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Deal Friction

Why the green grid might do better without open access.

Fortnightly Magazine - April 2011

priority to capacity rights, the developer must show that it has specific plans for phased development of future generating capacity as part of the project, that it has identified milestones to track construction work, and that it can demonstrate “material” progress in achieving those milestones. (Milford Wind Corridor, Docket EL09-70, 129 FERC ¶61,149.)

Absent such evidence, any third-party developer can jump in and ask for transmission service rights on the same lead line, leaving no capacity available for the original developer when later-phase project expansions are completed—a fact seen by virtually all conference panelists as proof that FERC’s open-access policy fails green energy developers.

FERC has since ratified the Milford rule in a number of cases. Just this past winter, FERC ruled that a renewable energy developer that builds its own interconnection tie line and seeks to confirm priority rights to line capacity for future project stages not only must prove plans, milestones and progress to preserve priority rights, but also must take on a duty to expand tie-line capacity to the extent that not enough capacity remains (after allowing for the original developer’s future priority rights) to accommodate a request for service from a third-party developer. (See, Alta Wind, Docket EL10-62, Feb. 17, 2011, 134 FERC ¶61,109.)

Conference panelist Robert van Beers, chief development officer for Tonbridge Power, argued that latecomer shippers instead “should get lesser-favored deals” than anchor customers or equity investors who help fund the line from the very start. He likened the situation to penguins perched on an ice floe, waiting for a comrade to dive in and test the waters.

“Why would you jump in,” he asked, “if you can stand by the side and get the same deal?”

No Straightjackets

A number of concrete policy alternatives emerged at the conference, including 1) creating a separate open-access tariff applicable only to radial tie lines built by gen project developers, dubbed an “OATT-lite”; 2) setting out concrete rules governing open season solicitations by sponsors of merchant transmission lines; or 3) treating all gen tie lines as interconnection facilities governed not by the pro-forma OATT, but by FERC Order 2003, and its pro-forma standard interconnection agreements for large and small generators (the LGIA and SGIA).

Each alternative, however, would likely add a significant dollop of transparency to green power development, a prospect that some panelists found troubling.

Joel Newton, senior attorney at NextEra Energy Resources, noted how his company must compete against other developers for permission to put up wind turbines on the property of landowners located in resource-rich areas. “If we have to hold up our hands and say, ‘Here we are,’ it won’t work,” he said.

Echoing that view was Kurt Adams, exeutive v.p. and chief development officer for First Wind:

“For a 38-mile line we had to go door to door with 130 landowners, and we had nothing to offer but love.”

Should open season rules force merchant developers to right-size their projects, so that sufficient capacity exists to satisfy future requests for service from latecomers who don’t participate in the initial funding of the line?