(November 2008)Economic uncertainties are raising doubts over utility returns. Will regulators feel the need to consider broader economic effects when engaging in ratemaking? While...
States of Denial
Three challenges to federal authority from those unhappy with the status quo.
grid operators (RTOs and ISOs).
The current policy at FERC forces generation developers to take on the sole responsibility to fund the tie lines that serve to connect new plants to the grid, and which do not contribute in reliability generally, or to overall system-wide network-type functions. The FERC policy appears to work reasonably well when a large, base-load coal-fired plant is involved, where the cost of the line remains in proportion to the cost and scale of the plant. However, it tends not to work well with wind farms and other renewable projects, where developers typically start small, adding small-scaled units a few at a time, over an extended period, and build out the entire facility only as funding permits, often over a number of years. Under this scenario, the cost of the line typically would dwarf the initial costs of the installed generating units, exerting a chilling effect of project development.
The classic case was the failed Antelope Valley project, where Southern California Edison had envisioned constructing three transmission line segments for interconnection of future wind projects in the Tehachapi Mountains area of California. To make construction more efficient and cost-effective, Edison had scaled up the lines to a higher capacity not needed immediately, but which could accommodate development of a generous array of turbines many years out. Thus, while the lines qualified under regulatory policy only as tie lines, Edison had asked FERC for authority to roll the grid development costs into transmission rate base, as if the project qualified as an integrated network upgrade with current benefits in terms of reliability and system-wide power delivery. That attempt failed, however, when FERC rejected Edison’s imaginative bid and treated the project within the letter of the law as a classic tie-line situation, requiring full upfront funding by the wind developers, without future reimbursement through rates collected by transmission owners, as would occur for qualifying network upgrade facilities. (See Docket EL05-80, July 1, 2005, 112 FERC ¶61,014.)
This impasse led the Cal-ISO in June 2006 to issue a white paper describing a proposal to modify federal policy to create a third, or alternative category of transmission facilities, for renewable energy resources, a special rules for funding and cost recovery. (See www.caiso.com/1823/1823d95d585f0. pdf.) Later, in August, the ISO noted in comments filed in FERC’s OATT reform proceeding that it expected to file a formal proposal with FERC “in the near future,” in order to seek “policy guidance” on the ideas described in the white paper. Support has come also from the state PUC, which has urged FERC not to overlook state prerogatives—such as California’s legislatively mandated Renewable Portfolio Standard (RPS)—in revising federal policy on open-access transmission service.
Recently, the PUC has opened a proceeding to consider the “proactive development” of transmission lines to facilitate renewable energy resources, and has identified a series of “next steps” in formulating policy. (See Cal.P.U.C. No. I.05-09-005, Decision 06-06-034, June 15, 2006; and Assigned Commissioner’s Ruling, July 13, 2006.)
Nevertheless, some opposition has arisen, even from within California.
At Sempra Energy, for example, senior regulatory counsel