The Economic Case For Grid Investment
Background and Research Findings
I T C Ho l d i n g s C o r p . • W hit e P a p e r • F e b r u ar y 2014
I T C Ho l d i n g s C o r p .
The Economic Case For Grid Investment
Background and Research Findings
W hit e P a p e r
Intr od ucti o n
ITC set out to understand whether and how both businesses and the general public understood the complex and
significant economic benefits to our society that stem from a fully functioning electric transmission grid. To do
so, ITC commissioned two streams of research: an online survey of national adults and in-depth interviews with
business leaders. The following paper outlines a background for why the grid is important for the economy and
then discusses the results from online survey and in-depth interviews.
BA CKGROUND ON W H Y T H E GR I D I S I M POR T AN T
FOR THE E CONO MY AND BUSI NESSES
Transmission and the Grid
America’s electrical grid is the backbone of our economy, and essential to our quality of life. A system of power
generation, transmission and distribution, it is what allowed Edison’s electricity to be brought to the masses in the
1880s, and it is what allows us to use electronic devices, power our communities and conduct business in an
increasingly globally competitive marketplace.
While many are investing in new forms of power generation, few are investing in the infrastructure that it takes to
connect that energy to users. The result is that in too many places, the transmission grid is old and inefficient,
leading to reliability and congestion bottlenecks.
Transmission is of massive importance to our economy, and we must act prudently to ensure modern, high quality
transmission is in place across the nation, or else we will face serious economic consequences.
Competitive electricity markets
Competitive electricity markets are vital to economic growth and low electric bills for consumers. Without a
competitive market, incumbent utilities would have no incentive to innovate, improve their quality of service, or
keep prices down.
A competitive market and the benefits it brings is made possible by transmission. Because we are all connected
through transmission, power providers must compete with one another on the wholesale market to bring high
quality, low cost electricity to residential, commercial, and industrial users.
Transmission enables efficient delivery of energy, and it facilitates the addition of new and sometimes distant energy
sources – both of which allow for more competition that leads to lower prices. While transmission has done a good
job of lowering electricity prices where investments have been made, there is strong agreement that more must be
done to offer greater benefits to consumers across the nation and avoid price increases and devastating impacts
to our economy overall.
2 February 2014
Reliability
Reliability issues resulting from our outdated transmission system are taking a bigger and bigger toll on our economy
each year. Power outages rose from 76 in 2007 to 307 in 2011.1 Severe weather caused most of these outages,
but operational issues contributed to the bulk of non-weather related blackouts. New transmission lines are less
vulnerable to both of these causes.
These outages have severe economic impacts. In 2011, we experienced 104,406 hours of outages.2 To put this
into context, consider the following impacts of unreliable power.
Cost of outages by type of customer3
Residential
Commercial
Industrial
Momentary interruption
$2.18
$605
$1,893
Hour long interruption
$2.70
$886
$3,253
Average sustained interruption (106 minutes)
$2.99
$1,067
$4,227
It’s clear that the economic impacts of outages cost America severely.
To add to the issue of reliability, the changing generation mix is creating further complications within the grid. In
January 2013, nearly 1200 MW of capacity came on line, and it was all in the form of renewable power.4 This
marked the first month ever that no fossil energy was added to the grid, since the Energy Information Administration
began recording the statistic.5 A future with more energy options creates both challenges and opportunities for
our transmission system.
To deal with these changes, we need a flexible grid. This means increased coordination between regions and the
Federal Energy Regulatory Commission. There has been clear evolution in this direction in recent years, pushing
us toward a more efficient national grid that can handle rapid changes in generation and away from a patchwork,
parochial system built decades ago. Efficient and forward-thinking planning processes are one component in
helping to facilitate the production of multi-state projects that will serve as the backbone of our grid.
Our grid has the ability to integrate new resources, and grid operators have the tools and know-how to get the job
done. However, we must stay vigilant and ensure that older systems become modern and new transmission is
constructed where it’s needed as the electricity industry continues to evolve.
