologiescurrentlyaccountforunder1%ofUSgeneratingcapacity,buthavebeengrow-inginuseandareprojectedtoaccelerateinfutureyears.In2012,distributedgenerationisexpectedtoproduce130millionkillawatthoursofelectricity.By2040itisexpectedtoproduce4.63billionkillawatthours,anaverageannualincreaseofnearly17%.Thatsaid,distributedgenerationisexpectedtoremainasmallportionoftheenergymixunlesshouseholdsandbusinessesbecomeanxiousaboutensur-ingreliableelectricity.Undercurrentconditions,thetotalshareofkillawatthoursisexpectedtoincreasefrom0.003%ofthenation’selectricitymixin2012to0.1%in2040.(Source:EnergyInformationAdministration,FormEIA-759,MonthlyPowerPlantReport.2008and2009.

7.Seewww.eia.gov/energy_in_brief/age_of_elec_gen.cfm.

8.Seewww.globalenvironmentfund.com.

9.EIAprojectionsfortotalsalesofelectricityextendfrom2008to2035.Toextendtheprojectionsto2040,weassumedthatsalesforeachregionandcustomerclasswouldgrowattheaverage2030–35annualgrowthrate.

10.InmostregionsintheU.S.,“peakperiodsofelectricitydemandisinthesummerseason.However,incertainregions/sub-regions,suchasthenorthwestUnitedStates,SouthDakota(MIRO-MAPPregion)andFlorida,peakdemandinthewinterexceededpeaksummerdemandwhentheexpecteddemandofthe2011/2012winteriscomparedtotheexpecteddemandinthesummerof2012.Source:NERC 2011 Long Term Reliability Assessment,tables8and9.

11.NERC,2011 Long-Term Reliability Assessment Projection.

12.PJMResourceAdequacyAnalysisSubcommittee,“ComparisonofPRISMandMARS,”February9,2011.

13.NERCestimatesplanningreservemarginsoverthenext10yearsinits2011 Long-Term Reliability Assessment.EIAalsoestimatesactualmarginsfor1999–2010andprojectedmarginsfor2011–15initsElectric Power Annual 2010,releasedinNovember2011.Estimatesofgenerationcapacitytodemandarebasedonextendingtrendsfromtheseestimates.

14.Thesenumberswerefurtherprojectedto2040forthisanalysisasshowninTable11onpage29.

15.NERC,2007 Long-Term Reliability Assessment,19.

16.NERC,2011 Long-Term Reliability Assessment,36–37.

17.Essentially,everytypeofelectricgeneratingfacilityiseitherlocatednearafuelorpowersource(e.g.,gaspipeline,river,orwindsite)orrequiresthetransportationoffuel(e.g.,naturalgasorcoal)toitssite,andalsorequirestransmissionlinestocarryitsgeneratedelectricitytomarkets.Asaresult,theretendtobelocationimpactsandadditionaltransportationortransmissioninfrastruc-tureinvestmentrequirementsassociatedwithallchangesinthemixofgeneratingtechnologiesorfuelsources.

18.DataweretakenfromEdisonElectricInstitute,Statistical Yearbook 2011.The2011StatisticalYearbookreportstransmissionanddistribution(T&D)investmentsthrough2009.TheInstitutereleasedpreliminary2010investmentsasthisstudywasunderway.Acomparisonof2009and2010expendituresshowedthatoverall2009T&Dinvestmentswere98.4%of2010totals(inconstant2010dollars).Thisanalysiswentforwardwithdatafromthe2011StatisticalYearbook(2009data)becausethe2010and2009totalswereequivalentandthe2010datawerepreliminary.

19.ElectricPowerResearchInstitute,Estimating the Costs and Benefits of the Smart Grid: A Preliminary Estimate of the Investment Requirements and the Resultant Benefits of a Fully Functioning Smart Grid,2011.Thisstudyalsoprovidedestimatesfortransmissionsystemimprovements,butgiventhatthefuturethatweusedfortheEasternInterconnectionPlanningCollaborativestudyalsoincludedsmartgridimprovements,wedidnotincludetheElectricPowerResearchInstituteestimatestobeconservative.

