Two Critical Barriers to Transmission Development: Siting & Cost Allocation

Transcription

1 Two Critical Barriers to Transmission Development: Siting & Cost Allocation TAPS Conference Portland, Maine October 19, 2009 Ashley C. Brown Executive Director, Harvard Electricity Policy Group John F. Kennedy School of Government Harvard University Of Counsel, Dewey & LeBoeuf

2 Credits Jim Rossi, Florida State University Blue Ribbon Panel on Cost Allocation, 2007 Susan Tierney Ross Baldick Jim Bushnell Terry Winter 2

3 Siting 3

4 Context 4

5 Wholesale Market Developments Transmission-by-state, without limited regional planning and little or no consideration to interstate markets. Siting process largely limits the scope of a siting inquiry to in-state benefits, rather than considering the larger interstate market. 5

6 Balkanized Ownership 1. Diverse interests 2. Confused incentives 3. Complicates coordination 6

7 Vertical Integration Utilities have more invested in generation Reduced management focus on the grid Problem with disaggregating Tax Regulatory Financings 7

8 Competition Issues Incentive to deny access to competitors Is transmission a market maker or participant? Alternatives to transmission Load management New technology Optimally located plants Cost allocation issues 8

9 Competition brings chicken/egg problem Who goes first? Generation or transmission? Subsidies/Risk allocation 9

10 State siting processes 10

11 Evolution of the Siting Paradigm Utility driven/local review Utility determines need on system by system basis Local governments review non-economic issues Utility initiated/state review One stop forum (Local government preempted) Siting authority determines need and reviews noneconomic issues Need determined on system specific or state specific basis 11

12 Common denominators of current and past siting regimes Parochial definition of need (geographic and corporate) Minimal federal role Transmission in native load rate base Vertically integrated monopolies Only utilities possess eminent domain powers 12

13 Factors causing growing obsolescence of existing siting rules Growth of bulk power market Promotion and optimization of competition (incl. restructuring) Development of resources distant from load (e.g. renewables) States desire to harness energy resources for economic development De-monopolization, de-verticalization and growing diversity of players Rising concerns about broad environmental effects (e.g. climate change) Specter of Federal preemption Resource portfolio standards 13

14 Climate change None of the states explicitly considers the fuel mix or carbon impacts of siting 14

15 Proposed new siting paradigm Need determination: Two Options Option A: Eliminate requirement to demonstrate need Need is economic concept (value of lost load) Reliability already internalized by NERC rules Investors would only propose line if economically justifiable Fears about excess capacity not relevant in competitive market Transmission should be excluded from retail rate base 15

16 Need determination (cont d) Option B: Broadened definition of need Continuing to assess in-state and in-system needs Broad economic objectives of the state and region (e.g. development) Impact on competition and alleviation of market power in region Resource choices and mix in region (RPS) Regional environmental considerations 16

17 Improving state siting processes State preemption of local governments Single, uniform siting process Eliminate different process for different entities Eliminate separate applications for need, location, right of way Fold environmental approvals into single siting process 17

18 Improving state siting processes All qualified entities to seek siting approval (i.e. not limited to utilities) Greater opportunity to attract capital for transmission Limits market power of and perverse incentives to incumbents Eminent domain powers should be derived from siting (CPCN) approval not utility status Subject to common carrier obligations, right of way conditions, etc. 18

19 Improving state siting processes Transmission excluded from retail/native coal rate base Reduces economic incentive for parochialism Eliminate socialization of risks on subset of possible beneficiaries Improves economic signals to investors and users Reduces bias in favor of utilities in transmission investment 19

20 Improving state siting processes Formation of single geographic footprint for entire market Facilitate planning and cost allocation Avoid pancaking Formation of RTO will facilitate dispatch of intermittent resources 20

21 Federal Role 21

22 Growth of Federal Authority Section 216 Backstop authority in NIETCs added in 2005 Limited geography of NIETCs 4 th Circuit Piedmont decision and the limited scope of FERC s Authority E.g. SCE s Palo Verde application in AZ if not withdrawn, may have been moot 22

