News Analysis

 

IPPs and other stakeholders long have called for standards, but this time, the FERC just might oblige.

 

"Certain transmission owners ... have impeded the interconnection process and, thereby, new generation construction."

"Many transmission providers also refuse to offer network transmission service to merchant generators ... ."

Those are strong words-utilities might even call them fighting words-coming from the Electric Power Supply Association (EPSA) in its "Position Statement on Bill of Rights for New Generation Interconnection." () In that statement, EPSA calls on the Federal Energy Regulatory Commission (FERC) to create an interconnection policy. Of course, EPSA also takes the opportunity to give the FERC a hand by laying out its own set of specific recommendations for such a policy statement.

Up until now, FERC has tackled the issue with a piecemeal approach, handling disputes on a case-by-case basis and, in so doing, creating somewhat of a patchwork policy of precedent. Yet, although the EPSA decree is now over a year old, there is increased hope that the fed will take comprehensive action. With the face of the FERC having changed recently, now up to three out of the four commissioners have indicated that they want to see interconnection standards put in place. Certainly the drumbeat for the commission to tackle the issue summarily is as loud as ever, as generators continue clamoring about frustrating dealings with transmission providers, who themselves view some FERC actions as inequitable.

IPPs Vent: A Few War Stories

Obviously, EPSA's job is to push its agenda for the benefit of its members, but is it really that frustrating for an independent power producer to interconnect to the grid?

"Yes, there have been some frustrations," confirms Jolly Hayden, vice president, power delivery, at Dynegy Inc., speaking of his company's experiences with transmission owners and interconnection agreements. Not surprisingly, Hayden declines to name names, but he is willing to share a few anecdotes-from the perspective of an independent power producer, of course. He speaks of one situation where his company was trying to work with a "very tightly" vertically integrated utility to get plugged in to the grid.

"That makes it kind of tough," he says. "They obviously are wanting to protect their turf, and they view us as a threat."

Hayden says the utility threw up obstacles for the Dynegy plant by putting "every plant that they would ever dream of building over the next 20 years into their base case. So then when they plugged in our proposed unit, you saw a substantial amount of transmission upgrades that are required. Well, obviously, that's a no-no. None of these plants were in any kind of integrated resource plan, none of these projects had been announced... none of these projects had been approached with their state emission, so it was obviously a way to discourage us and have a high number for us to do the upgrades and make us go away."

While a natural partisan, Hayden does have at least some sympathy for the situation confronted by transmission owners in that he has seen firsthand that oftentimes they just haven't had much experience interconnecting independent generators, a reality that conceivably can draw out the process. Hayden calls this issue "education," and, sympathy or no, he still finds it frustrating. "We walk in [to the process] and ... we would be the first project that they've had to deal with," he says. And for a power producer as big as Dynegy is, that scenario could play out countless times as it meets up with different providers across the country to set up shop.

But don't think the transmission providers don't have their own beefs about current FERC policy. In a recent case at the FERC (), transmission provider Consumers Energy Co. and generator Kinder Morgan Michigan LLC have been haggling over one of the biggest issues within interconnection policy: Who pays for the upgrades? And secondly, who gets compensated for them?

The Consumers Energy-Kinder Morgan case, in fact, has drawn the attention of companies like Dynegy Power Corp., Duke Energy North America LLC, American Electric Power Service Corp., Dominion Virginia Power, Commonwealth Edison Co. and Tenaska Inc.-all of whom filed motions to intervene. When Duke, for example, filed its motion, it maintained that the decision would affect generators developing projects nationwide.

The commission's verdict on the dispute? Once again, it relied on previous cases, plus a little fine-tuning and clarifying along the way. The May 17 order, citing a previous American Electric Power Service Corp. decision (clarified on rehearing, Feb. 21, 2001, 94 FERC ¶61,166) ) confirms its stance on the issue. "The Commission's policy regarding credits for network upgrades associated with the interconnection of a generating facility has been, and continues to be, that all network upgrade costs (the cost of all facilities from the point where the generator connects to the grid), including those necessary to remedy short-circuit and stability problems, should be credited back to the customer that funded the upgrades once delivery service begins," the order states.

Consumers Energy has a problem with that stance. Bill Lange, assistant general counsel for Consumers Energy, explains his company's position with a scenario: It costs a total of $20 million in various facilities upgrades to queue up, and the generator is responsible for funding that entire amount. $10 million of that might go for general upgrades to the transmission system, and so since the generator fronted the cash for those upgrades, that amount would be credited back to the power producer once it started generating megawatts. That would seem to make sense: If a party fronts the money for the general good of the system, he should get it back somehow. But then you start getting into the gray areas.