1http://www.infrastructurereportcard.org/a/#p/energy/conditions-and-capacity
2http://www.nerc.com/files/2012_SOR.pdf
3http://certs.lbl.gov/pdf/55718.pdf
4http://www.ferc.gov/legal/staff-reports/2013/jan-energy-infrastructure.pdf
5http://www.forbes.com/sites/dannykennedy/2013/03/25/maybe-the-mayans-were-right-or-was-it-rem/
ITC HOLDINGS CORP. • WHITE PAPER 3
Congestion
Much like an overcrowded highway, the rapidly increasing demand for electricity has created congestion in the
system of transmission lines. When lines are too crowded to transmit electricity from the least expensive and most
efficient generators in the area, electricity providers must purchase electricity from other, often more expensive
sources, driving up prices for consumers.
The Department of Energy estimates that system constraints in the Eastern grid has raised electricity bills by $8
billion—or $40 per person.6 Congestion is not spread out evenly: for some, the additional cost is close to zero while
in some areas, like New York City—a bustling center of economic activity and the heart of our nation’s financial
sector—those additional charges are roughly $90 per person. New York’s congestion costs make up over 10% of
an electric bill.7
The investment gap
In order to maintain a reliable grid, we must invest $37 billion more than is currently planned by 2020, according
to the American Society of Civil Engineers.8 This investment gap must be closed if we are going to avoid the
consequences of an insufficient electricity infrastructure in the U.S.
Investment gap by region through 20209
Region
Transmission Gap Estimate
Florida
$1.8 billion
Mid-Atlantic
$6.4 billion
Midwest
$1.4 billion
Northeast
$1.6 billion
Southeast
$10.9 billion
Southwest
0
Texas
0
West
$15.2 billion
TOTAL
$37.3 billion
Economic benefit of investment in transmission
If investment is not made in the grid system overall, annual losses due to reliability issues will be $210 billion
in 2020: $119 billion lost in business sales and $91 billion in consumer disposable income.10 To put that into
perspective, Hurricane Sandy delivered $30-$50 billion in economic losses.
6http://www.nytimes.com/2006/12/13/business/13power.html?_r=3&adxnnl=1&pagewanted=all&adxnnlx=1360879136pTevgcFR5QibX2XukbXnKA&
7http://energy.gov/sites/prod/files/Updated%20webinar%20presentation.pdf
8http://www.infrastructurereportcard.org/a/#e/electric-investment-gap
9http://www.infrastructurereportcard.org/a/#e/electric-investment-gap
10http://www.asce.org/uploadedFiles/Infrastructure/Failure_to_Act/energy_report_FINAL2.pdf
4 February 2014
This investment will protect 529,000 jobs, $656 billion in personal income, $496 billion in GDP, and $10 billion in
U.S. exports, according to The American Society of Civil Engineers.11 These figures do not include the savings that
consumers will see as a result of congestion decreasing.
In the Midwest, the regional transmission organization (MISO) initiated a study to find out what the economic impacts
of building a host of new, broad value transmission projects would be. They found that the 17 proposed projects would
have massive impacts across the regional economy: 17,000-39,800 direct jobs, economic benefits ranging from 1.83.0 times the cost of the projects including $226-$794 million in avoided costs for reliability projects, and $111-$396
million saved from reductions in energy wasted from transmission loss, and an average customer return of $23 annually
on an $11 annual investment.12
These benefits are real, and they are critical for individual consumers and for our economy as a whole.
RESEARC H
Below is an overview of the research that was conducted on behalf of ITC in order to better understand how both
businesses and the general public understand the complex and significant economic benefits to our society that stem
from a fully functioning electric transmission grid.
To that end, this research consists of an online survey of national adults and in-depth interviews with business leaders.
Methodology – Survey
This survey was conducted online by Research Now, an independent opinion research company. Interviews were
conducted between October 8th and 13th, 2013 with a nationally representative audience of 800 U.S. adults age
18+. The precision of online polls is calculated using a credibility interval, with a poll of 800 accurate to roughly +/- 4
percentage points.
