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Greening the Grid

Can markets co-exist with renewable mandates?

Fortnightly Magazine - April 2007

access charge (TAC), which is collected by the ISO’s participating transmission owners (PTOs). In essence, this new mechanism essentially would allow rolled-in rates for investments made to accommodate merchant power developers. It would pass grid financing costs through to all transmission customers taking service under the ISO tariff. And it would apply for the financing of radial, non-networked lines, which ordinarily would be defined under FERC policy as generation tie-lines, required to be funded by the generators themselves.

As the ISO has noted, the traditional rule of “generator pays” works poorly in the case of renewable energy projects, and especially for wind farms. That’s because development cannot proceed without large and costly new grid investments, but the transmission project greatly outweighs the actual building of the individual power-plant units, both in cost and complexity. The actual planning, development, siting and construction of power plant units, such as the wind turbines, could well continue for years to come, under the direction of many different and competing project developers—each too small to fund the transmission trunkline that makes it all possible.

The classic example of the problem, where renewable energy development languishes for lack of transmission, was seen in the failed Antelope Valley project, where Southern California Edison had tried unsuccessfully to get FERC to approve rolled-in rates for gen-tie lines to a mammoth future wind project in the Tehachapi Mountains. In that case, however, FERC Commissioner Nora Brownell and Chairman Pat Wood had indicated they might have OK’d the idea if it had been proposed on a generic basis by the Cal-ISO, rather than by a single individual transmission owner, such as Edison, for its own power project. (See Docket EL06-80, July 1, 2005, 112 FERC ¶61,014.)

In fact, in the time that has passed since FERC denied Edison’s request, the Market Surveillance Committee of the Cal-ISO (Frank Wolak, chairman) issued a formal opinion concluding that several “market failures” conspired to deny grid access to developers of renewable energy projects. This finding has bolstered the ISO’s case. (See, Opinion on Alternative Treatment of New Transmission for Interconnection of Renewable Generation, Oct. 6, 2006.)

So now comes Cal-ISO with its formal proposal filed at FERC, which differs in many particulars from Edison’s failed request. The grid-financing mechanism would apply only to location-constrained resources within “Energy Resource Areas.” And the proposal describes these ERAs as regions “not readily accessible” to the Cal-ISO grid, as certified by the state public utilities commission (CPUC) and the California Energy Commission (CEC). The proposal also contains an aggregate dollar cap, equal to 15 percent of the ISO-wide transmission revenue requirement under the TAC tariff. That would limit how many MURT lines can be financed in this way. Also, once the plant developers actually complete and interconnect some of their generating units, they will start to pick up a portion of the grid-financing cost, reducing the PTO share of the costs and easing the burden on transmission customers. In addition, all subsidized MURT facilities would be developed initially under the ISO’s grid-planning protocols, and the line itself would be placed