Price-Responsive demand, EPA regulations, and merger policy will be on the agenda for the coming year as the Federal Energy Regulatory Commission works its way through the list of key cases that...
Electric Transmission: Building the Next Interstate System
We must efficiently deliver wholesale power within competitive regional markets.
- National security, by providing a more robust transmission grid system with greater redundancy.
An interstate transmission grid can produce interstate solutions within many existing organizational structures—vertically integrated utilities as well as independent utilities, both public and privately held.
When President Bush signed the Energy Policy Act, he said, “We have a modern interstate grid for our phone lines and our highways. With this bill, America can start building a modern 21st-century electricity grid, as well.”
Several provisions of the act will lay the foundation for a modern interstate transmission grid:
- Incentives for transmission development, including deployment of new technology, to reduce congestion and meet mandatory reliability standards;
- Federal Energy Regulatory Commission (FERC) approval of “participant funding” for requested or required interconnection and system upgrades, typically for new generation;
- FERC “backstop” siting authority, giving the commission the ability to ensure against potential siting logjams;
- A directive that the Department of Energy (DOE) study and identify “national-interest electric transmission corridors”; and
- FERC authority to select an electric reliability organization (ERO), presumably the North American Electric Reliability Council, to establish and enforce mandatory reliability standards, including penalty provisions.
Now, we need an action plan, empowered by the Energy Policy Act of 2005, to transform a system of connected but locally planned transmission facilities into a modern interstate bulk-power delivery system under FERC’s authority. We must complete this plan while respecting the states’ jurisdiction over distribution and generation resource adequacy.
The federal government should:
- Broadly define, with the participation of stakeholders, “national interest electric transmission corridors” to promote transmission development for market economies, wider-area reliability and control, environmental optimization, and national security;
- Develop the national corridors with interstate connectivity, including existing bulk power interstate transmission facilities and corridors for development expediency;
- Facilitate timely interstate transmission planning and siting, and provide aggressive leadership in coordinating the siting approval process among various responsible federal agencies;
- Look beyond today’s congestion issues to address opportunities for tomorrow—for example, siting new advanced technology generating plants and renewables;
- Develop efficient pricing mechanisms to avoid unfair subsidies and provide incentives to facilitate aggressive construction, including enhanced returns on equity, construction work in progress in rate base, annual rate base true-ups, accelerated depreciation, and sharing mechanisms for market benefits;
- Provide a two-tiered “highway/ byway” transmission rate structure for new and existing facilities, with “highway” rates regionalized for the interstate extra-high voltage transmission system and “byway” rates localized for local transmission within a zone;
- Provide clear provisions for incentives and recovery for research and development at regional transmission organization (RTO)/independent system operator (ISO) and transmission-owner levels for interconnected transmission system controls and corridor development. This is crucial for the development and deployment of new technologies to mitigate congestion and to prevent or limit wide-area blackouts and brownouts; and
- Develop legislation to provide FERC full authority over the facilities constructed or upgraded in the national corridors.
The states should:
- Participate in development of national corridors that help the states achieve wholesale and, where appropriate, retail market efficiencies and environmental optimization, and achieve economic benefits from the siting of advanced technology generating plants and newer