A number of recent studies have highlighted the benefits of new electric transmission, including reliability and resilience and improved economic efficiency. System planners, including many Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), are frequently tasked with calculating these potential benefits and comparing them to the cost of building and maintaining new transmission facilities. The methodology and perspective for these “benefit-cost test” calculations vary by region and play an important role in determining which facilities are anticipated to provide net benefits to electric power consumers or other system users.
In one such case in 2022, the Public Utility Commission of Texas (PUCT) directed the Electric Reliability Council of Texas (ERCOT) to develop a congestion cost savings test, to evaluate the savings that a transmission line would create for ERCOT energy consumers when determining whether to support a transmission upgrade. E3 supported ERCOT in developing this savings test by reviewing the economic benefits tests used for transmission planning in other jurisdictions throughout North America, Australia, and Ireland, and identifying which option would fit best for ERCOT.
E3’s recent report for ERCOT, which can be found in full here, summarizes the findings and recommendations from this study. The report details the commonalities and differences in economic benefit test used across the 10 jurisdictions reviewed, and it discusses E3’s recommendation of the System-Wide Gross Load Cost (GLC) Test as the best method to fit with the rules and structure of the ERCOT market. ERCOT is currently working to refine and implement a congestion cost savings test informed by this recommendation.
Key Findings: Comparison of Transmission Economic Benefit Tests
The figure below compares key elements of the consumer benefits tests used in the jurisdictions that E3 studied. The primary differences between options are driven by the extent to which the tests include (1) congestion cost changes and (2) generator revenue changes, as well as (3) whether the test evaluates benefits on a system-wide level or a sub-system or zonal level.
The table below identifies which regions employ each approach and provides additional descriptions of each test.
The System-Wide GLC Test, which E3 recommended for ERCOT, calculates how new transmission changes the total payment for energy consumption incurred by ERCOT load customers based on nodal prices. This approach enables ERCOT to then compare consumer cost savings against the cost of building the transmission project and determine whether the project would produce positive net savings to consumers. It also provides a complementary perspective that is distinct from the Production Cost Savings Test, which ERCOT will also continue to use for transmission benefit evaluation in parallel with the consumer benefits test. E3 recommended that ERCOT continue to review available data that may be useful for estimating the aggregated impact of congestion, including auction revenue allocation, on ERCOT loads. In future study, ERCOT may consider using this information to refine the System-Wide GLC Test and customize the test for the ERCOT market, provided that this refinement does not introduce excessive noise or uncertainty to study results and does not materially slow down the study process.
Download the full report here.
This report was prepared by Jack Moore, Lakshmi Alagappan, Saamrat Kasina, Ben Joseph, and Alexandra Gonzalez. E3 is grateful to individuals we contacted from a number of jurisdictions who provided highly helpful discussions of economic tests and transmission planning within their regions.
