Powering America: The Critical Need for Transmission Investment to Spur Growth

Economic investment has been a common theme in Washington, D.C., over the past few years as the country struggles to recover from the blow it took in the recent financial downturn. Politicians are pushing for expanded research and development, while physical capital investments have largely centered on base infrastructure such as bridges and outdated rail systems. But surprisingly little attention has been paid, at times, to the critical issue of electricity transmission and distribution.

The Department of Energy (DOE) reports that the U.S. electricity grid spans more than 300,000 miles of transmission lines connecting more than 1 terawatt-worth of generation capacity to hundreds of millions of homes and businesses. While the DOE suggests the system is still 99.97 percent reliable, outages still cost more than $150 billion a year and appear to be steadily impacting more and more people.

With electricity demand outpacing investments in transmission capacity by nearly 25 percent a year for the past three decades and peak demand expected to increase another 20 percent in the next 10 years, the problem only stands to worsen. It is time to stop taking our energy infrastructure for granted.

Energizing Employment

While our transmission and distribution systems serve to bring us the power we have come to rely on for almost every aspect of our daily lives, it is also a significant source of employment. Electrical grid workers are no small part of the U.S. economy. The Bureau of Labor Statistics (BLS) reports that occupations related to electric power generation, transmission and distribution accounted for over 300,000 jobs nationwide with a mean annual salary of over $65,000.

The Working Group for Investment in Reliable and Economic Electric Systems (WIRES) suggests that the country could see a major surge in employment with only a relatively modest investment in our electric infrastructure system. WIRES projects that barring regulatory and permitting issues, the transmission sector is likely to spend between $12-16 billion per year on upgraded transmission. This level of investment would lead directly to between 51,000 and 68,000 full-time jobs annually, with anywhere from 150,000 to 200,000 total full-time jobs produced a year as a result. The total economic return on these investments is estimated at around 250 percent.

In large part this is because transmission, unlike many sectors, is an eminently local industry. The group estimates domestic costs at roughly 82 percent of the total, with construction, design, permitting and most other facets entirely contained within the U.S.  Even materials, which account for 45 percent of total costs are still estimated at 61 percent domestic.

This kind of investment could prove particularly important for the struggling construction sector, which the BLS reports saw an unemployment rate of 14.2 percent in October 2011. The broad installation category saw a far lower rate of 7.2 percent, which still leaves 388,000 people in that sector out of work, though this also includes workers from multiple industries.

Vital to Green Energy

While traditional power sources face many of the strains imposed by an outdated grid, the current limitations of the U.S. transmission system pose an even greater problem for renewable power. Renewable energy sources like solar and wind power must contend with intermittency, generating electricity in inconsistent and often unpredictable patterns. With limited transmission capacity, these power sources can overload the grid at times of unusually high production.

Yet WIRES notes that current standards on how much power must come from renewable sources already require doubling the amount of renewable generation by the end of this decade. Under a stricter 20 percent national standard, this growth would be more than 350 percent by 2020 and 450 percent by 2025. Under the more modest current standards the U.S. would still need nearly $60 billion in transmission upgrades by 2025 just to accommodate growing renewables. At the stricter standard, that number would be more than $100 billion. Either way a significant investment in our energy infrastructure is going to be required to sustain reliability.

Facing the Issues

WIRES suggests that transmission companies are likely to spend billions each year on expanding and developing the grid in coming years, which might lead some believe the issue is well in hand. But these investments are only likely to come with the resolution of some serious issues in the development process. Because transmission lines cross numerous political boundaries and are often seen as unsightly, these projects can become major targets of protest, extending the approval process and dramatically raising costs. Many companies also have no realistic ways to recoup the costs of building further transmission lines, as the systems in place are designed at the state or lower levels with monolithic utilities in mind.

The Federal Energy Regulatory Commission attempted to address some of the prevailing concerns with the approval process over the summer, introducing Order No. 1,000 in June. The regulatory agency imposed new rules requiring a greater degree of regional collaboration on transmission development, though also required the costs of these projects be targeted specifically at those who directly benefit from them and that utilities consider non-transmission alternatives first. However, one crucial development for easing the approval process was ending the practice of granting local utilities the first right of refusal on transmission projects.

In addition to these more recent changes, the American Recovery and Reinvestment Act of 2009 set aside more than $1.9 billion for the distribution and reliability improvements to the grid, but many of the procedural concerns loom larger in the industry's eyes than the outright costs.

Nevertheless, a paper produced by the Federal Reserve Bank of San Francisco found the infrastructure investment of the ARRA resulted in substantial job gains in the years since, making addressing the lingering issues in the electrical distribution system an important point for encouraging economic and job growth in the country.