20.Thesestudiesdonotprovideregionalbreakdownsoftheirexpenditureestimates.Toestimatedistributioninvest-mentbyNERCregion,weobtainedFERCForm1dataondistributionadditionsbyindividualutilities.ThetotaldistributionexpendituresfromourFERCForm1datafor2001–8werewithin10%(andwithin5%formanyyears)ofthenationalestimatesinEdisonElectricInstitutedata.ByassigningeachutilitytoitsNERCregion,sharesofnationalspendingwereallocatedtoeachregion.Eachregion’srelativesharewasfairlystableoverthe10-yearperiod.Afive-yearaveragenationalsharewasusedforeachregiontoestimatetheregionalsharesofthebusiness-as-usualandsmartgriddistributioninvestments.

21.LaCommareandEto,2004.

22.DatafromtheElectricPowerResearchInstitute.

23.LaCommareandEto,2004.

24.Asnotedearlier,EIAexpectsthatelectricitygeneratedbydistributedgenerationwillgrowbyalmost17%peryearthrough2035.Thisrepresentsanearly36foldincreasefrom2012.Ifthatrateofincreasecontinuesto2040,elec-tricityproducedbydistributedgenerationwouldincrease77timestheprojected2012total.EIAexpectstherateofincreaseofkillawatthoursproducedbydistributedgenera-tiontobeconsiderablyhigherthanforanyothertechnology.(Source:EnergyInformationAdministration,FormEIA-759,MonthlyPowerPlantReport.2008and2009).

25.Personalconsumptionexpenditures(PCS)isaconceptfromtheU.S.BureauofEconomicAnalysisandisameasureofgoodsandservicestargetedtowardsindividualsandconsumedbyindividuals.


16.Primen.The cost of power disturbances to industrial and digital economy companies.ReportTR-1006274,ElectricPowerResearchInstitute,2001.

17.SwaminathanS,SenRK.Review of power quality applications of energy storage systems.ReportSAND98-1513.SandiaNationalLaboratories,USDOE.1998.

18.U.S.-CanadaPowerSystemOutageTaskForce,FinalReportontheAugust14,2003BlackoutintheUnitedStatesandCanada:CausesandRecommendations.April,2004

19.U.S.DepartmentofEnergy.2011 Annual Energy Outlook,2011

20.U.S.DepartmentofEnergy.National Electric Transmission Congestion Study.December2009

21.U.S.EnergyInformationAdministration.Electric Power Monthly.March27,2012.

22.U.S.EnergyInformationAdministration.Electric Power Annual 2010.November2011.

23.U.S.EnergyInformationAdministration.How old are U.S. power plants?EnergyinBrief.August8,2011.Retrievedfromwww.eia.gov/energy_in_brief/age_of_elec_gen.cfminMarch2012.

24.U.S.EnergyInformationAdministration(EIA).Annual Energy Outlook (AEO) 2011(withProjectionsto2035).2011

25.U.S.EnergyInformationAdministration.“DistributedGenerationinBuildings”.PublishedAnnual Energy Outlook,2005.Retrievedfromwww.eia.gov/oiaf/aeo/otheranalysis/aeo_2005analysispapers/dgb.htmlinMarch2012.

26.U.S.EnergyInformationAdministration.Electric Power Annual 2010.2011

27.U.S.EnergyInformationAdministration.The National Energy Modeling System.2009

28.U.S.GeneralAccountabilityOffice.FederalElectricitySubsidies:InformationonResearchFunding,TaxExpenditures,andOtherActivitiesThatSupportElectricityProduction.October,2007

29.U.S.GeneralAccountabilityOffice.Transmission Lines: Issues Associated with High-Voltage Direct-Current Transmission Lines along Transportation Rights of Way.February2008

1.Clemmensen,ElectricPowerResearchInstitute.Estimating the Cost of Power Quality.IEEESpectrum,1993

2.Itron,Inc.CPUC Self-Generation Incentive Program: Cost-Effectiveness of Distributed Generation Technologies, Final Report.PreparedforPG&E.DavisCA,2011

3.EasternInterconnectionPlanningCollaborative.Phase I Report: Formation of Stakeholder Process Regional Plan, Integration and Macroeconomic Analysis.December2011.

4.EdisonElectricInstitute-Statistical Yearbook of the Electric Power Industry–2012,(preliminary2010DataTables).

5.EdisonElectricInstitute.Statistical Yearbook of the Electric Power Industry–2010(2009data).

6.ElectricPowerResearchInstitute,Estimating the Costs and Benefits of the Smart Grid: A Preliminary Estimate of the Investment Requirements and the Resultant Benefits of a Fully Functioning Smart Grid.2011.

7.FederalEnergyRegulatoryCommissionForm1data-base,2006:www.ferc.gov/docs-filing/forms/form-1/data.asp#skipnav.

