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Federalizing the Grid

Renewable mandates will shift power to FERC but pose problems for RTOs.

Fortnightly Magazine - April 2009

Nov. 17, 2008, 125 FERC ¶61,182.) Application for state certificate of need dismissed without prejudice by state regulators. (Maine P.U.C. Docket No. 2008-256, Feb. 5, 2009.) Project apparently is now on hold. (See, www.mainepowerconnection.com.)

In New England, RTO rules allow socialization of grid-expansion costs among all member utilities across the RTO footprint, if the project will qualify as a “METU” (Market Efficiency Transmission Upgrade) that reduces the delivered price of retail electricity. But importing emission-free hydropower from Canada does little to cut power bills in New England, as the wholesale price is set by gas-fired generation, which clears on the margin in the ISO-NE regional market. State regulators have questioned why New England ratepayers should pay for green-grid expansions, like the Maine Power Connection project, if they (the ratepayers) get no benefit on the bottom line. (For more see the prior column, “ Transmission is Bubbling ,” Fortnightly, October 2008.)

The Quebec/New Hampshire project sponsors have learned from the Maine experience. They seek to fund their line themselves, without the region-wide cost contribution that has proved unacceptable to New England regulators. But as a quid pro quo , they seek to bundle up the energy product and “take it private”—excluding the energy from trading in the regional spot market, and reserving the green-energy benefits for themselves—a move that would seem to violate FERC’s open-access policies, and create an impermissible wholesale bundling of transmission and energy services.

Tallgrass and Prairie Wind illustrate how FERC’s policy under Order 679 permits project sponsors to apply for, and receive, generous rate incentives even if the project has not yet won certification from the applicable regional or state-run procedural body for planning, vetting and approving grid projects, as long as FERC conditions the grant of incentives on such future vetting and approval.

That policy encourages multiple and potentially duplicative grid projects to seek incentives from FERC. Witness the example that some call “Bloody Kansas,” whereby Joseph Welch, chairman, president and CEO of ITC Holdings, was driven to post an open letter to recite how his company had worked for months with state and local officials on a green-grid expansion to bring wind power to Kansas ratepayers, only to see a competing local utility jump in after the fact, seeking in effect to co-opt the project as its own. (See, Joseph L. Welch, “To the Governor, the Legislature, and the People of the Great State of Kansas,” Jan. 9, 2009, at: www.itcgreatplains.com/pdfs/letterOfImportance.pdf.)

TransCanada, the lead sponsor of the proposed Chinook and Zephyr merchant transmission lines, has fallen back on experience in the natural gas industry, where new pipeline developers conduct an open season to gauge interest and attract equity investors. FERC now has accepted TransCanada’s proposal to carve out a 50-percent capacity interest on each line for private use by a wind-project developer serving as an equity investor and “anchor tenant.”

Finally, the Green Power Express (GPX) represents an entirely new breed of project. As noted in last month’s column, “ Titans of Transmission ,” GPX sponsor ITC and its leader Joseph Welch seized