The survey was conducted concurrently with in-depth interviews among business leaders at Fortune 500 and mid-size
companies as well as economic development experts.
Methodology – In-Depth Interviews
Throughout the month of October 2013, nine in-depth interviews were conducted with senior-level officials who were
at least somewhat involved in energy-related decisions at the following types of organizations:
• Fortune 500 Companies (6): top 500 U.S.-based companies based on annual revenue.
• Mid-Size Companies (2): companies with annual revenue of $10 million-$1 billion, excluding
Fortune 500 companies.
• E
conomic Development Organizations (1): organizations focused on economic development at the local,
state or federal level.
The interviews were conducted concurrently with a national survey of 800 adults age 18+.
Notes:
•
Interviewees were promised confidentiality and anonymity as a condition of interview participation.
•
indings below represent anecdotal trends based on the qualitative interviews conducted; findings are not
F
projectable to the larger population.
11http://www.asce.org/uploadedFiles/Infrastructure/Failure_to_Act/energy_report_FINAL2.pdf
12https://www.midwestiso.org/Library/Repository/Communication%20Material/Power%20Up/MVP%20Benefits%20-%20Total%20
Footprint.pdf
ITC HOLDINGS CORP. • WHITE PAPER 5
KEY FIND I NGS – SUR VEY
1. Americans understand the importance of infrastructure and the electric grid to the country,
national economy and their local economy.
• N
early all Americans believe infrastructure is important to the country, the national economy, and
the local economy.
• Groups more likely to think infrastructure is very important to the United States, national
economy and local economy include those Americans who live in the in the South and West
regions, and those who are 45 years and older.
• A
fter reading the following short description about the electricity transmission grid, nearly all
Americans (99%) think that the grid is important to the United States, the national economy and
their local economy.
As you may know, an important part of our nation’s infrastructure is the
electricity transmission grid. The grid is made up of transmission towers
and power lines that deliver electricity from power generating sources to
the distribution network and the millions of businesses and consumers
across the country. It’s often useful to view the transmission grid as the
“backbone” to the country’s electricity infrastructure. The pieces that
make up the transmission grid are very old and outdated. More than 70%
of the nation’s transmission lines are at least 25 years old.
• Similarly, the groups more likely to think the grid is very important to the United States,
national economy and local economy include Americans who live in the South and West
regions, and those who are 45 years or older.
6 February 2014
And they understand the multitude of benefits the grid offers the country, economy and businesses.
• N
early all agree that investing in the grid will help promote job growth at the macro and micro
economic level. Nine-in-ten (91%) believe the grid will help America’s economy by promoting job
growth and will help local, regional and national businesses grow and succeed.
• The table below outlines American’s overwhelming agreement for other grid benefits, including
ensuring reliable access to power and increasing competition to other forms of energy.
Q18-24. Do you agree or disagree with the following statements?
All
Showing Total Agree
(Strongly Agree)
Investing in the electricity transmission grid will ensure reliable access to power,
especially during severe storms, for consumers and businesses.
93% (50%)
Investing in the electricity transmission grid will help America’s economy by
promoting job creation and economic growth.
91% (42%)
Investing in the electricity transmission grid will help regional local, regional and
national businesses grow and succeed.
91% (38%)
Investing in the electricity transmission grid will increase competition by facilitating
access to more efficient forms of energy and thereby reducing costs.
89% (36%)
Investing in the electricity transmission grid is important to national security.
89% (43%)
Everyone benefits from investments in the electricity transmission grid.
89% (44%)
Investing in the electricity transmission grid will accelerate access to all types
of power.
88% (36%)
• In addition, Americans recognize the cost-savings associated with investing and updating the grid:
seven-in-ten (69%) said it will help lower electricity prices and save consumers money.
• A
nd more than half (54%) believe that investing in the grid will give businesses more reliable power
and make our economy stronger.
• Other key benefits of investing in the grid include reducing power outages and making
electricity more reliable and making a difference for future generations (61%).
• Though minimizing cyber security risks falls toward the bottom of the list, nearly two-in-five
(39%) say it is a reason to invest in the grid.
