BOA US Electric Utilities -All Things Transmission Takeaways From Inaugural Virtual Conference （英文）行業(yè)資料

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USElectricUtilities&IPPs

AllThingsTransmission:TakeawaysFromInauguralVirtualConference

IndustryOverview

Utility,developer,legalanglesacrosstransmissionworld

WehostedourinauguralVirtualTransmissionConference,bringingtogetheranumberofstakeholdersincludingutilities,independentdevelopers,legalexperts,tradeassociations,technologyproviders,equipmentmanufacturers,andmore.Ourconversationsfocusedonabroadrangeoftopicsincludinginterconnectionreform,privatedevelopment,latestFERCdevelopments,andemergingtechnologies.Keytakeawaysarebelowandinside.OurpreferredtransmissionnamesremainBuy-ratedAmeren(AEE)andXcelEnergy(XEL),whilewearemorecautiousonhighP/EU/P-ratedEversource(ES)andAvangrid(AGR).

ElevatedactivityatFERC–howrealarereforms?

PolicyattheFederalEnergyRegulatoryCommission(FERC)wasparticularlytopofmind,withseveraloutstandingdocketsrelatedtoROEsandincentivesandwiththecommissionproposinginterconnectionreformstoaddressqueuebacklogsonThursday(6/16)aheadofourevent.Therewasstakeholderoptimismthatreformsfor‘challenged’interconnectionwouldeventuallymaterialize,butwelookformoredetails.Weseeparticularcautionontheoveralldirectionofreturnsdespitesupportfromhigherinterestratesgivengrowingleadershipconcernsaroundcustomeraffordability.WatchpotentialdevelopmentsincomingmonthsrelatingtotheincentiveNOPR,withthe50bpRTOadderseeminglypoisedtogoaway,thoughtimingremainsuncertain.

MISOcontinuestogarnermostattention,investment

Stakeholdersweheardfrom,includingutilities,developers,andmarketparticipantsremainsteadfastlyoptimisticaboutthelong-terminvestmentopportunityinMISO,withapprovalofTranche1generallyexpectedinJuly.Interconnectionandgridenhancementcostswereflaggedinmultiplediscussions,generally~10-15%ofproject/PPApricing–with20%+deemedgenerallyprohibitive.Consensusaroundlineenhancement(brownfield)vs.newbuildwasalsoatheme,withAmeren(AEE)flaggingtheopportunityinIllinoisashelpingtospeedprojectsandreducepermittingissues.OthersflaggedtheSouthwestPowerPool(SPP)emergingprocessasgainingmomentum,thoughthesizeandscoperemainstobedetermined–incumbentutilitiesstillfavored,inourview.InotherRTOs,supportfortransmissioncontinuestobuildashighlightedduringourconversationwithAmericanElectricPower(AEP)–PJM(followingthemoratoriumonnewinterconnects),ERCOT,andSPPhaveprocessesunderway.Removinglessviableprojectsfromqueueremainsthekey,withvariousmechanismsproposedforhigherdeposits,‘fasttracking’corridors.ProjectsareproblematictodaybutbetweenNOPRlastweekfromFERCandclearshiftsinpoliciesinprioritizingprojectsinqueues,anticipatesomeresolutionover2-3years.

Equipmentmakersgrapplewithsupplychainheadwinds

OurcolleagueAndrewObinhostedEatonCorp(ETN)’sSVPofIntelligentPowerManagementSolutionsandCTO,ElectricalSector,MichaelRegelski.Eatonisleveredtothetransmissionbuildouttheme–keybottlenecktodayissemiconductoravailabilitywithlimitedvisibilityintoimprovement,thoughlabormarketsappeartobelooseningoflate.Additionally,wespokewithLineVisionontheleadingedgeofDynamicLineRating(DLR)whichisalow-costsolutiontoexpandtheratedcapacityoflinesbasedontemperature.