"Let's say $10 million [of the $20 million total]-and this was the issue in Kinder Morgan-is for circuit stability and control, i.e., specifically, caused by that generator. In other words this big amount of power coming in and you've got to stabilize your system. It's caused solely by [the generator]; it doesn't benefit anybody else. We thought that was non-creditable. But FERC came back in our order and said no, it is. So what this does is put the utility [in the position] of having to credit back more than it would have previously."

And that poses problems, says Lange, for a regulated entity like Consumers, which has to be concerned about factors like rate base when eyeing that bottom line. "Now why is that bad? Well, it's bad because a lot of utilities like us are in rate freezes," he says. "So, when you give the credit back, you're increasing your rate base but you don't get the rate base back unless you file a rate case to recover it. So it's just lost revenue."

A Natural Friction

It might be nice of Lange to speak on behalf of his generator compadres, but is he accurate? Listen to Hayden of Dynegy speak on the same issues: "Obviously, when you look at a project, there's so many factors that you have to weigh in-the permitting process, environmental, water access, adequate transmission access that we can plug in the plant and take your product to market. Obviously with a gas-fired unit, you need relatively close proximity to a pipeline. Then you have the community efforts, getting them comfortable with the process. So regardless of where you put this, you're going to have-and that's the short abbreviated list-issues you have to contend with, and [for] each project, anyone of those issues can be the number one obstacle, and the next project it could be another one. When we try to find that 'perfect spot,' those are some of the things that we're trying to weigh in. ..."

Lange, meanwhile, might work for one of the most familiar utility names in the business, but he is able to sum up the generator's side quite succinctly: "The merchant plants don't have a big picture look and they shouldn't," he says. Gone are the days when a vertically integrated utility can make siting decisions purely on an operational and reliability standpoint. An ideal location for a merchant generation plant might end up involving a major transmission upgrade.

Unfortunately, the often-conflicting interests of each side have created a little bit of tension and perhaps even mistrust, according to Lange. "Having seen it from both sides, it really seems to me that there's a lot of misapprehensions by both the generators and the transmission owners about each other's motivations. You really hear a bunch of generators-and I've represented generators-saying, 'The transmission owners are putting all these barriers in front of my hooking up. It wants to protect its own generation.' I'll tell you right now, I have never heard that from transmission people. ...

"I think really, what the problem is, the transmission company people are used to a public utility sort of mentality, and they want to build the facilities on a prudent basis. They've historically been concerned about state regulators second-guessing their decisions about, you know, why did you build this line or that line? Should you recover the cost? And I think that just pervades the transmission entity ... ."

What about misunderstanding on the other side? Says the diplomatic Lange, "I think the transmission people-and I try to dissuade our people from looking at it this way-think the generators just want everything. They want all the costs, they want everything. And I don't think that's true. I think generators that I've been associated with are more than willing to spend whatever money is necessary to get themselves hooked up that's reasonable and fair for them to pay."

Perhaps Lange's having been on both sides of the fence has given him more of a peace-maker perspective. "There really is just a lot of bitterness in both camps. I think it would really help if there was more working together and everybody understood where the other person was coming from," he says.

FERC Action Coming Soon?

Power producers like Dynegy no doubt would like to see FERC step in and deal with the issue comprehensively as opposed to piecemeal. That hasn't happened yet, of course, but there are indications that the FERC might be ready to tackle the issue. In a June 15 concurring opinion in the Dearborn Industrial-Detroit Edison case, Chairman Pat Wood called for the standardization of interconnection terms and conditions, including charges, reliability protocols, reactive power issues, voltage levels, and metering requirements, on either a national or regional basis.

"It is inconceivable that generators and transmission service providers would have to expend resources litigating these issues before the FERC ... ," he said. Wood's concurring opinion generally kept with his recognized philosophy of encouraging plant development.

"The practice of requiring new generators to bear a portion of transmission system interconnection costs results in unequal treatment of new generation compared to pre-existing utility owned generation, whose transmission costs are generally rolled into overall transmission rates," he said. "We will never have a truly level generation playing field if new facilities must recover transmission costs in their rates that existing facilities do not bear."

Wood also stated a preference for the Texas PUC's single "postage stamp" transmission rate assessed on load to recover the costs of transmission service providers, "so the costs of all transmission are borne equally by all customers in ERCOT."

Of course, as Hayden says, nobody is holding their breath for FERC action since the commission has so much on its plate these days. But organizations like EPSA remain hopeful, especially now that a new commission is in place. "We're hoping that in the near future there will be a [notice of proposed rulemaking]," says Mark Stultz, vice president, public affairs and marketing at EPSA.

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