Episode 7 – Running Down a Dream: Breaking the Transmission Bottleneck

Marc (00:01)
Today’s episode is titled Running Down a Dream: Breaking the Transmission Bottleneck. The electric power industry is entering a new phase of growth. Electricity demand is rising again, driven by data centers, electrification, and new industrial load. But while attention often focuses on generation resources, one of the biggest challenges may be transmission development. Across the country, utilities and system operators are working to expand the grid.

But projects can take years to permit, finance, and build. The result is a growing conversation about whether the transmission system can keep up with the demands being placed on it. To explore this challenge, I’m joined today by Dave Adams, a partner and transmission expert at ScottMadden, who works closely with our clients on this topic. Dave, we like to start with the big picture. Why has transmission become such a central topic in industry discussions?

Dave (01:01)
Yeah, thanks, Marc. Transmission has really become the enabling infrastructure for the next generation of electric grid. If you think about it, for years, the industry’s been focused primarily on generation, building cleaner resources, improving reliability, and managing costs.

What’s different today is that several industry trends that once evolved independently are now converging. Load growth is accelerating, generation resources are changing, and reliability expectations have really never been higher. Transmission is what connects all those pieces. Transmission allows utilities to access lower-cost energy, improve reliability, integrate renewable resources, and serve rapidly growing demand from things such as data centers, manufacturing, and electrification. Without significant investment in the transmission system, many of those broader

energy objectives are simply not achievable.

Marc (02:01)
Dave, when people talk about the grid needing to expand, a lot of the focus, as you said, tends to be on generation. But the reality is that without transmission, few of those new resources can reach the customers that need the power. How should leaders be thinking about the role the transmission system plays today?

Dave (02:22)
You may have heard transmission referred to as the Interstate Highway System for electricity. Generation is only valuable if you can actually move that power to where it’s needed and consumed. Historically, transmission was built primarily to support reliability. Today it serves multiple purposes simultaneously. It improves resilience during extreme weather, reduces congestion costs,

enables competitive energy markets, it connects new renewable energy and conventional generation sources, and it also creates flexibility as load patterns change over time. It really is no longer just a support function. It’s become a strategic asset that enables nearly every major objective utilities have today. Transmission has also moved, if you think about it, from being an engineering discussion to more of a boardroom discussion.

Boards are increasingly making decisions about how to balance load growth, affordability, reliability, and the deployment of capital and those investments that go along with that. Utilities that can expand their transmission system will be much better positioned in the long term to attract new economic development, connect large customers on schedule, and meet growing demands.

For many, it’s becoming a real competitive differentiator. And those that are able to embrace these concepts are gonna be positioned much better as they look to serve customers and deliver value to those that receive it.

Marc (04:01)
That’s a great point, Dave. One of the interesting dynamics right now is that electricity demand is starting to grow again after a very long period where growth was pretty flat. Recent forecasts show both peak demand and overall energy consumption increasing through the end of the decade, maybe longer. How significant is this shift compared with what the industry experienced over the past 15 or 20 years?

Dave (04:27)
Yeah, Marc, it’s one of the biggest challenges we’ve seen in decades. For many years, utilities plan around modest growth, driven largely by population increases. Many of our clients have had to revise their five-year load forecasts multiple times over just the past two or three years as new data center, industrial opportunities, and similar large loads continue to emerge very quickly.

That level of uncertainty is unprecedented for many transmission planning organizations, and it’s really sent them off into a tailspin in some respects. Utilities are now forecasting annual growth that they haven’t experienced since the early 2000s. This fundamentally changes transmission planning. And because it can take as much as 10 or more years to put new assets in service, utilities must be forward-thinking and build to where the demand will be,

not just where it is today.

Marc (05:25)
Yeah, at the same time, the amount of new transmission being built has been relatively modest. In fact, the number of new high-voltage transmission lines added in recent years has been surprisingly small. What’s driving that mismatch between growing demand and limited transmission expansion?