BofASecuritiesdoesandseekstodobusinesswithissuerscoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

Refertoimportantdisclosuresonpage17to20.AnalystCertificationonpage14.Price

ObjectiveBasis/Riskonpage11.12430696

Timestamp:21June202211:54AMEDT

21June2022

Equity

UnitedStates

ElectricUtilities

JulienDumoulin-Smith

ResearchAnalyst

BofAS

+16468555855

julien.dumoulin-smith@

AndrewObin

ResearchAnalyst

BofAS

+16468551817

andrew.obin@

PaulZimbardo

ResearchAnalyst

BofAS

paul.zimbardo@

DariuszLozny,CFA

ResearchAnalyst

BofAS

dariusz.lozny@

RyanGreenwald

ResearchAnalyst

BofAS

ryan.greenwald@

KodyClark

ResearchAnalyst

BofAS

kody.clark@

SabrinaAbrams

ResearchAnalyst

BofAS

sabrina.abrams@

HeidiHauch

ResearchAnalyst

BofAS

heidi.hauch@

FERC:FederalEnergyRegulatory

Commission

PPA:PowerPurchaseAgreement

RTO:RegionalTransmissionOrganizationAD/CVD:Anti-Dumping/CountervailingDuties

WRO:WithholdReleaseOrder

UFLPA:UyghurForcedLaborProtectionAct

EO:ExecutiveOrder

CBP:CustomsBorderPatrolCIF/FOB:Cost,Insurance,Freight/FreeonBoard

ESS:EnergyStorageSystems

CAISO:CaliforniaIndependentSystemOperator

ERCOT:ElectricReliabilityCouncilofTX

SPP:SouthwestPowerPool

MISO:MidcontinentIndependentSystemOperator

PJM:Pennsylvania,Jersey,andMaryland

NOPR:NoticeofProposedRulemaking

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Ourviewsontransmission….

Wereiterateourbeliefthatwiresorientedinvestmentstrategies,particularlythosefocused

ontransmissionremainamongthemostappealing.WhileMISOmayindeedbegarnering

themostattentiontodayweseethisleadingtheothergeographiesinthecountryformore

investment.Anticipatefocuswillbecomemoreaccentuatedwithfederalpressurenowto

driveimprovedinterconnectpolicies–principallythroughstreamliningandidentifying‘real’

projectsinqueue.Addressingpre-emptivetransmissiondevelopmentthroughrenewable

richcorridorsisalsoasubstantiveissueinhelpingaddressthelargerinterconnectcosts

thatdevelopersareincreasinglyfacing.Weperceiveinterconnectionanditsrelative

costsremainsamongthetopimpedimentstorenewabledevelopmenttodayafterthe

obviousdeclineinsubsidiesandchallengesonthesolarsideregardinglogistics.Overall,

weseethetransmissionimpedimentsasbestreflectedthroughthegrowingimbalance

inavailablerenewableprojectsrelativetodemand–whereweareseeingdemandfor

renewablesactuallyoutstripdevelopmentcapabilities.

Comingbacktothecoreutilitiesopportunity,themostacuteopportunitiesremainat

MISO,withlikelyimpactstocapexbudgetsacrossthesectorreflectedintheirnextfive-

yearrollforwardsateitherEEIorwith4Qnextyear.Eitherway,aniceacceleration

indeed.Wehavealreadyseentransmissionaccelerationrepresentameaningfulportion

ofupdatesfromCaliforniaandNewEnglandutilities;weseethegreatestincremental

upsideslikelytiedtoSPPandPJMinparticular.Expectareturntoreacceleratingcapex

budgetsontransmission–duebothtoinflationarycostofmaterialsaswellasto

acceleratedpaceofdevelopment/interconnectrequests.Abilitytodefrayspendacrossa

regionratherthanacrossspecificserviceterritoryaddstotherelativeappealgiventhe

widerinflationaryconcerns.

