There’s been a lot of talk in the industry about new super powers for market enforcement, conferred by Congress on FERC in last year’s energy legislation. But this hasn’t been the case entirely....
Solar and wind developers learn to shift project risk to the grid.
signed with each developer project that is made conditional on the requested rate incentives, Edison ensures a win-win. The LGIA promises upfront financing for grid connections to solar projects—saving the developer some skin—but allows Edison to back out if projects don’t move forward. The petition for rate incentives guarantees cost recovery even if the LGIA and the grid expansion are abandoned (due to gen project cancellation). Moreover, if FERC should deny the petition for transmission rate incentives (refusing to grant cost recovery for CWIP accounting and in the event of project abandonment), then the LGIAs also will become void, leaving the solar project sponsors on the hook for financing grid upgrades, and at risk for losing ARRA stimulus funds and DOE loan guarantees.
In this case, the Blythe project is so massive that it must be pursued in different stages, with the last stage to be completed only toward the end of this decade, so as to give enough time to Edison to complete its “West of Devers” grid expansion to assure deliverability of Blythe power. The project is so big, in fact, that project ownership must be divided between different sponsors, and fenced off through a special “partial termination” clause in the grid interconnection agreement, so that project risk associated with the second-phase segments won’t imperil credit or financing for phase one, as Schwarzenegger noted to FERC in his second letter, sent at the close of last year. (See, Letter of Governor Arnold Schwarzenegger, Dec. 22, 2010, FERC Docket Nos. ER11-2316, ER11-2318, EL11-10, filed Jan. 3, 2011.)
Yet because of this partial termination clause, the interconnection won’t conform with ISO tariffs, as Schwarzenegger went to great lengths to explain:
But under FERC’s Order 679 policy, such risks not only are tolerated, but in fact serve to justify the need for incentives.
Eyebrows were raised in late December, however, when Solar Millennium LLC sent a letter to FERC urging approval of one of the interconnection agreements executed between Edison and project developers and linked with Edison’s request for incentives.
The letter in question urged FERC approval of the phase-two LGIA for Palo Verde Solar II. It also warned that the project would need to be restructured if FERC didn’t OK cost recovery for Edison in case of project abandonment, so that the solar sponsor then would have to assume the upfront financing of the grid upgrades. (See, Letter of Solar Millennium LLC, FERC Docket ER11-2316, filed Dec. 8, 2010.)
Seizing on the language of this letter, the City of Redding, Calif., along with the City of Santa Clara and the M-S-R Public Power Agency, protested both Edison’s request for rate incentives and various other requests for approval of LGIA’s for gen project sponsors. These municipal agencies thought they had at last found a smoking gun to show that without a grid financing commitment from Edison, solar developers would seek a higher price for their energy output. Thus, the objectors alleged that Edison’s promise to pay for grid upgrades for renewable energy projects was tied to the expectation of cheaper energy