Dave (05:45)
Well, simply stated, transmission projects take a very long time. As I mentioned, sometimes up to 10 to 15 years from concept to energization. And during that period, developers must navigate a whole host of hurdles, including permitting challenges, environmental reviews, land acquisition, regulatory approvals, cost allocation disputes, supply chain disruptions,

and just general public opposition. But you think about it, demand can materialize in just a few years. I’ll give you an example. A hyperscale developer may identify a site today, complete permitting, construct a 500 megawatt campus, and be ready to energize in 24 to 36 months. But if you think about that campus requiring a new transmission source, such as substation expansion or regional transmission reinforcement,

the utility may need seven to ten years or even more to plan, to permit, to acquire right-of-ways, and construct the necessary infrastructure. That’s why we’re seeing a widening gap between how quickly electricity needs are growing and the pace at which the transmission network can respond.

Marc (07:03)
You know, Dave, looking ahead, there are plans to build tens of thousands of miles of new transmission lines across the country over the next decade, but how much of that is likely to materialize?

Dave (07:17)
I think we’ll see meaningful progress, but we’re not likely to build everything that’s currently planned. If you’re gonna push me to make a prediction, I’d expect many, but probably not all of the highest priority regional projects will move forward over the next decade. And if I were to press for a number, I’d say maybe two-thirds of those projects might be constructed.

The limiting factor really isn’t whether we know what needs to be built. I think we’ve got a good understanding of what needs to be built. Regional planners have done a very good job identifying high-value projects. The real challenge is execution. Going back to my previous point around permitting, citing, cost allocation, and obtaining the specialized equipment and workforce that’s needed to build them.

Another interesting dynamic we’re seeing with many of our clients, they’re beginning to reserve manufacturing slots for transformers and other critical equipment years in advance of when they’re going to need them. Ten years ago, you think about this, it wasn’t part of the transmission planning process. You didn’t procure until you had the project approved and ready for execution. Today it’s becoming a strategic necessity because you can’t simply assume that the critical components you’re going to need

are gonna be available when they are needed. We will absolutely build more transmission than we have over the past decade. But given the headwinds, I think it’s unlikely we’ll build it fast enough to stay ahead of the projected demand.

Marc (08:51)
Yeah, that’s a great point, Dave. Some of our clients are asking us, you know, where is power going to be able to actually show up to meet all this new demand? When you take a look at the projects that are moving forward now, many of them are large regional backbone systems, as you mentioned, that are designed to move power across long distances. Several regions have proposed major transmission portfolios, including some large 765 KB backbone systems.

What’s driving the push towards these bigger regional projects?

Dave (09:25)
Well, Marc, the grid is becoming more interconnected. We’re beginning to see an expanded interest in higher voltage backbone systems. 765 kV corridors, for example, they can move significantly more power than multiple lower voltage facilities. Large backbone systems, they can help improve reliability during extreme weather events. They can help reduce congestion. They provide access to lower

cost generation and create operational flexibility.

Economics is also becoming more compelling. While these projects, they do require significant upfront investment, they often will deliver decades of benefits through such areas as lower production costs, avoided reliability investments, and increased system resilience. As demand grows, we’ll find it more efficient to build larger regional infrastructure than to continue adding

incremental upgrades.

Marc (10:29)
Dave, can you walk through a few of the major examples that are currently being discussed or developed across the country?

Dave (10:37)
Sure, Marc We’re seeing interest in larger scale projects across almost every major region in the US. I’ll give you a few examples. MISO, they continue to advance their long-range transmission planning portfolio, included in this is the next tranche of projects designed to support reliability and renewable integration. PGAM, they’ve significantly expanded their regional transmission

expansion plan to address both reliability concerns and growing load. In ERCOT, they are evaluating strategic backbone expansion to support the explosive demand growth across Texas from data centers and our large-scale industrial customers. And at SBP, their proposed new 765 transmission corridor is targeted to move very large amounts of power across their region.

I think what’s interesting that these regions have very different market structures. They also have different regulatory environments, yet they’ve all reached a similar conclusion about the need for larger, more strategic transmission investments.

This tells me it’s not even a regional issue. It’s a national trend.