Wecouldyetseefocusontransmissionexpandbeyondtraditionalboundarieswith

substantiveoffshoreprocurementcyclesaddingmeaningfullytoperceivedopportunity

setforseveral(NextEraEnergy(NEE),PublicService(PEG),FirstEnergy(FE)).Related,

weseesomegrowingmeritanddiscussionfromtheconferenceforinter-regional

connectivityacrossRTOs/non-RTOregions–thisrepresentsupsidepotentialfora

varietyofutilitiesaswell.WhileXELfocushasbeenonMISO,weseerealopportunityto

improveconnectivitywithitsColoradoandsouthwestserviceterritoriesviafurther

transmissionaswellalongthissameline,forinstance.Tothisend,watchfor

accelerationinlarge-scaledirectcurrent(DC)linesaswell–thatcouldprovean

attractivemechanismtobothinterconnectdifferinggeographies(East,WestandTexas

grids)aswellasmeaningfullyacceleraterenewablesinconcentratedgeographies.It’s

notjustaboutRTOprocessesinexpandingtransmissionspendbutlookingatlarge-scale

transmissioninarenewedfashionaswell–principallyacrosstheCentralstates–with

large-scaleDClineslikelydevelopedandacquired/co-developedbyincumbentutilitiesin

ordertobringthemtofinishlineultimately.

Fromacompetitiveperspectiveweseethestreamliningofprojectslikelythroughhigher

advancedepositsandconcentrationinspecificgeographiesaslikelybenefittingincumbents

andotherlargerplayerswithadvantagedabilitytobothfindanddeveloplargelandtracts,

leases,intandemwithlatitudetoputsubstantiallylargerdeposits(measuredinafew

millionratherthanfewhundredthousandperqueueposition).Westressreorganizingthe

queueprocessdoespresentsomeriskstodeveloperssuchasNEEgivenitsalready

advantagedpositionconsideringhowmuchofearlymoveritwasalready.

AlleyesonFERCwithmixedpolicysignalsthusfar

MuchoftheconferencecenteredonpolicyanglesattheFederalEnergyRegulatory

Commission(FERC)withnumerousoutstandingdocketsrelatedtoROEsandincentives

andwiththecommissionproposinginterconnectionreformstoaddressqueuebacklogs

onThursday(6/16)aheadoftheevent.Overall,commentarystressedaclearfrustration

amongststakeholderswithmixedsignalsaroundtheneedformoretransmissionto

supporttheBidenadministration’srenewableaspirationsbutwithalessconstructive

approachtoROEandincentivepolicytoencouragesuchinvestment.Thelatestnotice

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addressingthe1,400GWofgenerationandstoragecurrentlyininterconnectionqueues

acrosstheUScomesasapplicationshavebeenpendingwithnosteadyprogressfor

years,andwhileprogressthatFERCisfinallyaddressingthechallenges,commentary

suggestedwearestillfivemonthsawayfromfinalrulewhichwillbesubjectto

rehearingandclarification–puttingrealresolutiontimelineclosertoninemonthsand

withatransitionperioduntilitisactuallyineffect.ProposedreformsundertheNOPR

wouldseetransmissionprovidersundertakelargerinterconnectionstudiesacross

multiplegenerationprovidersratherthanonanindividualbasiswitheveryone

movingtoagroupclusterstudyprocess.Therewouldbeapivottofirstready,first

servedwithdemonstrationof100%sitecontrolnecessaryandwithnumerousdeadlines

andpenaltiescontemplated.Whilelatestproposalsaresubjecttochange,discussionsat

ourconferencestressedconfidencethatreformswillultimatelyhappenthatinclude

ironcladsitecontrolrequirements,increasedforfeiturepenalties,andaclusterstudy

processofsomedegree.Despitetheproposedreforms,weperceivepotentialsticker

shocktodisincentivizewithRTOsandindependentsystemoperators(ISOs)still

effectivelypickingwinnersandlosersbasedondiscussions.

