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Outsmarting the Grid

A trio of eager tech startups confronts an industry intent on preserving the status quo.

Fortnightly Magazine - February 2010

be able to acquire financing or continue with project development without the rate incentives provided under FERC Order 679.

California’s State Water Project questions why, as a provider of demand response when it backs off its huge electric pumping loads that keep California’s aqueducts on tap, it should help fund WGD’s requested rate incentives (recoverable through CAISO’s RTO-wide transmission access charge), given that WGD in effect will be competing as another provider of a DR-like service—since energy storage functions very much like demand response; it augments supply when load is peaking.

Some have called on FERC to hold a technical conference to explore the role of storage before it issues a ruling. EPSA wants FERC to open a rulemaking on policy for storage facilities, as does CAREBS, the Coalition to Advance Renewable Energy Through Bulk Storage, which otherwise takes no position on the WGD petition (s ee comments, FERC Docket EL10-19, filed Dec. 22, 2009 ).

WGD argues, however, new tech startups providing energy storage will be left behind in the smart-grid revolution if they cannot earn the same rate incentives on smart-grid upgrades as transmission-owning utilities.

WGD asks FERC to “provide insight” on whether it perceives any barrier that could prevent CAISO from considering the WGD storage solution “on equal footing” with other proposed utility transmission alternatives.

Primary Power (PP) also has asked FERC to declare it eligible for rate incentives under Order 679, but the real issue stems from PP’s simultaneous demands for a stated guaranteed rate of return and guaranteed cost-of-service rate recovery, plus assurance that PJM will designate PP as the sole builder of the project, should PJM eventually incorporate the GridPlus regime into its Regional Transmission Expansion Plan (RTEP) ( see, FERC Docket Nos. EL10-14, EL10-253, filed Dec. 11, 2009 ).

This odd combination of demands confuses the respective attributes of merchant transmission ventures and RTO-sponsored and rate-based projects developed by regional planners.

In short, merchant developers conceive and build their own project configurations, but in trade must accept full financial risk, and search out their own customers through open-season solicitations. Regional planners require no proof of benefits, and review the project only to make sure they can accommodate it without untoward adverse impacts.

By contrast, PJM regional planners scrutinize RTEP project applicants, demanding proof of benefits ( e.g., reliability or economic), and reserve the right both to reconfigure the project plan as needed and to designate who will actually build the final project, according to what the planners feel is best to ensure a cost-effective and prudent result. That’s the price paid by would-be project sponsors to win certification from planners, plus the right to collect cost-based rates through the RTO’s transmission access charge.

As with WGD, PP claims it can’t win financing support from private equity investors as a merchant project sponsor without the requested incentives and guarantees.

However, since the Grid Plus project application openly flaunts and violates PJM’s tariff rules for grid project applications, FERC issued a deficiency letter on January 7, asking for various explanations for the nonconforming proposal. For example:

“Explain