Marc (11:55)
I know many of these portfolios show very strong benefit-to-cost ratios, but they’ve also faced meaningful pushback. Why are these projects still so controversial?

Dave (12:07)
I think simply stated the benefits and the costs are often experienced by different stakeholders. A regional transmission project, for example, may reduce overall customer costs and improve reliability across multiple states. But the communities that are hosting those facilities may experience land impacts and construction disruptions.

And there’s this ongoing debate over who should pay. States naturally want assurance that their customers receive the benefits proportional to their investment. But that’s not always the case.

We look at the engineering side of the equation, engineering may be very straightforward, but the regulatory and the political challenges that transmission projects face can be much more complicated.

Most transmission controversies aren’t about whether the project delivers value. They’re about whether the beneficiaries and the cost allocation principles align.

Marc (13:08)
That brings us to one of the biggest themes in transmission development, which is that the challenges are rarely technical. They tend to be, as you said, regulatory, political, or economic. What are the biggest barriers that continue to slow down transmission development in the US?

Dave (13:26)
I think the biggest challenge you’ll see is that it’s mainly institutional rather than technical. If I had to rank those that are probably the most inhibiting towards transmission development, I would say permitting and citing really remain the biggest obstacle. Building a transmission line across several states and the distance that you need to travel requires dozens, if not hundreds, of approvals.

Engaging with multiple agencies, conducting environmental reviews, engaging with landowners on land rights, and then often years of coordination across all these parties.

The engineering piece on the other side is typically the easiest part. If you think about this, it’s much easier to engineer a transmission line than it is to build consensus around it.

I mentioned earlier cost allocation. That’s probably the second most significant hurdle. Most large regional projects, they’ll benefit everyone, but not equally. And that challenge becomes even greater as we think about projects that cross multiple regions, planning authorities, or even state boundaries. Reaching agreement on who should pay often takes almost as much effort as designing the project itself. Then there’s the other dimension of workforce and supply chain.

And manufacturing constraints. They all add additional pressures once projects are approved. Well, none of these issues are insurmountable individually, but together they can significantly delay a project.

Marc (15:02)
Another interesting dynamic is the difference between intra-regional and interregional transmission development. Why do we see so much more activity within regions than between them? I think you hinted at some of this in your last answer.

Dave (15:17)
I’ll

start with the intra-regional side. Intra-regional projects tend to have clearer beneficiaries and a more established planning process, and likely fewer stakeholders sitting at that table. On the flip side, interregional projects are much more complicated, as I mentioned earlier, involving multiple planning authorities following different regulatory frameworks,

as well as different cost allocation methodologies. And each state may have different priorities as it relates to those projects, making interregional projects much more challenging. But if you think about, on the other hand, some of the largest reliability and economic benefits can be derived from stronger interregional ties. Additionally, you look at, you know, the recent extreme weather events that we’ve seen across the country.

That’s pushed a conversation beyond just economics, to true grid resilience.

We set the benefits aside. We shouldn’t overlook the fact that these projects are some of the hardest to advance, but it doesn’t mean we shouldn’t keep trying to expand the interregional capabilities of our grid.

Marc (16:29)
That’s a great point, Dave. The cost of materials, let’s talk about that, for things like steel, aluminum, and copper have also increased significantly in recent years, and in part because the demand has increased. How much does that factor into the economics of these projects?

Dave (16:48)
Well Marc it, it’s really become a significant factor. We’ve seen our clients experience firsthand substantial price increases over the past several years for raw materials such as steel, aluminum, and copper, all of which is critical for the production of transformers, conductor, and specialized switch gear.

When you consider the life cycle of a transmission project, utilities must make investment decisions many years before construction actually begins. And the uncertainty around future pricing, equipment availability, they both complicate budgeting and regulatory approvals. For a billion dollar transmission project, even a modest increase in material costs can translate into hundreds of millions of dollars in additional investment,

which can be extremely challenging to gain approval through utilities’ regulatory bodies.