FERCpolicyoncapitalstructureworthwatching

Difficultyinsitingandinterconnectingrenewableshasbeenmentionedbynearlyevery

developerwehavespokentooverthepastyear,andFERCfinallyactingmoreformallyon

reformsispositive.Whileexpectationsaroundtimingofwhenthecommissionwouldacton

theoutstandingincentiveNOPRweremixed,weseethisasaparticularconcernforthe

industryandkeyfocusfrominvestorswiththepotentialforfirmer(andpunitive)

developmentssoon.Wehaveremovedthe50bpregionaltransmissionorganization(RTO)

participationincentivefortransmissionownersacrossourcoverageuniverseinourlong-

termadjustedEPSestimates,butmanyutilitiesstillincludethisincentiveintheirearnings

guidance.DespitenotrepresentingdownsidetoBofAelong-termestimates,thisrepresents

apotentialnegativecatalystandweseethisaspressuringlargeutilities’long-term

financialguidancesuchasEversource(ES)andAvangrid(AGR).MaintainUnderperform

ratingsonESandAGRwithsharestradingatpremiumstoourestimatedfairvalue.While

recentstrengthinUSTreasuriesisseeminglyatailwindforallowedratesofreturn,this

incentiveNOPRisaneasy/toggle’tocontroloverallbillswithgrowingconcernsaround

customeraffordabilityandwiththecommissiongenerallysignalingdownwardpressurefor

returns.

MISOpoisedformulti-decadeexpansion

Wehostedtransmissionexpertsfromincumbentutilitieswithmeaningfulexposureto

theMISOlong-rangetransmissionplanning(LRTP),includingAmeren(AEE)andXcel

(XEL)aswellasdevelopersandotherstakeholders.Enthusiasmaroundtranche1ofthe

Futures1scenariowasacommonthroughline,thoughthiswastemperedsomewhatby

acknowledgementthateffortstostreamlinedevelopmentwouldlikelynotmanifestina

tangibleaccelerationintransmissiongivenmulti-yearnatureoftheprojects.

Nonetheless,weperceiveameaningfullevelofoptimismthatMISOiswell-positioned

relativetootherRTOs.

HighconfidenceonTranche1approval

Developersandtransmissionoperatorsgenerallyexpressedahighlevelofconfidencein

MISOgivingformalapprovaltotranche1oftheFuture1scenarioofmulti-state

transmissionprojectsinlateJuly–notethatinvestorswespokewithhavelargely

embeddedthisintotheirassumptionsaswell.MostincumbentutilitiesincludingXEL,

WEC,andFortis(FTS)haveofferedestimatesrecentlyfortheaggregateinvestment

opportunitythattheysee,whileAEEhasheldoffonspecifics,citingtheneedformore

preciseengineering/sitingwork.Beyondthefirsttranche,mostexpectMISOtobegin

reviewoftranche2relativelyquicklyforapprovalpotentiallyinspring2023.Tranche3is

expectedtomostlyfocusontheMISOSouthterritory,whileTranche4includesthe

connectionbetweenNorthandSouth,withbenefitslikelyaccruingtoAmerengivenits

serviceterritory.Developersechoedconfidentwordsfromtheincumbentutilities,

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seeingahighlevelofalignmentonprioritiesinordertoexpandthetransmissionsystem

–theproportionofownershipofnewlinesbyincumbentutilitiesonacost-allocated

basiswasestimatedat90%byonestakeholder,withindependenttransmission

developersnonethelessseeingsignificantopportunitiesgivenbillionsofdollarsof

proposedinvestment.IntertiesbetweenRTOsareanemergingareaoffocusfor

developersaswell,particularlygivendistanceofsomeSPP-sitedgenerationfromlarge

loadcenterstotheeast.

