Those new merchant gen plants must wait in line to get on the grid, and they don't like it.

They say that competition reigns in electric generation. Yet, when a private power developer draws up a blueprint for a new gas-fired plant, and starts looking for lenders to supply the funding, that developer first must drop on bended knee to ask permission to connect the plant with the utility-owned transmission grid.

That's not right, says the Electric Power Supply Association, the nation's trade group for power producers. EPSA's policy director Julie Simon spelled it out in a letter she mailed in February to the Office of Markets, Tariffs and Rates at the Federal Energy Regulatory Commission:

"One EPSA member company recently waited over three months for a utility to acknowledge receipt of an interconnection request.

"Another member was told it would take 18 months for the utility's overburdened staff to get to their request. When this developer offered to pay the cost for an outside engineer of the utility's choosing to conduct the necessary studies, the utility declined, stating its preference for using its own staff.

"Meanwhile, many utilities are building their own 'merchant' facilities, often in their own service territories, seeking to compete in the wholesale market while excluding 'outside' competition via onerous interconnection procedures and requirements. Clearly, this is not what [the] FERC envisioned in Order Nos. 888 and 2000."

No, Julie, it isn't.

ENTERGY BLEW THE ISSUE WIDE OPEN WHEN, on March 1, it submitted to the FERC a proposed agreement and set of procedures to govern the interconnection of new power plants with its transmission network. That filing arrived at the FERC just one day after utility regulators in Louisiana had closed the window on Entergy and others for filing comments in their own, state-sponsored investigation of problems incurred by private power generators in gaining interconnection with the grid.

By mid-March, a good dozen protests had come in at the FERC, citing nearly as many reasons why they opposed Entergy's pro forma tariff:

• . Entergy's three-step study process could last five months, vs. only 120 days in a two-step procedure for service requests under the FERC's pro forma transmission tariff.
• . No two gen sites are alike. Interconnection agreements need flexibility.
• . Utility has no risk if deal fails, but plant owners need grid access to survive.
• . Lack of gen capacity should not trigger an "emergency," allowing utility to make demands on plant owners.
• . Tariff should not force generators to cover costs for upgrades required more for delivery service than for interconnection, such as real-time metering.
• . Tariff should not bar interconnection simply because the power producer plans to make direct retail sales to large-volume customers.
• . Tariff should not force generators to provide reactive power as condition of interconnection, regardless of capacity, synchronization with grid, mode of operation, or opportunity costs.
• . FERC Form 715 is only filed annually, and regional load flow models are also out of date, making it difficult to assess grid capacity.
• . Initial feasibility studies are conducted project-by-project, allowing multiple projects for a single site to proceed together through the queue, each relying on the same chunk of grid capacity.
• . Developers may lose early slots to "gaming" behavior.

In particular, Dynegy cited the threat of "leap-frogging," which forces a higher-ranked and more promising project to accept onerous terms to protect its slot in the queue. Otherwise, a lower-ranking and less viable project could sign a final agreement quickly, forcing a revision of grid assumptions that could sabotage the first project. That threat exists because under the Entergy tariff, it would take the signing of a final interconnection agreement to trigger any revision in the models of grid system availability that are used to conduct feasibility studies. A coalition of large-volume energy users, Shell, Chevron, Conoco, DuPont, and Monsanto, echoed Dynegy's concern:

"One of the generators could sign its interconnection agreement one day before the second generator, yet this would be enough to invalidate the facility study of the second generator. This risk is intolerable."

Were the feds taken by surprise? Within two weeks of Entergy's move, the FERC already was guarding its turf. In an obscure case on another issue (involving wires charges for the use of lines with distribution-level voltages) the commission took great pains to insist that the question of interconnection falls under the umbrella of transmission service regulation: "In order to alleviate any uncertainty, we will explain how [to apply FERC rules] when interconnection requests are received."

Meanwhile, Entergy said it needed the tariff because the "surge in requests by new generators" had "severely taxed" its ability to process interconnection requests. "As a result," said Entergy, "there is a large and growing backlog."

DOES INTERCONNECTION TODAY RESERVE ACCESS TOMORROW? Suppose a project owner signs an interconnection agreement and nothing more - let's assume the plant sits idle for years, so it needs no transmission service. Now suppose the plant ramps up at a time when grid capacity is short. Would the plant then enjoy a preference over a power marketer that requested the same grid capacity?

On March 22, EPSA weighed in on the Entergy proposal, offering its own nine-point "Bill of Rights for New Generation Interconnection." In that document, EPSA addressed a curious paragraph in Entergy's tariff that seemed especially threatening to power producers. In that paragraph, the Entergy tariff implied that as a condition of interconnection, a plant owner must agree that later-constructed plants could "adversely affect" grid resources and thus lower the first owner's output. The tariff added that the transmission customer (the plant owner) "acknowledges and agrees that [Entergy] has no obligation under this Agreement to disclose any information with respect to third-party developments."

To counter that, EPSA argued that a plant owner ought to be able to request interconnection rights only, without any bundled transmission service, and yet preserve future transmission rights. In that case, the generator would have a right of first refusal to obtain transmission service at any time in the future, to the same extent and quantity as if the generator had asked for bundled transmission at the same time with interconnection.

As EPSA explained, "This option is necessary in order to allow a merchant generator to assure ... its potential 'tolling arrangement' or 'off-take agreement' partners that its output will in fact be deliverable to a given point ... without requiring it or its future customers to prematurely reserve and pay for firm transmission service that they may never need.

"To insure that the generator does not 'lose' the very network capacity that it was told existed at the time of its interconnection study, the generator should be given the right to reserve such transmission capacity ... at the time of any subsequent request for transmission service by a third party."

 

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