In today’s environment, utilities are having to manage not only the inflationary risks associated with materials, but also the procurement side and the acquisition of materials and equipment necessary to construct new transmission. Just obtaining a simple transformer or a specialized equipment piece of equipment can influence the schedule just as much as obtaining regulatory approval over time.

Marc (18:10)
Dave, at the policy level, regulators are also trying to address some of these challenges. FERC Order 1920, for example, is intended to push transmission planning further into the future and require more robust regional planning. What are the most important elements of that order?

Dave (18:29)
Well, glad, glad you brought up Order 1920. The biggest challenge under Order 1920 is that it requires transmission planners to much look much further into the future. Now, rather than focusing primarily on the near-term reliability needs, as planners have traditionally done over time, utilities and regional planners must now consider long-term drivers like load growth, resource changes,

extreme weather, and public policy objectives.

Another important aspect of 1920 is that it encourages planners to evaluate multiple plausible futures rather than assuming one forecast would be exactly right.

This adds further complexity to forecasting models, scenario planning, and the vast management of data that’s necessary to support these planning activities. I think another point around 1920 it’s important to note is it intends to make planning more proactive, transparent, and collaborative, really targeting the improvement in stakeholder engagement

throughout the entire planning life cycle.

Marc (19:46)
Do you think order 1920 will materially accelerate transmission development or are the barriers more structural than regulatory?

Dave (19:57)
I think it’ll improve planning and the planning activities that go along with that, but it’s not going to eliminate the fundamental obstacles that we had mentioned earlier. Better planning is certainly necessary and important. I also believe that 1920 will result in stronger regional plans. But you still have the issues around permitting and siting and cost allocation, environmental reviews, and local opposition,

which really will be the determining factor on how much and how quickly projects move through the planning process.

Another item to note about Order 1920 and the improvements to the planning process to consider is it doesn’t shorten the time required to permit, site, finance, or even build a transmission line. So although well-intended and driving changes in the way that we think about transmission plans looking forward into the future, the impacts of the hurdles we had talked about earlier are still the limiting factor.

But for those utilities that are actively participating in regional planning, the opportunities 1920 presents are significant.

Marc (21:12)
Yeah, so some improvement in the quality of the plans is what I’m hearing, but some of those structural issues will remain and still need to be accounted for in planning transmission.

Dave (21:25)
They will. and then there’s also, Marc, a need to expand their outreach and coordination efforts with neighboring utilities, state regulators, and other stakeholders whose priorities may not always align. So the fundamental changes that Order 1920 introduces is important.

But there’s a lot that goes into that to make 1920 effective during the implementation stages.

Marc (21:57)
Got it. Let’s zoom back out a little bit from these real challenges that we need to address to be successful. If you look ahead over the next decade, what do you think the transmission system will look like if the industry successfully addresses these challenges in front of it?

Dave (22:18)
I think we’ll see a much more interconnected and resilient grid. We’ll have stronger regional backbone systems, greater transfer capability between regions. We’ll see more advanced grid technologies coming into play, and we’ll see increased operational flexibility.

We won’t see that we’ll eliminate every reliability challenge, but I believe it will position the industry to support sustained load growth while hopefully maintaining affordability and resilience. Ultimately, I think the success means building a transmission system that’s designed not just for today’s needs, but for the next several decades.

Marc (22:58)
Dave, if you were advising utility executives today, what is the one thing they should be thinking about when it comes to transmission planning and expansion?

Dave (23:09)
One of the important points, Marc, that I like to articulate is to think longer term than you’ve had in the past. That means encouraging executives to encourage their teams to plan beyond today’s load forecasts, collaborate earlier with neighboring utilities, and have active engagement with their regulators. Importantly, they need to view transmission as a long-term strategic investment that enables reliability,

economic growth, and the broader energy transition. The utilities that begin planning ten years ahead are going to be much better positioned than those trying to react to demand as it arrives.

As I like to say in transmission, you can’t build your way out of a capacity shortage overnight.

Marc (23:59)
Great insight, Dave. And Dave, thanks for joining me today. I appreciate you sharing your insights on breaking the transmission bottleneck.

Dave (24:08)
Appreciate the time, Marc. Thank you very much.