Networkupgradecostsclimbingfornewrenewableprojects

StakeholdersinbothMISOandSPPestimatethatnetworkupgradecostscanaccount

forasmuchas20%ofthecostofanewproject,withinflationarypressuresdriving

projectionsupward.Theprincipaldriverofupgradecostsistheneedtointerconnect

projectstoexistinglineswhichwouldruntheriskofbecomingcongestedoncethe

powerfromanewprojectisadded.Estimatesforupgradecostsrange,witharangeof

$50-100kperMWinrecentyearsseenrisingtolevelsapproaching$150kperMW.Note

thatevenatthesehigherlevelsprojectsarestilleconomicallyviable.Stakeholders

stressedupgradecostsasaknownfactorwheninterconnectingnewprojectstoexisting

linesinMISOandSPPinparticular,exemplifyingtheneedforexpandinglong-distance

transmissiontobothreducethestrainontheexistinggridandalsotoexpandthe

opportunitysetofnewrenewablegenerationthatcanservelargeloadcenters.

Preferenceforbrownfieldoncostandtiming

Amongutilityoperatorsoftransmission,AEEhasarticulatedaclearpreferencefor

brownfieldprojectsgivenitsinitialassessmentofspecificproposedlinesacrossits

serviceterritory–withIllinoisinparticularandMissouritoalesserextentpresenting

opportunitiestorebuild/enhanceexistinglinesratherthanbuildnew.Managementsees

thisasadvantageousfromacostperspectiveaswellassiting,givenfrequentopposition

tolarge-scaletransmissionprojectsfromconsumerandenvironmentalgroupsamong

others–stakeholderscitedvoteroppositiontoAGR’sNewEnglandCleanEnergy

Connect(NECEC)asamongthemosttangiblerecentexamples.Anotherstakeholder

summarizedthetwokeychallengestoanylargescaleprojectas“nobodywantstolook

atitandnobodywantstopayforit.”Amerenestimatesthefinancialcontributionfrom

itsMISOtransmissionopportunityrelatedtotranche1aslikelyinthebackhalfofthe

currentfive-yearplan,aswellasalongertailofprojectsextendingto2026-28.

SPPandnon-RTOopportunitiesmeaningfultoo

XELispositionedtocapturetransmissionexpansionopportunitiesinMISO($1-2B

tranche1estimate)andinparalleltheColorado(CO)pathwayproject(recentlyapproved

bythestatecommission),representing$1.7Bininitialcapexaswellas$0.5-1.0Bin

potentialupside.CompanymanagementcharacterizestheCOmarketasan“island”grid,

withtheRockyMountainsblockingoffaccesstointerconnectionstothewestand

largelyanabsenceofloadcenterstotheimmediateeast–thusCOisnotlikelytojoin

anRTOorbroaderregionalmarket,inmanagement’sestimation.

Separately,XELmanagementindicatedthatitcouldseeanadditional$0.5-1.0B

investmentopportunityinSPPtransmissionincomingyears.ThoughMISO’sLRTPhas

garneredthebulkofattentionfrominvestorsoflate,stakeholdersidentifiedSPPas

movingforwardwithitsowntransmissionprocess,albeitonasmallerscalethan

neighboringMISO.StakeholderscreditedSPPforbringingtogetheritsmembersand

otherkeypartiestodiscusstransmissionexpansionandopportunitiestocollaborateon

broadlybeneficialprojects–timeframesarenotaswell-definedasintheMISOprocess

butwedonotethattheSPPprocesswasdescribedashavinglegsinamoresubstantial

waythaninyearspast.

AEPperspectivesonPJM,ERCOT,andSPP

WediscussedthecurrenttransmissionlandscapewithLisaBarton,ExecutiveVice

PresidentandChiefOperatingOfficeratAmericanElectricPower(AEP).AEPisoneof

thelargesttransmissionownersintheUS,andtalkedaboutthechangingbackdropwith

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morefocusonreliability,moreextremeweatherevents,andchangingcustomer

expectations.InlinewithcommentaryfromEaton(seemorebelow),thesupplychain

issuesandinflationhaveimpactedtransmissionsupplyandhaveincreasedleadtimes.

Thatsaid,thereisalageffectonwhenthepressuresarefeltgivenexistinginventory–

AEPhasabroadrangeofvendorsaswellandhasbroadeneditsreachoflate.

