Gen Interconnection: Lessons From New England

 

How rules muted price signals and did not ensure efficient siting.

Of the new rules proposed by the Federal Energy Regulatory Commission (FERC) for interconnecting new power plants to the transmission grid, the most controversial (for transmission providers and generators alike) is FERC's choice of who should pay to construct the various categories of required new facilities.

Some transmission providers argue that interconnecting generators should pay the full costs of all transmission upgrades that are required to interconnect a new generator to the power grid, and which would not be required for grid expansion (to meet load growth, for instance) absent the new generation project.

Generators claim, however, that their presence on the grid benefits all power customers-through increased competition, lower energy costs, etc.-so that all transmission customers should share in paying grid upgrade costs.

The FERC, meanwhile, takes a middle course, but one that seems more offensive to grid owners than gen project developers.

Under the FERC's proposed standard interconnection agreement (IA), the costs associated with the design, construction, and ownership of all of the interconnection facilities, including the network upgrades, would be assigned to the generator.¹ So long as the transmission provider receives payments for transmission service under such upgrades, the generator would be entitled to recover these costs through refunds from the transmission provider, with interest, within five years from the date of the network upgrades.²