ITC HOLDINGS CORP. • WHITE PAPER 7
Q16. Why do you think the United States should invest in the
electricity transmission grid? Select all that apply.
All
Groups Likely to Choose this Reason…
To lower electricity prices, helping to save consumers like
me money
69%
• 18 – 34 years old (75%)
• High school graduates or less (73%)
• Liberal (73%)
• Unmarried women (73%)
To reduce the number of power outages, especially during
severe storms, making electricity more reliable
63%
• South region (68%)
• 55 years or older (68%)
• Married men (68%)
61%
• 47 years or older (66%)
• Some college education (66%)
• Conservatives (66%)
• Not employed (65%)
To give businesses more reliable power and make our
economy stronger
54%
• South region (62%)
• Unmarried men (62%)
• Liberal (61%)
• Men (58%)
• HHI $50,000 - $100,000 (58%)
To minimize the impact of cyber security risks
39%
• Married men (44%)
• College graduate or higher (44%)
• HHI $100,000 or higher (43%)
To make a difference for future generations, including my
children and grandchildren
• The majority of Americans (61%) prefer investing in the electricity transmission grid rather than
building power-generating facilities to increase energy efficiency.
2. Despite agreement around the benefits of investing in the grid, Americans are divided over who
is primarily responsible for actually investing in it.
• M
ore than half (56%) say either federal (Congress) or local/state government is responsible for
investing in the grid, while a quarter say electric utility companies are. Small percentages think that
President Obama, consumers, or private investors are responsible.
8 February 2014
KEY FINDI NGS – I N - DEP T H I N T ER V I E W S
1. Updating and investing in the grid is seen as a general priority for the nation, especially from
an economic and national security perspective.
• B
usiness leaders agree that infrastructure, particularly the grid, should be a national priority to
ensure we grow economically and stay competitive globally.
If we are at a point a couple of years
from now where we haven’t invested in
our infrastructure, we lose credibility
with other countries wanting to do
business with us.
Senior Executive,
Fortune 500 Company, IT Industry
At the end of the day, all aspects of the
infrastructure, whether it’s the energy grid
or something else, impact our economy. The
more we invest in that, the better it is for
the economy in terms of growth, in terms of
resiliency, in terms of reliability, and to some
degree even credibility for other countries when
they do business with us.
Senior Executive,
Fortune 500 Company, IT Industry
If you can upgrade the grid and you can get the
reliability, at the same time spread those costs or
reduce the costs that we’re currently experiencing
— much of that because we’re maintaining crazy
old infrastructure — so if you can modernize, if
you can reduce the cost, if you can do things like
source your energy from alternative places, like
hydro or nuclear, then what it tends to do is drive
down the cost of living.
Senior Executive,
Fortune 500 Company, Manufacturing & Retail Industry
ITC HOLDINGS CORP. • WHITE PAPER 9
• Moreover, the fact that the grid is old and outdated raises serious national security concerns.
It’s scary to think about
it because of how old
our infrastructure is,
how many points of
weakness we have across
our infrastructure.
Senior Executive,
Fortune 500 Company,
IT Industry
I think it’s a major national
security issue. There’s no question
about it… the cyber-security
piece of this thing — assuming
that someone could hack into
our control systems, for instance,
and reroute things or bring things
down — that kind of thing is, I
think, of some concern.
Senior Executive,
Fortune 500 Company,
Manufacturing & Retail Industry
I do [see it as a national
security issue]. That
would be the complete
devastation of the country,
especially in major cities.
[We have cyber-attacks] all
the time.
Senior Executive,
Fortune 500 Company,
Banking & Finance Industry
Business leaders connect a strong energy grid to broad job growth, though some businesses or
industries may not feel the impact directly.
• S
ome business leaders specifically articulate how investing in and updating the grid will not only
require hiring more workers to get the project done, but will ultimately result in their business hiring
more employees.
It’s a job creation argument.
It’s a big project, so you’d
have to hire engineers, you’d
have to hire the labor people,
the line people, [and]
infrastructure.
