(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...
The Queue Quandary
Why developers today are often kept waiting to get projects ok’d to connect to the grid.
a 300-MW wind facility, but which must pay millions up front for grid upgrades.
“Generator A, seeing these huge up-front costs, can easily and without penalty withdraw from the queue,” forcing those costs “onto the next generator down the queue in the same electrical zone.”
When that happens, as many conference participants noted in their later-filed comments, the transmission provider then is forced to re-study lower-queued projects and reallocate transmission upgrade costs. The cycle of queue reshuffling continues, and likely repeats itself, while the grid operator makes no real progress in clearing the backlog.
“In our view,” Chaset concludes, “the rules encourage perpetual uncertainty and a game of tag-you’re-it on generators whose facilities may ultimately be beneficial and desirable.”
Yet the behavior of the developers appears entirely rational, as Competitive Power Ventures explained it its written comments: “There is no meaningful mechanism in place for developers to identify the cost of interconnection at any particular site except to throw the dice and submit exploratory interconnection applications.”
Under FERC’s standard timelines for completing the various studies and milestones, as stated in the LGIA pro forma tariff, assuming no restudies or undue delays, a developer ordinarily will not discover its true costs for a year or more after filing an interconnection request. But by that time, as CPV notes, “the developer would have had to invest significant resources into other activities, such as land and equipment acquisition and permitting.”
This up-front funding obligation becomes even more problematic for developers in regions such as MISO, where the RTO tariff limits reimbursement of those costs, either directly or through transmission rate credits or assignment of financial transmission rights. (See the prior Commission Watch column, “ Tilting to Windward ,” Public Utilities Fortnightly, Sept. 2007, for more explanation.)
In fact, the Midwest stand-alone transmission companies, ITC and METC, claim they have mitigated the problem somewhat by adopting a different rule than what applies in the rest of MISO. Last year, ITC and METC won permission from FERC to roll back the MISO rule and offer a full 100 percent cost reimbursement to developers who supply upfront funding for upgrades to ITC or METC facilities. (See comments, FERC Docket No. AD08-2, filed Jan. 10, 2008; see also Docket No. ER07-1141, order issued Sept. 7, 2007, 120 FERC ¶61,220.)
Either way, however, the inability to estimate costs before committing assets can make financing particularly difficult for new gen projects. As Commissioner Spitzer noted, “they want transmission before they write the check to finance, but can’t get the transmission.
“It’s like dealing with any bank,” he mused. “You have to prove you don’t need the money.”
Priority and Property Rights
Commissioner Spitzer asks whether grid operators could be found guilty of violating state law private property rights if they seek to clear the queue by allowing a favored developer to jump queue positions, leapfrogging past a project in a higher-priority queue that might be deemed less worthy.
For example, Colorado PUC chairman Ron Binz suggested that projects qualifying under state-sponsored resource-planning processes ought to have some ability to “jump the