Lawyers get a bad rap in this country, and in some cases it’s well earned. However, during the month of October I enjoyed the distinct privilege of interviewing nearly a dozen of the industry’s...
An Open Checkbook
Why grid owners don't like FERC's new rules on gen interconnection.
A year ago, when a group of electric utilities in the Southwest signed off on deals to hook up new generators in Arizona with an innovative "common bus" treatment for two adjoining switchyards at the Palo Verde hub, the Federal Energy Regulatory Commission (FERC) was quick to heap on the praise.
"Attaboy," said FERC's Pat Wood, at the commission's meeting of July 25, 2001.
"These companies … are taking actions that stimulate swift interconnection of generation … and have reached it in what I consider to be a pretty expeditious time frame. 'A' for Arizona."
Nevertheless, over the past twelve months, FERC twice has proposed new rules to govern the way in which new power plants gain the right to interconnect with the interstate transmission grid. These new rules on gen interconnection form an essential part of the puzzle more aptly known as the standard market design (SMD).
And the puzzle is proving difficult to solve.
In general, you can ignore most of the whining. It's the same old turf wars.
For example, the plan includes model agreements and protocols covering the gamut of rights and obligations, and each topic carries with it its own constituencies and opponents:
- Liquidated Damages. Transmission owners-TOs-say they shouldn't have to pay if they dawdle in building needed grid upgrades, since they can't control all subcontractors.
- Income Tax Indemnification. The government could treat up-front funding from power producers as contributions in aid of construction. Gens complain that TOs can demand credit security that has the same effect as a forced indemnification.
- Credit Security. TOs want more, since a generator could cancel a project after the grid owner has begun work on upgrades.
- Liability Insurance. A conspicuous omission in FERC's rules, but some grid owners want a concrete requirement.
- Metering. Western reliability rules require "gross" metering to account for load behind the fence. But qualifying cogeneration facilities want net metering, to preserve the benefits of on-site generation.
And you can say the same about the problem of managing the queue.
As things stand now, some players want the rules to do more to explain what happens when a TO or a regional grid operator conducts a study to test how a later-queued gen project will affect grid capacity or congestion, but then discovers that an earlier-queued project has been cancelled. That often means that certain network upgrades that were to have been built along with that earlier-queued project will be cancelled as well. Meanwhile, all later-queued projects likely would have relied upon those improvements in their planning, development, and study phases. Who should pick up the tab for the new sets of feasibility and impact studies that now will be required?
Most of this debate is just noise. Grid owners and power producers will haggle over price. Eventually, they will learn the best ways to design contracts to handle these sorts of administrative contract details.
Yet the new rules do pose problems that appear intractable.
The problems arise as FERC is trying