Senior Executive,
Fortune 500 Company,
Aerospace Industry
10
February 2014
[By updating the grid] you give
the business an opportunity to
grow. So if I’m in manufacturing
and I need to add a wing to my
manufacturing firm or plant, I’m
going to need increased power;
therefore, I’m going to be hiring
more people.
Economic Development Official,
Energy & Infrastructure Industry
• O
n the other hand, some executives do not recognize the impact that updating the grid would have
on their business or industry, but they understand the implications for job growth and innovation for
the country and other industries.
I’m not so sure it has job growth for
a company like [mine]. I think it
would have job growth for America,
right? Because you need to bring in
technology people. You need to bring in
electricians and heavy machinery and
manufacturing to get the components
that would be required to build and
support that infrastructure.
I would say that a more reliable
grid, a segmented grid, robust is
going to lead to other changes
in technology, is going to lead
to changes in the way people do
things and work. So it will have
an effect at some point in the
business sector. I think it’s going
to be more indirect.
Senior Executive,
Fortune 500 Company,
Banking & Finance Industry
Senior Executive,
Fortune 500 Company,
IT & Finance Industry
2. Though some perceive job growth to be a less tangible benefit of updating the grid, most
business leaders acknowledge the direct relationship between the energy grid and their
business’ bottom line.
• A
small number of business leaders do not experience grid failures and feel that their company
is relatively safe from outages, but they are the minority. In fact, most articulate that grid failure
threatens their business and bottom line, having serious consequences on revenue, customer
relations and day-to-day operations.
We are very dependent on a centralized
computer system, and when the power
goes out, that completely interrupts
our business… [The grid] is critical.
Without electricity, we’re out of
business. We’re totally disrupted from
daily operations.
[The grid is] extremely
important…[the East Coast
blackout years back] not only
impacted the businesses being
shut down, but clearly the people
that worked there couldn’t even
get home.
Senior Executive,
Fortune 500 Company, IT Industry
Senior Executive, Mid-Size Company,
Automobile Industry
ITC HOLDINGS CORP. • WHITE PAPER 11
• T
he grid affects many businesses so commonly that some have already taken steps to mitigate the
consequences of an unreliable grid, such as investing in improving infrastructure or outsourcing
aspects of their business to more reliable regions.
We had to do a lot to mitigate around the power
grids and those kinds of failures. And it’s not
just the data centers; it’s the networks and
all the rest of the stuff. So we’ve built pretty
interesting, high-availability approaches and
disaster recovery approaches that we’ve actually
had to put into play — a couple times recently.
Senior Executive, Fortune 500 Company,
Manufacturing & Retail Industry
We’ve had reliability issues in the old,
conventional grid service. That pushed
us to totally update our infrastructure.
So we look at [a stronger, more
reliable grid] as part of our disaster
recovery and business continuity plan.
Senior Executive,
Fortune 500 Company, Aerospace Industry
3. And for these business leaders, the benefits of updating the grid outweigh the costs for their
businesses in order to do so.
• W
hile many executives understand that cost increases are unavoidable, they also recognize the
increase in efficiency, productivity and revenue as well as the potential long-term cost-savings that
investing in and updating the grid can facilitate for their businesses.
I look at costs in two ways. One is
the cost when the grid fails and what
the cost is to my company because
of that failure. Second is, because of
the necessary investment required by
the energy providers, by the different
companies, they will invest in this and it
costs money, and I understand that. The
cost has to be passed down. They can’t
just do it from some existing budget. It’s
going to have to be in the billions and
trillions and dollars to move it up to the
level it needs to. So I definitely think it’s
impacting my energy costs.
Senior Executive,
Fortune 500 Company, IT Industry
12
February 2014
It’s going to take years to
see the payback from it.
But the bottom line is,
yes, it will increase our
productivity. It will allow
us additional efficiencies
and productivity that
will come from this as
well. Absolutely. So it
impacted us in a positive
way… it would give us
additional opportunity
to reach out to other
providers on a real-time,
as-needed basis.
