FERC Order 1000: Cost Socialization for ‘Green’ Energy (NRDC, AWEA Rejoice)
“Regular people only need to understand that this is likely the most progressive clean energy action the federal government will take this year.” – Center for American Progress
The Federal Energy Regulatory Commission (FERC) is capable of making bold moves under the radar. Last year it imposed a $245 million sanction on a major utility without too much fuss. Beginning this year, as part of a landmark rulemaking called Order No. 1000, FERC will be lending a multi-billion-dollar hand to large wind developers.
According to FERC, “Order No. 1000 is a Final Rule that reforms the Commission’s electric transmission planning and cost allocation requirements for public utility transmission providers.”
At the risk of oversimplifying a 600+ page document, Order No. 1000 essentially adds a requirement that (1) transmission providers consider new projects driven by state and federal “public policy,” and (2) planning regions do away with “participant funding,” at least at the regional and inter-regional level, which means that transmission costs must be allocated over a broad region. There was also a third major requirement (that transmission providers remove language regarding the “right of first refusal” from their tariffs), but let’s save that for another day.
If the combination of (1) and (2) above sounds like a rent-seeker’s dream, then kudos for seeing through the jargon. To put it differently, regional electricity transmission plans must take state and federal public policies into account, no matter how costly or ineffective they are (think renewable energy mandates).
Then the costs of the transmission lines built according to those plans are socialized. How great is that if you’re a large wind developer? States mandate that their citizens buy your intermittent power, and then a regulatory agency helps you spread one of your biggest costs far and wide, across state lines and to countless unaware consumers.
I understand that the term “broad cost allocation” may put some readers to sleep. I humbly suggest that you add it to the list of terms that alert you to a con game. To paraphrase the villain Ellsworth Toohey in Ayn Rand’s novel The Fountainhead: “Just listen to any bureaucrat, and if you hear him speak of ‘broad cost allocation’ — run. Run faster than from a plague.” Toohey was explaining his con game as outright fraud; in contrast, the Center for American Progress has a nicer way of characterizing the cost allocation game:
Cost allocation is complex but the fundamental issue is simple. If a new transmission line costs $1 billion, it would be prohibitively expensive if one person had to bear all of the costs. If 10 million people pay for the project, though, it becomes much more affordable. This is why broad cost allocation can make it easier to build important new lines.
It’s a simple formula: if something is important, socialize the costs and “we” will get it done. But important to whom? In 2011, IHS found that over 50% of the potential transmission-miles in the transmission project pipeline were targeted to “unlock” renewable resources. EEI’s Transmission Projects: At A Glance report from March 2013 found that, of the $51.1 billion of transmission projects they identified, “projects supporting the integration of renewable resources represent approximately $38.7 billion (76 percent).”
Clearly, the importance of these new “investments” is in the eye of the beholder. Those of us who think renewable energy mandates are costly and wrong-headed see the large transmission projects required by the mandates as also costly, also wrong-headed. Where others praise the “public policy benefits” of mandates, Master Resource has consistently criticized them.
Bootleggers and Baptists Abound
To better highlight the characters involved, let’s examine this issue in the context of the “bootleggers and baptists” theory of regulation. The Natural Resources Defense Council, a leading “baptist,” said about Order No. 1000: “the Commission should be commended for this transformative rule, which puts forth a framework that can move this country’s electric grid towards a clean energy future.”
The American Wind Energy Association, the biggest lobbyist for wind bootleggers, applauded FERC’s leadership and added that “the current system for determining how new power lines are paid for is flawed. The plans too narrowly define who should pay for new projects and stifle investment, resulting in inadequate expansion of the grid.”
So visionary moral crusaders tell us Order No. 1000 will usher in a clean energy future, while savvy pragmatists applaud the transmission investment that will come if we just relax our “flawed” definition of such frivolous things as who should pay for billion-dollar projects. As I have pointed out in the past, this conversation is missing an essential voice — the voice of the consumer.
In one of his last letters, Frederic Bastiat asked a friend to “treat economic questions always from the consumer’s point of view, for the interest of the consumer is identical with that of mankind.” In that vein, Master Resource was keen to point out a powerful dynamic in the debate over the cronyism-riddled wind production tax credit.
As I’ve shown, the same dynamic applies to renewable energy mandates and socialized transmission costs — the bootleggers and baptists go to Washington to reap concentrated benefits, while the consumer minds his own business but gets fleeced. The dynamic plays out time and again, and the regulations keep coming, against the interest of the consumer and of mankind.