AEPoperatesinPJM,ElectricReliabilityCouncilofTexas(ERCOT),andSouthwestPower

Pool(SPP)andthesizeofthesystemcreatestheneedforcontinuousinvestmentinthe

system,butnewlarge-scaletransmissiondevelopmenthasbeenslower–currently,AEP

hastheRioGrandeprojectinTexas,thoughTransource,AEP’scompetitivetransmission

business,didnotgetmuchattentionduringourshortconversation.InPJM,stakeholders

areworkingtoclearthecloggedinterconnectionqueuesfollowingamoratoriumonnew

interconnects.LastyearasaresultofWinterStormUri,Texaspassedlegislation

speedingupthetransmissiondevelopmentprocess.InSPP,stakeholdersarelookingat

improvingthetransmissionplanningmodel.IneachRTO,progressisbeingmadeto

supportthebuildoutoftransmissionandnewrenewableresources–AEPshouldbeina

goodpositiontocapitalizeontheopportunitiesastheyemerge.

California:WheretheWestWasWon

WecaughtupwithrepresentativesfromtheCenterforEnergyEfficiency&Renewable

Technologies(CEERT),theIndependentEnergyProducersAssociation(IEPA),andother

westernindependenttransmissiondeveloperswithafocusonCalifornia(CA)butthe

broadWesternUnitedStates.Withhighandgrowingintermittentrenewables

penetration,Californiaisoneofthemoreimportantmarketstowatchbecauseofthe

sometimesconflictingprioritiesofdecarbonization,resourceadequacy,andmulti-

stakeholdernuanceswiththeCaliforniaIndependentSystemOperator(CAISO)

proceedings.InFebruaryCAISOreleaseditsfirstevertwenty-yeartransmissionplanning

draft,withanestimateof$22.39Bncapexforupgradesandout-of-statewind

integration.Thisincludes$8.11Bntointegrateoffshorewind,anareaofdebate(see

below).Thisisasupplementtothetypicalannualten-yeartransmissionplan,withthe

longer-termviewdesignedtoprovidemorevisibilityintodecarbonizationgoals

culminatingwithzerocarbonelectricsectorby2045.

Californiahassetambitiousclimate-relatedtargets,includingCA’sRenewablePortfolio

Standardthatrequires100%ofCAelectricityretailsalesfromrenewableresourceby

2045andCA’sbanonICE(InternalCombustionEngines)carsalesbeginningin2035.

Transmissioninfrastructureiscriticaltoenablethebuild-outofrenewablecapacity.

Additionally,higherElectricVehicle(EV)penetrationwillincreaseelectricityloadand

necessitatemoretransmissioninfrastructure.Thiswilloccurasasignificantamountof

legacygenerationcapacityisexpectedtocomeoffthegridwithinthenextfiveyears,

withcoalretirementstodatealreadyprogressingfasterthanexpected.WhileCA

regulatorsandenergyofficialsappreciatethescopeoftransmissionandrenewable

generationinvestmentnecessarytobridgerisingloadwithdeclininglegacygeneration

plants,stakeholderswarnedthatlocalgovernmentsandstakeholders,including

Californians,maybeunpreparedfortheconsequences.

Transmissiondevelopmentishard,andgettingharder

Theclearesttakeawayfromourconversationishowsignificanttheleadtimesarefor

Californiatransmissiondevelopmentcycles,evenrelativetoalreadyelongatedcyclesin

therestoftheUS.Thedevelopmentcyclewasdescribedassixyearsonthelow

side,witheightoreventenyears.Transmissionandrenewabledevelopershave

highlightedalackoftransmissionasaconstraintforyears,butthestateofCalifornia

hasprioritizedrenewablesdevelopmentwithlessofasenseofurgencyplacedon

transmission.PermittingremainsacontinuedchallengeacrosstheU.S.,andCAin

particularhasstringentenvironmentalregulationsthatfurtherelongatethepermitting

process.

