Power Biz 101
Infrastructure Investment Costs Are Growing.
In addition to building new power plants, electric companies also must reinforce the nation’s electricity infrastructure, namely the high-voltage transmission lines, substations, and distribution systems that carry electricity to customers. More investment is needed to ensure that we have a robust infrastructure network to maintain reliability.
In order to build the system to better meet current and future demand, to alleviate congestion, and to reinforce system reliability, electric companies have earmarked billions of additional dollars for investment in the coming decade. In fact, from 2000 to 2005, electric companies invested more than $28 billion in the nation’s transmission system, and are planning to spend an additional $31.5 billion from 2006 to 2009.
While the transmission system delivers high-voltage electricity from generators to substations, the distribution system reduces the voltage and then delivers the electricity to retail customers. In addition to substations, the distribution system includes wires, poles, metering, billing, and related support systems involved in the retail side of electricity delivery.
Note: In 2004 and 2005, the industry exceeded investment projections in their transmission capital budgets. The Handy-Whitman Index of Public Utility Construction Costs is used to adjust for inflation from year to year. Data represent both vertically integrated and stand-alone transmission companies. *Planned total industry expenditures are estimated from a 90 percent response rate to EEI's Electric Transmission Capital Budget & Forcast Survey. Actual expenditures are taken from EEI's Annual Property & Plant Capital Investment Survey & FERC Form 1s.
Source: Edison Electric Institute, Business Information Group.
The need to expand our distribution infrastructure and install new distribution equipment to meet population and demand growth will require continued investment. In addition, companies face ongoing non-recoverable costs associated with supporting other facilities attached to utility distribution infrastructure, such as telephone and cable wires. Electric companies are estimated to spend $14 billion per year on average over the next 10 years on distribution investment—almost triple the size of transmission spending. Over the next decade, distribution investment is likely to exceed capital spending on generation capacity as well.[13]
[7]Gregory Basheda, Marc W. Chupka, Peter Fox-Penner, Johannes P. Pfeifenberger, and Adam Schumacher, The Brattle Group,“Why Are Electricity Prices Increasing? An Industry-Wide Perspective.” Prepared for The Edison Foundation, June 2006, p. 5.