23 Circumstances where FERC may preempt states in NIETCS If the State in which the transmission facilities are to be constructed or modified does not have authority to approve the siting of facilities, or cannot consider the interstate benefits expected to be achieved by the proposed construction or modification of transmission facilities in the State[.] Or, if the applicant does not qualify to apply for a permit or siting approval because the applicant does not serve end-use customers in the State. Or, if a state commission with authority to approve the facility has either withheld approval for more than one year, or has conditioned its approval so that the construction will not significantly reduce transmission congestion in interstate commerce or is not economically feasible. 23

24 Piedmont Case (4 th circuit) Reversed FERC s interpretation that its authority under Section 216(b)(1)(C)(i) of the FPA to act when a state commission has withheld approval [of an application] for more than 1 year, includes instances when a state commission denies the application outright instead of merely failing to act within the deadline. E.g. SCE s Palo Verde application in AZ if not withdrawn, may have been moot. 24

25 Limited geography of NIETCS 25

26 Congressional proposals 26

27 FERC Chairman Jon Wellinghoff s Senate Testimony We need a National Policy commitment to develop the extra-high voltage transmission infrastructure to bring renewable energy from remote areas where it is produced most efficiently into our large metropolitan areas where most of this Nation s power is consumed. 27

28 H.R.2454 Waxman-Markey Overrules the 4 th Circuit s Piedmont decision by authorizing FERC to issue certificates of public convenience and necessity for the construction or modification of transmission projects not only when a state commission delays action but also when it denies an application outright. Rather than limit FERC s jurisdiction to national interest electric transmission corridors, FERC s jurisdiction would be expanded to cover the entire United States portion of the Western Interconnection, which spans from the Pacific coast to the Great Plains, excluding most of Texas under certain conditions. 28

29 Why limit broader preemption to the West? Stakeholders in Eastern states e.g., MA have voiced concerns that broad federal backstop authority could disrupt potential offshore wind developments in the Atlantic by authorizing transmission projects to bring energy from wind resources in the West (or even lower cost carbon-intensive resources). Some have observed that Eastern infrastructure is largely built out apart from a few areas, the major issue in the East is expansion, not location of transmission. Political influence of energy exporting states rich in renewable resources in the West seeking greater regional coordination. 29

30 Planning considerations This planning must take all demand-side and supply-side options into account, including energy efficiency, distributed generation, smart grid technologies, and electricity storage. FERC is mandated to establish grid planning principles derived from these policies within one year. 30

31 Waxman-Markey (cont d) Proposes regional planning entities for transmission and puts in place a system of FERC review of these plans for consistency with transmission planning principles These principles, which FERC would need to develop, will facilitate the deployment of renewable and other zerocarbon and low-carbon energy sources for generating electricity to reduce greenhouse gas emissions while ensuring reliability, reducing congestion, ensuring cybersecurity, minimizing environmental harm, and providing for cost-effective electricity services throughout the United States 31

32 Reid Bill (Senate) Backstop authority with expanded national renewable energy zones Established based on renewable potential >1000 mw 32

33 S.1462 American Clean Energy Leadership Act of 2009 Allows States one year from time of filing of a proposal to site a high priority national transmission project. Gives FERC jurisdiction over siting when states have either been unable to site the facility or have denied the application. 33

34 S.1462 Transmission planning entities shall develop regional plans and submit them to FERC within 24 months. Provides for cost allocation but prevents FERC from spreading the costs of major new transmission broadly across multi-state regions unless the commission could justify it by showing specific economic and grid reliability benefits. 34

35 S Corker Amendment: FERC to allocate costs of new transmission to users measurably proportionate to economic and reliability benefits. 35

36 What s not addressed? There is no clear sense that the factors to be balanced in siting decisions relevant costs and benefits, etc. will be focused on the national market or on broader climate change goals. Transmission cost allocation is not really addressed; House bill is silent; Senate bill only addresses cost allocation in Corker Amendment. Governance role of RTOs and other regional bodies remains highly uncertain. 36

37 Cost Allocation 37

38 Cost Allocation Policy FERC plan failed to articulate a coherent cost allocation policy for new transmission FERC has deferred to regional consensus 38

