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Category — Federal Energy Regulatory Commission (FERC)

Blow for Energy Postmodernism: FERC Nominee Binz Bows Out

“It’s policy, it’s regulation, it’s industry structure and it’s incentives . . . It’s not physics, it’s not chemistry, it’s not even the electric grid. It’s what we decide we want.” – Ron Binz

“Postmodernism … can be described as a set of critical, strategic and rhetorical practices employing concepts such as difference, repetition, the trace, the simulacrum, and hyperreality to destabilize other concepts such as presence, identity, historical progress, epistemic certainty, and the univocity of meaning.” - Stanford Encyclopedia of Philosophy

A small victory for consumers and free-market energy policy came yesterday when energy statist Ron Binz withdrew as a nominee to chair the Federal Energy Regulatory Commission (FERC) in Washington, D.C.

Binz put the blame on others rather than his own postmodern energy philosophy and coercive energy-policy views, which he unsuccessfully tried to hide before Congress. “I think it’s a cautionary tale because you don’t want agencies like the FERC to be subjected to this kind of political blood sport, which is what it became,” he complained. “There was a very large coalition of right-wing groups who coalesced to oppose me.” [1]

The president of the American Energy Alliance, Tom Pyle, offered a different view: [Read more →]

October 2, 2013   5 Comments

A Few More Questions for Ron Binz

The nominee for the Federal Energy Regulatory Commission (FERC) chairmanship Ron Binz will have plenty of potential questions to answer today at his confirmation hearing (9:30am ET), including these posted by the Institute for Energy Research.

The importance of the Binz nomination stems in roughly equal parts from:

(1) The growing significance of FERC as an agency with new and expanded authority,

(2) The context and timing of the nomination, which comes as part of an aggressive (Congress-and-voters-be-damned) climate action plan, and

(3) The details of Ron Binz’s history as a radical (pro-renewable) regulator and energy “expert.”

To complement today’s questions posed by members of the Senate Committee on Energy and Natural Resources, university economist and electricity specialist Robert Michaels would ask the nominee the following questions: [Read more →]

September 17, 2013   2 Comments

FERC’s Wellinghoff: An Energy Technocrat Steps Down

“It is difficult to overestimate Jon [Wellinghoff]‘s impact on the electricity industry in recent years — or for that matter in the years to come.”

-Dan Delurey, Executive Director of the Association for Demand Response and Smart Grid

As the administrative head of an agency with approximately 1,500 employees and a $300+ million budget, the Chairman of the Federal Energy Regulatory Commission (FERC) sets the priorities of an otherwise fairly independent agency. [1] Current Chairman Jon Wellinghoff recently informed the Obama administration he would not seek an additional term, ending a seven-year stay as Commissioner (2006–09) and as Chairman (2009–2013).

Wellinghoff was appointed a FERC Commissioner in 2006 by President Bush, largely on the support of Harry Reid, his fellow Nevadan and ally in the Senate. With Reid’s continued support and a staunchly pro-renewable record at FERC, Wellinghoff was promoted by President Obama from Commissioner to FERC Chairman in 2009.

Throughout his FERC career, as in his earlier career, Wellinghoff consistently advocated for more demand response and more renewable energy investment, including a new influx of transmission projects largely devoted to integrating wind projects.

Unfortunately, his futurist predictions about an inevitable and necessary “green” transition and his technocratic plans to effect such a change are misguided. He also stands as a key example of how the Obama administration has attempted sweeping policy shifts without legislative help by channeling efforts through federal agencies. For better or worse, the FERC Chairman does wield power, and Wellinghoff has not wielded it well.

[Read more →]

June 17, 2013   4 Comments

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.

Overview

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. [Read more →]

April 8, 2013   12 Comments

‘Demand Response’ in Electricity: Economists vs. FERC on (Over)Pricing

“The [Federal Energy Regulatory] Commission’s recent progress in promoting competitive wholesale energy markets has the potential to be undone as a result of this well-meaning, but misguided Rule.”

- FERC Commissioner Philip Moeller, ”Demand Response Compensation in Organized Wholesale Energy Markets,“ Order No. 745 (2011).

Renewable energy subsidies are at the forefront of the public policy debate with constant talk of “green” jobs and the looming expiration of the production tax credit, a familiar subject at this blogsite. But qualifying renewables get other subsidies too, such as accelerated depreciation and state-level must-buy mandates.

The Federal Energy Regulatory Commission (FERC), regulating interstate electricity, is arguably subsidizing another favorite “green” resource – the practice of energy abstinence called “demand response.”

FERC Order Nos. 745 and 745-A established, for the first time, a uniform compensation scheme for demand response in organized electricity markets. Before Order No. 745, each regional transmission organization was free to develop its own compensation scheme, and demand response was already being implemented in organized markets such as PJM. Commenters disagreed with several aspects of the order, including the appropriate level of compensation. When FERC denied rehearing on that issue (and others), protesters sought review by the Court of Appeals (Electric Power Supply Ass’n, et al. v. FERC, No. 11-1486, et al.). The case is at the briefing stage, with oral arguments to be scheduled.

