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First Refusals, Least Regrets

What California can teach FERC about transmission planning.

Fortnightly Magazine - December 2010

see its obligation to serve as a burden that would justify a right of first refusal:

“Preferences cannot be justified,” Pattern wrote, “as the necessary corollary to an incumbent transmission owner’s obligation to build.

“The obligation to build is in reality a privilege, allowing the successful transmission owner the opportunity to collect the costs of the project … as well as a reasonable return of and on capital.”

Moreover, if a developer is successful in building a project approved in the regional plan, then that developer eventually becomes an incumbent as well, with its own obligation to build, as Pattern readily admits.

“Yet that obligation,” it adds, “does not seem to be discouraging many developers … from pursuing project development opportunities.”

A Fundamental Recasting

The CAISO proposal turns California’s grid planning process upside-down. Instead of taking specific proposals from would-be project sponsors and then addressing them one by one, the RTTP puts the ISO to work first in gathering assumptions and then forming a plan that contains various grid upgrade elements. Then, after approving projects needed for reliability, generator interconnections, and to preserve the simultaneous feasibility of long-term financial congestion rights, the ISO will open the floor for developers to bid and compete for the right to build the “economic” (congestion-easing) and policy-driven (to meet RPS laws) upgrades already defined and approved in the plan.

According to the California Municipal Utilities Association, this new format marks “a fundamental recasting” of CAISO’s grid planning process, and an “important improvement.” (Comments and Protest of CMUA, FERC Docket ER10-1401, filed June 30, 2010.)

The RTTP also should prove more efficient, as CAISO itself explained:

“It would be highly inefficient to allow parties to submit economically driven and policy driven projects in a request window prior to the ISO’s determination of a need for such projects …

“With a process that confers a first-in-time right to parties who submit proposals, project proponents would have incentives to submit numerous proposals in order to establish rights to build and own projects …

“This would result in a planning process where the ISO’s efforts are focused on evaluating individual projects on a case-by-case basis whether they are needed or not.” (Answer to Protests, FERC Docket ER10-1401, filed July 15, 2010.)

Yet problems still remain, as pointed out by the California Wind Energy Association.

For reliability upgrades, such as to relieve thermal overloads or stability violations, planners use NERC reliability standards as guideposts for least-cost solutions. Cost-benefit tests keyed to wholesale power prices also can reveal whether an economic upgrade is warranted to relieve congestion. But as CalWEA notes, “such objective tests are not directly applicable to policy-driven upgrades to integrate renewable energy supplies into a transmission grid that already meets NERC reliability criteria, particularly if the cost of the renewable energy exceeds the cost of energy produced using other fuels.”

Thus, CalWEA coined an idea it called “least regrets”—a concept that CAISO readily accepted, as a technique to guard against fears that planning for public policy projects would lead to overbuilding.

CalWEA explains:

“Least-regrets planning can be thought of