8.Fink,S.,et.al.ASurveyofTransmissionCostAllocationMethodologiesforRegionalTransmissionOrganizations.Exeter Associates, Inc. Columbia, MarylandSubcontractReportforNREL,anationallaboratoryoftheU.S.DepartmentofEnergy,OfficeofEnergyEfficiency&RenewableEnergy,operatedbytheAllianceforSustainableEnergy.LLCNREL/SR-5500-49880.2011

9.GlobalEnvironmentalFund.TheElectricityEconomy:NewOpportunitiesfromtheTransformationoftheElectricPowerSector.2008

10.LaCommareKHandJHEto.Understanding the cost of power interruptions to U.S. electricity customers.ReportLBNL-55718.LawrenceBerkeleyNationalLaboratory,USDOE,2004

11.MidwestIndependentTransmissionSystemOperator(MISO).MISO Multi-Project Value Portfolio Results and Analyses.January,2012

12.MidwestIndependentTransmissionSystemOperator(MISO).“MidwestTransmissionExpansionPlan(“MTEP”)”,Attachment FF Transmission Expansion Planning Protocol Version: 3.0.0 Effective: 3/22/2011

13.NorthAmericanElectricReliabilityCorporation,Long-term Reliability Assessment Projection,October2007andNovember2011.

14.OfficeofElectricityDelivery&EnergyReliability.“SmartGrid”.Accessedathttp://energy.gov/oe/technology-development/smart-gridinMarch2012.

15.Owens,DavidK.Electricity: 30 Years of Industry Change.EdisonElectricInstitute.(MSPowerPoint)2008.

★|reFerenCes


aCknowlEDGmEnTS

EDRGroupwishestothankBrianPallasch,EmilyFishkin,JaneHowellandBrittneyKohler,aswellasASCE’sCommitteeonAmerica’sInfrastructure,fortheopportunitytoconductthisresearch.WegratefullyacknowledgetheassistanceofJeffreyWerling,RonHorst,andDougMeadoftheUniversityofMarylandEconomicsDepartment.Inaddition,wewishtothankPeggySuggsandstaffoftheEdisonElectricInstituteforprovidingitsdata.

aBoUT eDR GRoUp

Economic Development Research Group, Inc. (EDR Group), is a consulting firm focusing specifically on applying state-of-the-art tools and techniques for evaluating economic development performance, impacts, and opportunities. The firm was started in 1996 by a core group of economists and planners who are specialists in evaluating the impacts of transportation infrastructure, services, and technology on economic development opportu-nities. Glen Weisbrod, the president of EDR Group, was appointed by the National Academies to chair the TRB Committee on Transportation and Economic Development.

EDR Group provides both consulting advisory services and full-scale research projects for public and private agencies throughout North America as well as in Europe, Asia, and Africa. Its work focuses on three issues:

★economic impact analysis ★benefit/cost analysis ★market/strategy analysis

The energy work of EDR Group includes studies of benefit/cost, economic impacts and program evaluation for both supply-side and demand-side programs, policies and projects. The firm’s work is organized into three areas: (1) general research on investment benefit and productivity implications; (2) planning studies, including impact, opportuni-ties, and benefit/cost assessments; and (3) evaluation, including cost-effectiveness implications.

Senior staff at EDR Group have conducted studies from coast to coast in both the U.S. and Canada, as well as in Japan, England, Scotland, Finland, the Netherlands, India, and South Africa. EDR Group is also nationally recognized for state-of-the-art analysis products, including the REEM framework (Renewables & Energy Efficiency Model).

aBoUT La capRa associaTes

La Capra Associates is an independent consulting firm which has specialized in the electric, natural gas and water industries for over 30 years. Our expertise includes power systems planning, transmission planning and studies, load forecast-ing, reliability assessments, ratemaking and rate design, market policy and analysis (wholesale, retail, and renewable), power procurement and portfolio management, economic/financial analysis of energy assets and contracts, and regulatory policy. Our firm provides services to a broad range of organizations involved with energy markets, including public and private utilities, energy producers and traders, financial institutions and investors, consumers, regulatory agencies, and public policy and energy research organizations.

La Capra Associates is a full-service, independent energy consulting firm focused on helping our clients make sound policy, planning, investment, pricing, and procurement decisions. We provide each client with objective analysis and strategic advice to help them navigate the complexities and uncertainties of market and regulatory environments. La Capra Associates has a national practice with experience in a broad range of regulated and competitive market environments, as well as proficiency with energy sector policy in developing countries.

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