 Going Underground - By Ken Silverstein Daily IssueAlert 2/5/2004 Free Copyright 2004. All rights reserved. The utility industry may go more and more underground. That is, companies are looking into whether the benefits of burying their power lines are worth the costs. The reality is, that effort may not pay off but a trend is definitely developing. That's the discovery of a study funded by the Edison Electric Institute (EEI). It finds that going underground costs up to $1 million per mile, or about 10 times that of going overhead and stringing wires from pole to pole. Underground systems do suffer fewer outages but the duration of the blackouts is “much” longer. Other variables, however, must be considered, such as the avoidance of unsightly poles and lines as well as the prevention of car crashes and contact with the natural elements. Still, “the bottom line—reliability benefits associated with burying existing overhead power lines—are uncertain and in most instances do not appear to be sufficient to justify the high price tag that undergrounding carries,” writes Brad Johnson, author of the report that EEI funded. Interestingly, over the last 10 years, about half of the capital expenditures by U.S. investor-owned utilities for new transmission and distribution wires have been for underground wires, the report says. Almost 80 percent of the nation's electric grid, however, has been built with overhead power lines. One of the major costs in undergrounding power lines is the need to dig trenches. If, however, there is new residential or commercial construction, the effort could accommodate other utilities such as phone and cable companies. The costs could then be shared. Needless-to-say, it's difficult to track the number of outages that utilities suffer and correspondingly, the number of customers affected by the problems. Such outages are oftentimes short and are not even reported or known. The issue gets clouded even more because underground systems are typically connected to above ground circuits, which makes it difficult sometimes to distinguish between the different types of outages. That said, the underground systems have about one-third the failures of overhead systems, says the EEI report. But, the duration of underground outages is twice that of above ground networks over a 10-year period. In North Carolina, for example, underground systems were found by the North Carolina Utilities Commission to suffer only about half the outages as the ones overhead. But those outages, according to the EEI report, took almost 1.6 times longer to repair. Meanwhile, the mixed data led the Maryland Public Service Commission to conclude that the affect of underground wiring is “unclear.” “Underground distribution lines will improve the potential for reduced outage interruption during normal weather, and limit the extent of damage to the electrical distribution system from severe weather-related storms,” says Duke Power, in the EEI report. “However, once an interruption has occurred, underground outages normally take significantly longer to repair than a similar overhead outage.” Aesthetics Prevail Lines above the ground come into contact with trees, high winds, rains and ice storms. But, such wires are much easier to repair because they can be visually inspected whereas underground lines require special equipment and crews to locate a fault and to fix. That takes more time and money. At the same time, water can seep underground, and particularly after heavy flooding, that can cause systems to break down. The clear cut reason for choosing to build underground is to improve aesthetics. But the option does have other benefits. An Australian study performed in 1998 and reported on in the EEI analysis tries to quantify other intangibles. Variables such as reduced motor vehicle accidents, less economic harm as a result of fewer outages and increased property values should also be considered, that study says. Additionally, fewer greenhouse gas emissions are released, the efficiency of the system improves and trees do not need to be trimmed to avoid power lines. Despite the added benefits, even the Australian study provides no overarching need to go forth with such projects. Over a 20-year period, underground systems would provide a benefit of $1.9 billion U.S. dollars. But, the cost during that time would be $16.3 billion. The highest expenses are tied to excavation, installation and service connection. U.S. studies, by comparison, have focused on the costs and not the benefits. They have furthermore zeroed in on specific regions. The North Carolina Utilities Commission recently estimated it would take its three investor-owned utilities 25 years to underground all of their existing overhead distribution systems at a cost of about $41 billion, the EEI report says. That six-fold increase in the existing book value of the utilities' current distribution assets would require a 125 percent rate increase, it adds, noting that is “twice” as much as customers currently pay. Policy Decision Despite the high cost and lack of compelling economics, nine of 10 new subdivisions use underground wiring, says EEI. Moreover, dozens of cities—San Antonio, Williamsburg and Tacoma, to name three—have developed comprehensive blueprints to bury or relocate overhead lines. The cost is oftentimes split among customers, developers and utilities, although frequently consumers and municipalities pick up the bulk of the tab. And in some cases, customers in areas with underground wires will agree to pay extra to cover the costs of construction. Dominion Virginia Power, for instance, is required to collect $1 a month from residential customers and no more than $5 a month from business customers. The money is escrowed and used to covert overhead power lines to underground. Similarly, Hawaii Electric will pay for up to one-third of the cost to place existing neighborhood electric distribution lines underground. The notion of having consumers and cities pay for the cost if undergrounding becomes mandatory is a debate that places the future of that development in question, says a report produced by UtiliPoint in 2001. Voters in Salt Lake City, for example, voted down a proposal that would mandate they pay the brunt of the expense. The report goes on to say that federal, state and local programs have shown to be one of the least controversial ways to fund such projects because the costs are spread among more entities. “It appears that the undergrounding of existing overhead power lines will continue, justified primarily by aesthetic considerations—not reliability or economic benefits,” says Johnson, the author of the EEI report. “The challenge for decision makers is determining who will pay for these projects and who will benefit.” Clearly, the tangible costs of building underground wiring may not outweigh the benefits. But, the intangible reasons for doing so, such as improved aesthetics, carry a lot weight with local communities. And consumers are saying that they want underground lines. Funding such an endeavor, however, is a notable obstacle. If, upon learning the costs, customers still want to go forth, policymakers will find a way to get the job done. UtiliPoint's IssueAlerts are compiled based on the independent analysis of UtiliPoint consultants. The opinions expressed in UtiliPoint's IssueAlerts are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind. UtiliPoint's sole purpose in publishing its IssueAlerts is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy issues. Copyright 2004. UtiliPoint International, Inc. All rights reserved. |
