Electricity Markets

Lawmakers hear concerns on transmission planning

Lawmakers at a recent hearing on Capitol Hill heard from several power industry participants, including John Twitty, executive director of the Transmission Access Policy Study Group (TAPS), who detailed concerns they have about the current environment for transmission planning.

Several panelists at the May 10 hearing called for changes to the Federal Energy Regulatory Commission’s landmark Order 1000, while the CEO of an investor-owned utility went so far as to call for the repeal of Order 1000.

The oversight hearing held by the House Energy and Commerce Committee’s Subcommittee on Energy, “Examining the State of Electric Transmission Infrastructure: Investment, Planning, Construction and Alternatives,” was part of the subcommittee’s “Power America” series of hearings.

Testifying at the hearing were: former FERC Commissioner Tony Clark, who currently is a senior advisor at the law firm Wilkinson Barker Knauer LLP, Jennifer Curran, Vice President, System Planning, Midcontinent ISO, Rob Gramlich, Founder and President, Grid Strategies LLC, Ralph Izzo, Chairman, President, and CEO, at investor-owned Public Service Enterprise Group, Edward Krapels, CEO, Anbaric Development Partner and Twitty.

Much of the hearing focused on FERC’s Order 1000, which was issued in 2011. In Order 1000, FERC reformed its transmission planning and cost allocation requirements.

Clark’s testimony centered around a white paper that he recently authored, “Order No. 1000 at the Crossroads.”

He said that “the main thesis of my reflection is that, however well-intentioned the order is, in practice it is falling short of the lofty goals that it set.”

Clark added, “I suggest that with the passage of a better part of a decade since its adoption,” it is now appropriate for FERC and Congress, through its oversight authority, “to engage in a meaningful assessment of the order.”

He noted that his paper concludes that “one of the paradoxical results of” Order 1000 has been that the major transmission projects “that many of us thought might come out of Order 1000 actually came out of a pre-Order 1000 world and in the timespan since Order 1000 was promulgated, there really haven’t been a lot of tangible projects that have come through or empirical data to support the success of the order.”

The paper concludes that “if FERC were to better tailor the rule – especially recognizing significant regional differences across the utility industry – it might have more efficacy. Put succinctly, we may today find ourselves in a position of having a rule that ensures significant compliance costs, but without a lot of demonstrable benefits coming out the other side,” Clark said.

The paper encourages industry conversations about ways that Order 1000 could be streamlined across the board.   

Looking beyond Order No. 1000, Clark said he thinks there are a “number of regulatory policy calls coming up that could have a significant impact on how transmission infrastructure will be developed.”

He said FERC has significant decisions ahead of it, “dealing with issues like rates of return on transmission projects for jurisdictional rates” and issues related to transmission incentives that FERC builds into its rate structure.

Clark also noted what he called “one of the big elephants in the room” when it comes to transmission development – siting. It’s very difficult to get infrastructure projects sited and brought through the construction phase, he said.

Meanwhile, Twitty told lawmakers that as load-serving entities dependent upon the transmission facilities of others, TAPS members “recognize the importance of a robust grid and have long advocated policies to get needed transmission built, but are keenly aware that expansion must be achieved at reasonable cost.”

TAPS is an association of transmission-dependent electric utilities located in 35 states whose members include public power utilities.

By enacting Section 217(b)(4) of the Federal Power Act as part of the Energy Policy Act of 2005, “Congress gave FERC clear instructions on transmission planning and expansion,” he noted.

FERC has been directed to facilitate planning “to meet the reasonable needs of load-serving entities and enable load-serving entities to secure long-term firm physical, or equivalent financial, rights” for long-term power supply arrangements made or planned to meet their service obligations, Twitty noted.

“These directives translate into steps FERC can and should take regarding transmission planning and investment,” he said. “But that is not happening to the degree necessary to” meet the mandate set by Congress.

“First, the grid has to meet the needs of load-serving entities. Although FERC has established rules for an open and transparent transmission planning process, even FERC has recognized that this is not happening consistently,” Twitty told lawmakers.

“We are particularly concerned that transmission-dependent load-serving entities do not have a seat at the table the way they would if they shared ownership in the grid,” he went on to say.

Joint transmission ownership arrangements where all load-serving entities share ownership of the grid, “which have occurred in many states, have a long history of ensuring that the transmission needs of all load-serving entities are met consistent with Section 217. They also facilitate the state siting process and spread investment risk and responsibility and provide an opportunity for small load-serving entities to offset their increasing transmission rates against transmission revenues, thus reducing costs to ultimate customers.”

Second, “we need to be sure our investment in new transmission is appropriate, consistent with Section 217’s focus on the reasonable needs of load-serving entities,” Twitty said. He noted that members of TAPS have experienced a rapid increase in transmission costs.

“While a portion of the increase is no doubt justified, transmission has become an investment magnet,” he said. The potential for guaranteed, incentive elevated returns on equity on low-risk transmission assets may spur investment that isn’t necessary, Twitty pointed out.

“While we support FERC’s ground up consideration of grid resilience, it should not become a blanket justification for excessive investment,” he said.

Twitty also said that FERC has fallen short in fulfilling Section 217’s directives regarding long-term transmission rights, “particularly as to the capacity associated with long-term power supply arrangements on which load-serving entities rely for resource adequacy. This exposes load-serving entities to increased cost, especially if the RTO [regional transmission organization] choices of large transmission owners have left them with loads and resources in multiple RTOs. It also makes new investments riskier.”

Moreover, he said that above-cost incentives are not needed to attract grid investments.

“There is no need for incentive rates of return, much less to expand their availability beyond opportunities provided under current FERC policy,” he added.

Twitty also said that the transmission planning process “can also be a more effective vehicle for inclusive transmission investment. Non-incumbent transmission developers, especially those that accommodate participation by small load-serving entities, should have a fair opportunity to develop needed new transmission. Congress should encourage the Commission to reinvigorate the Order 1000 competitive transmission development process in a manner that will promote joint transmission ownership, as well as to use competitive discipline to curb” rising transmission costs.

Utility CEO calls for repeal of Order 1000

PSEG’s Izzo said that transmission investment has been helped by federal policies that have recognized the importance of transmission and the risk in constructing large projects.

“However, Order 1000 stands out as a policy that undermines these efforts,” he asserted. Izzo said that Order 1000 was touted as landmark reform that would, among other things, remove barriers to development.

“But in the seven years that we’ve been living under Order 1000, the promised efficiency looks more like confusion, controversy and chaos,” he said.

Izzo, who argued for the repeal of Order 1000, said that “Order 1000 tends to drive short-term, band-aid fixes for the grid. Projects that solve multiple problems and provide long term value tend not to move forward because they are ruled out as being too costly.”