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An Open Checkbook

Why grid owners don't like FERC's new rules on gen interconnection.

Fortnightly Magazine - August 2002

to mollify opponents by retaining aspects of the outdated native load concept even as it seeks approval for its SMD.

One example concerns the idea of a "network resource." Under this concept, generators get a cost-free option to future grid capacity, in perpetuity, whether they need it or even plan to use it. Once a generator completes interconnection and acquires status as a network resource, all future grid impact studies must begin from the point of preserving that generator's rights to future grid use.

The second example concerns grid expansion. Under its rule for gen interconnection, FERC forces grid owners (and thus retail ratepayers) to reimburse generators for money that generators supply up front to fund upgrades to the interstate portion of the grid. But opponents fear that FERC is allowing power producers to dictate the planning and expansion of the grid, without paying.

Listen to utility regulators in Florida:

"This requirement … appears to create an open checkbook allowing all generators to ask for the highest level of interconnection service."

In Arizona, the utility sponsors of WestConnect worry about overbuilding the grid to serve out-of-state interests:

"One or more Arizona transmission owners could be required to upgrade their systems for a generator serving remote California customers."

Opponents say the FERC rules will let generators ignore the SMD's preference for locational pricing and to build plants wherever they want, regardless of congestion and grid capacity, and leave ratepayers at risk for trapped costs and an overbuilt grid.

In essence, FERC wants it both ways. It wants the SMD, with locational prices to govern resource planning. But it doesn't know how to convince old-school utilities to give up the native load construct.

So now FERC has given merchant generators their own virtual equivalent of the native load preference, in the guise of (A) network grid rights plus (B) reimbursements for net-ups.

Yet these two rights put FERC at war with itself. They lie in direct conflict with locational pricing and the standard market design.