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New Study Shows Benefits of Regional Transmission Cost Sharing

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East Lansing-based Anderson Economic Group Monday released the study “Michigan Unplugged?” that examines the case for shared investment in regional transmission projects.

An agreement to share costs of regionally beneficial electric transmission projects was adopted by regional stakeholders, including Michigan and 12 other states, and approved by the Federal Energy Regulation Commission in 2010. Opponents of the agreement are challenging rules for sharing in the costs of transmission projects that will strengthen the Midwest electrical grid. Those opposing the approved rules have rightly identified that the costs of regional projects will be evenly shared across the region. These same critics have not, however, considered the benefits of the projects to which the cost allocation applies. The new Anderson Economic Group study is the first independent documentation of the benefits that the proposed projects create, and identifies unintended consequences that might stem from undoing the approved methodology.

According to the study, the expected benefits to Michigan from the proposed projects include:

* Improved access to electricity in other states, especially those where electricity prices are significantly lower than Michigan prices.
* Strengthened regional economy and more reliable grid across the region benefits Michigan businesses, especially those relying on just-in-time supply chains.
* Strengthened demand for Michigan-based manufacturers of wind turbines and other alternative energy components.
* Access to wind energy from across the region better prepares Michigan for more stringent energy policies that may develop.

If the cost allocation plan is significantly modified, unintended consequences may include:

* Disproportionate costs shifted to Michigan’s Upper Peninsula and other states in the Midwest.
* Delays in improving the grid, including reliability issues resulting in increased risks of costly blackouts and other interruptions to residents and businesses.
* Impetus for new federal rules restricting regional management of the grid, and hindering regional cost allocation methodologies needed to move important grid projects forward.

“Regional cost allocations for large infrastructure projects is not without precedent,” said Patrick Anderson, principal and CEO of Anderson Economic Group. “Hindsight leaves little question as to the wide-reaching benefits of a regionally planned highway network, and the same principle applies to power transmission in facilitating free markets. The multi-value projects we are talking about likely will result in lower overall energy costs because Michigan will be accessing electricity made in states where current prices are more than 20 percent less than in Michigan.”

“We are on the verge of some meaningful transmission policy reforms that have long been debated and are important in supporting regional transmission expansion in this nation,” said Joseph L. Welch, chairman, president and CEO of ITC Holdings Corp., which commissioned the study. “This most recent independent analysis reaffirms the importance and value of moving ahead with the methodology that stakeholders from Michigan and across the Midwest region have already agreed to.”  ITC is the largest independent electricity transmission company in the country.

Anderson Economic Group is an economic research and consulting firm with offices in Michigan and Illinois. More at www.andersoneconomicgroup.com.

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