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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

whether Primary Power has entered into negotiations with incumbent transmission owners in the zones in which Grid Plus will be located, and whether these negotiations have resulted in Primary Power being able to construct, own and/or finance Grid Plus.”

Distracted by Benefits

To understand the rationale of Tres Amigas, think of it as a transmission project designed specifically to eliminate congestion at a particular grid constraint. In this case, however, that choke point is the mother of all constraints—that being the present barrier that separates the nation’s three asynchronous grids.

In bridging that divide, Tres Amigas in effect will become the nation’s fourth interconnection, operating as a sort of in-between netherworld, not part of any RTO or ISO, or utility service territory. In fact, it will request authority from NERC to operate as its own separate and independent balancing authority.

All of this begs a central question: What happens to ERCOT, which up to now has remained a FERC-free zone, free from interstate commerce, as it remains electrically isolated from the Western and Eastern Interconnections?

This question explains why Tres Amigas filed two separate cases at FERC: First, a petition asking FERC to issue a jurisdictional disclaimer so that the completed project will not undo ERCOT’s exemption from FERC regulation under the Federal Power Act (FERC Docket No. EL10-22 ), and second, an application for authority as a merchant grid facility to charge negotiated, market rates for transmission service provided from one of the three grids to another ( FERC Docket No. ER10-396 ).

The disclaimer case is devilishly complicated, involving subtle legal interpretations of the Federal Power Act and various court decisions, including, most notably, the U.S. Supreme Court’s 1973 opinion in Florida Power Corp. v. Florida Power & Light Co . In that case, the high court ruled that FP&L, though lacking any direct connections across state lines, was nevertheless engaged in federally regulated interstate commerce by interconnecting with FPC (which in turn was interconnected with Georgia), because FP&L electrons became “commingled” with Georgia electrons.

This language has sparked a lively debate over the technology, physics, and power flow dynamics implied in the Tres Amigas project.

For his part, engineer and Tres Amigas CEO Phil Harris offered testimony that no such illicit commingling will occur under his watch. Yet the fact remains that ERCOT and the Texas PUC each have prospered as a separate electrical nation unto themselves. Virtually all parties commenting on the project have conceded that Tres Amigas lies dead in the water if it can’t supply assurances that ERCOT utilities building transmission lines to link up with Tres Amigas in Clovis won’t forfeit their present immunity from FERC regulation.

Assuming Tres Amigas can hurdle that obstacle, it then must convince all parties that it won’t abuse its franchise by overcharging.

As with any other merchant grid project, the ability of Tres Amigas to negotiate higher rates will be limited by the value it offers, represented by the basis differential between the locational price of energy at the top and bottom of the line. That means Tres