Senior Executive,
Fortune 500 Company,
Aerospace Industry
Ultimately it can
save us money in the
long run, but maybe
not right away.
Senior Executive,
Mid-Size Company,
Wholesale Trade/NonDurable Goods Industry
4. Most favor a holistic approach to the energy grid and subsequently view its improvements as
under the federal government’s purview. But some believe the lack of action around the grid
will continue unless Americans become aware of the issues, either through education efforts
or personal experience, and subsequently support updating the grid.
• T
hough business leaders believe in investing in the grid through public-private partnerships, and
that it should be done in “trickle-down” fashion, they ultimately view the federal government as the
entity in charge of the grid.
I think it’s our federal government’s
responsibility, and then it would
trickle down to local.
Senior Executive, Fortune 500 Company,
Banking & Finance Industry
It shouldn’t just be government. It should
be a partnership. It should be a quasiagency. Because if you don’t have it that
way, if you’re just leaving it to one private
investor, then it may take off or it may not
take off. Basically, it needs to be… It has
to come from above, meaning it has to
come from the federal government.
Economic Development Official,
Energy & Infrastructure Industry
• A
kin to the interstate highway system, many executives also believe that we need a holistic approach
to planning, siting and paying for grid investments to ultimately create a more efficient national grid.
The primary example of how [a
holistic grid ‘approach would] work
is the interstate highway system.
Before that thing, it was back road
city. Can you imagine running what
we run today without the interstate
highway system?
Senior Executive, Fortune 500 Company,
Manufacturing & Retail Industry
[The grid] needs to be built from the
ground up, and it needs to be built in
such a way that you take into account the
efficiencies, upgradeability, the security,
and I’m sure like a thousand other things.
Like where are you putting the major parts
of it? Is it earthquake zone, hurricane?
Can it withstand nature? How does it
impact our environment? That’s going
to be huge. That’s probably why no one
wants to do anything.
Senior Executive, Fortune 500 Company,
Banking & Finance Industry
ITC HOLDINGS CORP. • WHITE PAPER 13
• R
egardless of who is perceived as responsible, some business leaders attribute the lack of
improvements to the grid to low public awareness. Updating the grid will not rise in importance
unless Americans face grid issues and failures.
“I think just education [is also
important]. Just awareness
of — if it’s a big issue, if
it’s something of major
concern, then our government
leadership in Washington
should be addressing it.
Senior Executive, Mid-Size
Company, Automobile Industry
Unfortunately, more failures
[need to happen]. Because
that’s generally how it just
seems to work, unfortunately.
Senior Executive,
Fortune 500 Company,
Aerospace Industry
14
February 2014
What is it going to take to get people
wanting to improve the grid, and I think
what it’s going to need is we’re going
to need education, and we’re going to
need to be educated about it through
the media, whether it comes from the
government, or if it comes from the
electric companies putting information
on television or satellite radio discussing
these issues, or the newspapers.
Senior Executive, Mid-Size Company,
Wholesale Trade/Non-Durable Goods Industry
Outside of having a disaster,
I don’t think that you get a lot
of attention. I think until you
have an issue, people don’t see
it as a necessity.
Senior Executive,
Fortune 500 Company,
Banking & Finance Industry
CONCLUS I ON
The grid is the unsung hero of our economy. Delivering reliable power
to our homes and businesses, it allows us to prosper. But right now,
it is in need of being modernized to serve the nation’s 21st Century
energy needs. By a wide margin, people understand why the grid is
important for our economy and business leaders who make energy
related decisions are attuned to the fact that a stronger grid and
investment in transmission would positively impact their business,
in turn allowing them to grow and hire more.
Despite this widespread sentiment, new transmission is not being
built at the rate that is needed to meet the demands of increased
electricity demand over the coming years. A failure to invest will hurt
us in many ways, from GDP growth to a family’s electric bill. Proper
investment will lower congestion costs, increase reliability and allow
us to continue to go on with our lives and businesses, without having
to worry about grid failures like blackouts.
ITC HOLDINGS CORP. • WHITE PAPER 15
I T C H OLD I NGS C ORP .
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