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Wellinghoff's War

FERC fights for the green-grid superhighway—even if Congress won’t.

Fortnightly Magazine - January 2010

Lights on in a New World , such as greater fuel diversity, improved resource adequacy, lower and more stable rates, and access to new generation technologies.

ITC offers its own top-10 list of so-called unquantifiable benefits:

• Lower line losses;
• GHG emission reductions;
• Fewer out-of-market TLRs (transmission loading relief);
• Deferred need for new generation;
• Smaller requirements for planning reserves;
• Improved reliability and enhanced grid security;
• More competition and less market power;
• Higher capacity factors in wind-rich areas;
• Insurance against extreme contingencies; and
• Reduced need for foreign oil.

Such lists would overthrow the so-called beneficiary pays cost-allocation method, which is founded on traditional rate-making principles. But the Ohio PUC protests:

“There should be no non-quantified costs or benefits. Everyone should be charged in relation to the amount [of energy] they inject or withdraw.

“Failing this, any attempt to quantify is purely speculation.”

Industry consensus has emerged for at least a trio of special concerns raised by FERC, including viability of merchant grid projects, the value of open season solicitations, and whether to maintain the right-of-first refusal (ROFR) enjoyed by utility transmission owners (TOs).

Merchant Transmission: Most industry comments state no extraordinary problems for merchant transmission projects, except perhaps in the West, where many utility TOs remain vertically integrated, so that merchant projects must compete against utility-sponsored rate-based projects that enjoy guaranteed cost recovery. The two TransCanada merchant projects, Chinook and Zephyr Transmission, say they have been participating—without being legally required to do so—in regional grid-planning processes, led by WECC and other groups, but suggest that “the full panoply of regional planning need not and should not be imposed on the merchant transmission provider.”

Open Seasons: ITC advises FERC that an up-front open-season solicitation process to gauge financial interest from potential investors can work for certain projects, “particularly for DC projects where capacity is known [measurable] … contractual commitments for shares of that capacity can be made, similar to the natural gas pipeline model in which this concept arose.”

As Xcel Energy noted in its comments, open-season solicitations have helped identify ahead of time which projects are viable, and send a signal to the developer about how much capacity really is needed. But Xcel echoes ITC’s point regarding DC lines: “None of these situations to date have involved networked transmission facilities [AC lines] … embedded in an existing regional network.”

ROFR: Perhaps surprisingly, most commentators take no offense from the right-of-first refusal that FERC guarantees to utility TOs to accept responsibility within their own service areas to build a project approved by planners, though FERC has inquired whether such rights could preclude third parties from constructing lower-cost or superior facilities.

The California ISO (CAISO) points out, for example, that the Southwest Power Pool tariff employs a narrowly tailored ROFR that allows it to avoid the problem by forcing the incumbent utility TO to upgrade its project to match a third-party proposal.

CAISO adds, however, that not all grid developer cost projections can be accepted on faith. “Project sponsors,” the ISO writes, “could simply submit lowball