(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...
Tilting to Windward
As if carbon control were a fait accompli, gen developers skew the queue toward renewable projects, driving new policy on transmission pricing.
Now at last, in a region other than California, we can see clearly that renewable mandates and fears of carbon taxes have influenced the power-plant development cycle. Moreover, this effect is helping to drive policy proposals for the pricing of transmission service and the recovery of costs for grid upgrades deemed necessary to bring the new plants on line.
The Changing Project Queue
Five years ago, in 2002, the region covered by the Midwest Independent System Operator (MISO) saw some 30 new proposed natural-gas combustion turbine projects enter the project development queue—with a significant number ranging in size from 500 to 1,000 MW. The same year counted 24 new wind power projects added to the MISO queue, with most coming in at less then 20 MW.
By contrast, according to data from MISO not a single new gas-turbine project was added to the queue in 2006, while developers proposed 102 wind projects, with many sized between 100 and 250 MW. The story was much the same during the first third of 2007, with 57 new wind projects proposed, versus one new gas turbine. (See Figure 1, “Evolution of the Queue,” and Figure 2, “Active Projects by State.”)
This flip-flop in developer preference—from a bias for gas projects just five years ago to a marked preference today for wind power development—has led to an untenable situation in the project development queue, MISO says.
Understand the most important idea. MISO calls it the “first-mover-pays” treatment. In other words, the first generator in the queue to propose interconnection—the one with priority—will face the cost responsibility for funding any necessary grid network upgrades to accommodate the new resource. And under current MISO policy, the generator proposing interconnection will see only a 50-percent reimbursement for its contribution to the grid. Transmission owners cover the remaining 50-percent of grid-upgrade costs, which they recover through zonal transmission rates, with costs allocated to the company-specific zones using the same voltage-impact criteria approved under MISO’s RECB-I (Regional Expansion Criteria and Benefits) regime, as explained further below. (This MISO policy differs somewhat from the result under the standard interconnection agreement OK’d by FERC in Order 2003-B, issued Dec. 20, 2004, which envisions that the utility will reimburse the generator 100 percent for the latter’s upfront investment.)
So in the Midwest, with developers on the hook for 50 percent of the cost for constructing grid network upgrades needed to facilitate the new wind plants, but with the typical project size too small to justify the expense, MISO now believes that its current policies no longer work. In the typical case, says MISO, a wind developer comes in with a new proposal, earning priority in the queue. The sponsor then will escort the project through the feasibility, impact, and facilities studies, then bail out when asked to foot the bill for grid network upgrades. By this strategy, the sponsor