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First Refusals, Least Regrets

What California can teach FERC about transmission planning.

Fortnightly Magazine - December 2010

power needs of the city of San Francisco and the surrounding peninsula.

And FERC might well learn a thing or two from Pattern’s California connection. That’s because in June of this year, a good six weeks before FERC’s rulemaking made news, California’s independent grid system operator (CAISO) had proposed a new grid planning regime of its own, remarkably similar to FERC’s vision. Like the feds, CAISO had proposed to plan for so-called “policy” grid upgrades, designed to accommodate California’s ambitious renewable energy goal of 33 percent by 2020, as endorsed by Governor Schwarzenegger in November 2009 in Executive Order S-21-09. (See, Revised Transmission Planning Process, FERC Docket ER10-1401, filed June 4, 2010.)

CAISO insisted that FERC could approve the new California planning rule even before the federal rule was finalized. However, because CAISO had proposed to retain ROFRs for certain categories of grid upgrades, FERC decided in July that the California tariff might not be just and reasonable. Thus it suspended CAISO’s RTTP tariff until Jan. 3, 2011, to give FERC staff enough time to conduct a technical conference (held this past August) and to explore CAISO’s ideas. (See, Order Suspending Proposed Tariff, Docket ER10-1401, July 26, 2010, 132 FERC ¶61,067.)

In fact, the stakeholder discussions at the California conference identified serious concerns about the CAISO proposal—concerns that could undermine the FERC’s rulemaking, as they involve features common to both the California and federal proposals:

• Policy Builds & Cost Control : Traditional grid projects aimed at reliability or congestion come with their own built-in cost controls. But as these objective standards are lacking for public policy upgrades, worries emerged in California that policy upgrades would lead to over-building—a concern that FERC’s rulmaking seems to have overlooked.

• Ad Hoc vs. Holistic Planning : Both FERC and CAISO want to minimize ad hoc, single-project planning, which occurs when generators seek interconnection rights for a new plant, in favor of more holistic planning that looks across broad regions and timeframes. However, in California, stakeholders learned that utility TOs can bypass the holistic in favor of ad hoc, by shoe-horning what are essentially public policy projects into the large generator interconnection process (LGIP), created by FERC Order 2003. The federal initiative would seem vulnerable to this stratagem, yet FERC doesn’t propose to revisit Order 2003 in its rulemaking.

• Category Shopping for Stealth ROFRs : If one theme dominated any other at the California conference, it was this: CAISO’s proliferation of categories of grid upgrades, each with its own set of rules, and especially the public policy category, often seemed indistinguishable from one another. With different categories conveying different rights, developers feared that incumbent utility TOs could engage in category shopping to preserve de facto ROFRs, or to shut out independent developers from bidding on the right to build. While FERC’s rulemaking contains fewer categories, the policy upgrade might still invite gaming behavior.

Back in California, in written comments it offered on CAISO’s proposed grid planning tariff, Pattern questioned why, given the competitive nature of the transmission construction sector, an incumbent utility TO should