39 Widely divergent cost allocation outcomes FERC approved proposal by the Southwest Power Pool, Inc. (SPP) to regionalize the costs of transmission for wind resources. SPP s standard rules would assign the cost of wind directly to specific customers, rather than allocate them across the entire region. The SPP proposal allocates a more limited range of cost to new renewable wind projects, based on nameplate capacity rather than net dependable capacity (which, of course, is quite significant for intermittent wind) and also assigned 67 percent of the cost of upgrading transmission to serve wind to the entire SPP region. Southwest Power Pool Inc., 127 FERC b1, 283 (2009) 39

40 Widely divergent cost allocation outcomes approved the New York ISO s process for regionally spreading the cost of new economic transmission projects. In accepting the New York ISO s emphasis on cost savings over other considerations, including accessing renewable generation, FERC rejected a challenge by the New York Regional Interconnect (NYRI) a firm proposing to build a transmission line to carry 1,200 MW from upstate New york to the New York City region. FERC s approval endorsed a supermajority voting provision, which prohibited the regionalization of a transmission line s cost unless 80 percent of the New York ISO s transmission customers approve the project. New York Independent System Operator, Inc. 126 FERC b1, 320 (2009) 40

41 2007 Blue Ribbon Panel proposals for cost allocation principals Principle 1. All viable methods of allocating the costs of new network transmission require a study of who benefits from, and who should pay for, enhancements of the grid. A sound planning process is critical to that determination. Principle 2. As a predicate to allocating the cost of network transmission investments, such investments should be analyzed using a single standard or unit of measure that combines reliability and economic values without distinction. Principle 3. The appropriate standard of measurement of the benefits of transmission is aggregate societal benefits within the geographic region being examined. 41

42 2007 Blue Ribbon Panel proposals for cost allocation principals Principle 4. Sound transmission planning (to analyze benefits and costs, and the distribution of benefits for the purpose of allocating costs) should incorporate a number of features: Principle 4A. Transmission planning and analysis should be done on a regional level focusing on larger regions as a general rule. While the overall planning process must encompass a large region, the planning studies cannot lose sight of the impacts on sub-regions. 42

43 2007 Blue Ribbon Panel proposals for cost allocation principals Principle 4B. Transmission planning and analysis should include all of the demand loads (existing and reasonably anticipated) and all of the supply resources (existing and reasonably anticipated) located within the geographic region for which planning is taking place. Principle 4C. Transmission planning should occur in a process that is open, transparent, and inclusive, and conducted by a credible entity without particular attachment to specific interests or market outcomes in the region. 43

44 2007 Blue Ribbon Panel proposals for cost allocation principals Principle 5. Transmission investments involving baskets of projects that satisfy these standards and which emerge as being a net societal benefit (to either the region or subregions) through the results of robust transmission planning processes should presumptively be candidates for broad, or socialized, cost recovery across the region benefiting from the project(s). Principle 6. As a rebuttable presumption in transmission planning exercises on a going forward basis, the larger the size of a proposed new facility, the greater its potential to serve the broadest segment of interstate commerce and therefore the larger the region that should support it. 44

45 2007 Blue Ribbon Panel proposals for cost allocation principals Principle 7. Except for interconnections of specific new generation, loads in the benefiting region should be allocated the costs of new investment. Principle 8. New transmission investment should be supported in Federal or other wholesale rates, as appropriate, and not be included in retail rate base subject to regulation by the various states. To the extent that existing transmission assets can be removed from retail rate base and transferred to Federal or wholesale rates in an orderly and coherent manner, it would be beneficial to do so. 45

46 2007 Blue Ribbon Panel proposals for cost allocation principals Principle 9. On a going-forward basis only and subject to constraints related to the timing, scale, and the nature of the initial allocation, cost allocations for new transmission should be subject to periodic review to determine whether beneficiaries from the investment have changed in any major ways that distort cost responsibility and appropriate pricing. Established transmission cost allocations should otherwise be rebuttably presumed to be just and reasonable. Principle 10. Free entry of transmission investment should be permitted, to the extent that the proponents are willing to bear the costs for such investment. 46