As it becomes more routine for developers to offer cost containment commitments, it will become increasingly difficult for RTOs to ignore the cost impact of proposals.
Phil Lookadoo is a partner in the Washington, D.C. office of Haynes and Boone, LLP. Phil’s practice addresses regulatory and transactional matters in energy, commodity trading, and project finance and development, including regulatory experience in natural gas, power, renewable energy, and oil/NGLs before the FERC. Phil has been practicing law in the energy sector for more than 30 years, starting in 1980 when he represented large interstate natural gas pipelines and major natural gas producers in FERC regulatory ratemaking, certificate and rulemaking proceedings under the Natural Gas Act. Jamie Jackson is a transactional attorney in the Denver office of Haynes and Boone, LLP. Jamie focuses her practice on energy and infrastructure project development, corporate transactions, and securities law matters. Jamie previously worked for six years as a mechanical engineer in the electric power industry, focusing on design of cogeneration power facilities, and in the manufacturing industry, focusing on fluid power applications. She is a licensed professional engineer.
As FERC Order 1000 moves from compliance filings to implementation, many new transmission projects that traditionally were assigned automatically to incumbent transmission owners are now open to competition under the competitive solicitation processes the Commission mandated. To date, only the California Independent System Operator (CAISO) and PJM Interconnection, L.L.C. (PJM) have awarded projects based, in whole or part, on their Order No. 1000 approved competitive processes.
Although the limited competitive processes to date prevent generalizations, in those solicitation processes that have been finalized, the qualified sponsor with the best cost containment proposal has carried the day. In this new cost- and risk-focused world, incumbent transmission owners' proposals have been beaten out by new entrants, based on the winner's offer to absorb cost overruns and limit the cost risks for ratepayers.
The takeaway: Cost containment will be a critical factor in a significant portion of future competitive solicitations. For prospective developers, whether incumbent or nonincumbent, this means a successful proposal and successful execution of that proposal will hinge on the sponsor's ability to accurately estimate its costs and mitigate on its own behalf the risks inherent in a cost-contained proposal.