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Thetruevaluecreationforarenewablesdeveloperliesintheabilitytohavefirm

deliverabilitytosupportaresourceadequacy(RA)contract.Developmentofenergyprojects

inCaliforniahashistoricallybeenmorechallengingthanmanyotherpartsofthecountry

duetodiversestakeholdersfocusedonawide,andoftenconflicting,rangeof

considerations.Baseduponthelargershareofnewrenewablesprojectsversussupporting

transmissionprojects,itdoesappearthatthemagnitudeofthetransmissionbuild-outhas

beenunderappreciatedbysome.

Gettingcompetitive:CanindependentswininCalifornia?

Thependingandupcomingtranchessetforcompetitivesolicitationweredescribedby

someaslikelyhavingadisproportionateamountofindependentparticipationgiventhe

investorownedutilities’(IOUs)focusonwildfireefforts.Intheopinionofsome

stakeholders,theregulatedutilitieshavejustifiablyplacedanemphasisonwildfire

mitigationandhardeningspendingwhichcreatestheopportunityforindependent

developerstowinmoreintheseproposals.Typicallytheincumbentregulatedutilitiesare

awardedthemajorityoftransmissionprojectsin/aroundtheirfootprints,sothecompetitive

Californiasolicitationswillbekeytowatch.Wethinkapartnershipbetweenindependent

transmissiondevelopersandthelargeregulatedIOUscouldbemorecommonhere.

Navigatingtransmissionbuild-outamidchallengingbackdrop

Californiawillrequireprecipitousandsignificanttransmissioninvestmentinthenear

future,whichimpliesalargecapitalfundingrequirement.Surgingnaturalgascostsare

pushinguputilitiesbillsatnear-recordpaces.AccordingtotheEIA,CAretailutilityrates

increased~20%yearoveryearasofMarch2022,andtheupwardtrajectoryisexpected

tocontinueaswholesalegasandpowermarketsremainelevated.Additionally,theMay

CPIprintindicatedMoMenergyservicesgrowthoutpacedtotalCPIforthethird

consecutivemonth.Ourcustomeraffordabilityanalysis

(Pocketbookpain:Customer

affordabilityinfocus.Who’sbest(andworst)positioned?23May2022

)showedPacific

GasandElectric(PCG)withamongthemostchallengingaffordabilitysetupsacrossour

utilitiescoverage.Thisbegsthequestion:whowillpayforsuchexpansivetransmission

build-out?

Stakeholdersarguedthatgiventhelowerlevelizedcostofenergy(LCOE)forrenewable

powerversuslegacycoal/gas,newrenewablescapacitywouldactuallytranslatetolower

customerutilityratesdespitenecessitatingnewtransmissionbuilds.Inotherwords,

eventhoughtransmissionbuildsarecostly,intandemwithrenewables,itwouldresultin

lowercosttoconsumers.Asaresultrenewableandtransmissiondevelopershaveargued

thatthecostsshouldbesocializedacrossalargercustomerfootprint.

Nevertheless,webelieveCAutilityrateswillincreaseregardlessoflower-cost

renewablesintegration.Increasingelectricload(EVs,buildingelectrification,etc.)and

ongoingcoalretirementsareexpectedtotriplethesizeofthenewrenewables

generationfleetneededtomeet2030electricitydemand.Critically,transmission

investmentwillcoincidewithsignificantundergroundinginitiatives.PCGrecently

announcedaplantounderground10kmilesoftransmission.Gridhardeninginitiatives

willaddtothefinancialcostsofimprovingandexpandingthetransmissionsystem,

creatingfurtherpressureoncustomerbills.Inafavorableoffset,PCGhascommittedto

reductionofOperating&Maintenanceandothercoststomitigatethetotalcustomer

rateimpact.

WhilepermittingremainsachallengeacrosstheUSandinCA,laborconstraintsfurther

slowtransmissionbuildout;thereareasignificantnumberofunfinishedandunbuilt

projectsthathavealreadyreceivedstateandlocalapproval.Attainingskilledlabo