(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.
all, as FERC had found in ratifying license-plate pricing for existing facilities in the PJM region, the older-vintage grid was designed and built primarily to serve local needs of the individual utility grid owners. (See, Opinion No. 494, Docket No. EL05-121, Opinion No. 494, April 19, 2007, 119 FERC ¶61,063.)
Cognizant of FERC’s ruling in the PJM case, and that similar reasoning applied to its own situation, the MISO membership saw no need to deviate, and so has proposed to continue license-plate pricing for existing grid facilities through the foreseeable future.
The Public-Purpose Imperative
MISO’s new RPGIP tariff idea proposes an “open season” concept for wind power developers, similar to what occurs when a proposed gas-pipeline construction project goes looking for subscribers. Thus, MISO would first identify a list of potential open-season wind projects, conduct a cost analysis, and then gather non-binding indications of interest from potential sponsors for grid upgrades. These sponsors would be transmission owners, or perhaps not. They would cover 50 percent of the grid upgrade funding—the share of costs reimbursed to generators under MISO’s current policy.
The remaining 50-percent cost share assigned to generators, however, would be paid not by the first project developer (the one with priority) but by a group of generators: all of the projects making use of the single grid upgrade. Wind developers subscribing to the project in year two would pay an interest-rate carrying cost to cover their delay.
Nevertheless, for reasons that remain unclear, MISO’s tariff idea was pre-empted and upstaged earlier this summer by competing proposals from ATC and ITC, which operate as standalone transmission utilities. Moreover, the ATC and ITC tariffs raise three key issues for regulators.
First, a policy question: If the nation needs more renewable energy, should individual transmission owners craft their own incentive programs, or should that task be left to regional grid operators, such as MISO or PJM?
Second, a market test: Should regulators hold wind project developers to any sort of cost-benefit or efficiency test in order to earn preferential treatment in funding grid upgrades?
Third, a consumer benefits test: Should regulators force wind developers to reserve the new resources for local consumers, who would be funding the grid upgrades? Otherwise, power producers might simply export their output across the region to consumers in other states, which might need wind power to satisfy their own renewable portfolio standards.
Consider that ATC and ITC each have proposed their own wind-friendly transmission tariffs out of concern that a MISO program won’t serve their particular needs. Both ATC and ITC, as stand-alone transmission companies, believe they enter the game with two strikes against them.
First, as limited liability companies, they do not enjoy the same tax advantages as traditional transmission owners. That’s because the traditional utility TO, as a “C” corporation, pays no tax on grid upgrade funds received from generators, by virtue of Internal Revenue Code Sec. 118, as interpreted by I.R.S. Notice 2001-82, and Revenue Procedure 2005-35. Thus, ATC and ITC believe they need to offer 100-percent reimbursement to wind developers, to avoid having to ask