The MasterResource-worthy part of this case is the amicus brief filed by a group of academic energy economists. It takes a lot for economists to agree in the first place, let alone to jointly file a 30-page brief on a nuanced issue in the field of electricity markets. To raise the stakes a bit, I should also note that one of FERC Chairman Jon Wellinghoff’s main priorities, along with integrating renewables, is encouraging demand response. A reversal on this issue would be a big deal.

Background: ’Demand Response’

Retail electricity customers tend to pay a fixed rate for their electricity. However, in organized wholesale markets, the price of electricity at different points in the transmission grid can vary widely between seasons and even throughout the day depending not only on demand and supply, but also on transmission constraints. That wholesale market price is often referred to as the Locational Marginal Price (LMP).

That price structure means there is a disconnect between wholesale and retail electricity markets, and therefore retail customer usage is not responsive to wholesale price fluctuations. This can be troublesome as price-insulated electricity demand reaches the upper limits of the grid’s physical capacity to supply. Grid reliability is threatened, and despite sky-high prices at the wholesale level, retail customers carry on using electricity, blind to the wholesale price signal.

Enter demand response (or imputed demand response to be fair to the electricity nerds out there). The promise of demand response is to bridge the wholesale-retail gap by giving retail customers the incentive to withhold consumption when wholesale prices are high, easing the strains on the system at times of peak electricity usage. This “peak-shaving” effect can strengthen the reliability of the system and put off costly transmission investments. However, significant differences of opinion remain as to the best way to send wholesale price signals to retail customers. This is where the economists and the FERC majority are at odds.

The FERC Majority: Pay Demand Responders Full LMP

In Order No. 745, FERC reasoned that, “when a demand response resource has the capability to balance supply and demand as an alternative to a generation resource,” the demand response resource should be paid the full LMP. Some commenters agreed – some not so much. As FERC stated: [Read more →]

September 13, 2012   13 Comments

The Federal 'Green' Super Highway: 3,000 Miles to Nowhere? (Part II: Obama's power grab and high cost)

[Yesterday's post discussed how FERC failed to implement the siting authority granted in the Energy Policy Act of 2005 and examined a case study about why it failed. Part II looks at Obama’s “green power” superhighway, the recent work by regional transmission planning organizations to bring renewable energy to market, and the extremely high costs to do so.]

Public policy has long supported the ability to construct new transmission lines that relieve congestion and reduce the cost of energy to consumers. However, it is another question entirely to construct a new “green” coast-to-coast transmission corridor given the mess our transmission system is in today and its prohibitive cost. Critics have complaint that it is throwing good (transmission) money at bad (renewable) generation money.

Slowly, regional system operators are resolving transmission bottlenecks and improving the smooth flow of energy in their service territories. The good news is that virtually all of the most important regional projects are likely to be in-service well before our Washington representatives will complete their transmission siting authority “power grab” (not that it will change their game plan). Also, regional transmission planning organizations are actively promoting and siting transmission lines. The regional system is working and they don’t need FERC or congress to help to fix it.

The local siting processes are working (regardless of how you feel about siting renewables-only transmission lines) but the costs for constructing this transmission is extremely expensive per unit of energy generated given the periodicity of the output from wind and solar power plants. Costs of constructing new transmission for renewable projects can easily equal a quarter of the cost of building the power plant alone. In ERCOT, the price is over $2 million per mile to bring renewable energy into the existing grid and will add at least 5 cents/kWh for the transmission portion of the cost of renewable electricity alone—more than double the cost of electricity from our existing fleet of nuclear power plants and 60% more than the cost of coal-fired electricity at the busbar. The Western Interconnect planning process is currently identifying likely renewable sites and looking at transmission line corridors.  

 

FERC: Try, Try Again

In Part I we discussed how federal siting authority of new transmission lines was granted under the Energy Policy Act of 2005 (EPAct) yet FERC’s implementation of that authority failed judicial scrutiny. In addition, the case study presented concerning adding an interconnection between Southern California and Arizona clearly shows that there are many other issues that must be considered when establishing the need for FERC to intercede on behalf of one state or another. In my mind, the most significant issue, and the Arizona Corporation Commission agrees, is that a state must completely exercise their ability to construct local power generation facilities before attempting to cross connect to an adjacent state. Merely needing the power is no reason for the federal government to exercise its eminent domain powers when there is an unwillingness to construct new plants.

Today, we now hear the next stanza to this same tired tune. We continue to be told that a complete overhaul of the U.S. power delivery system is required but now the grid updates must also accommodate the higher levels of renewable energy expected to be generated over the next decade. Senator Harry Reid (D-NV) gave us a look at our future when, at a conference in February hosted by the Center for American Progress Action Fund, a group organized by John Podesta, proclaimed, “My legislation (referring to another round of legislation he promised to introduce that will speed approvals of transmission lines) will require the president to designate renewable energy zones with significant clean energy-generating potential.” Reid went on to explain that the federal government should be given the authority, through FERC, to overrule state and local governments that slow the development of Obama’s promised 3,000 miles of new interstate transmission lines.

The proposed legislation would also provide FERC the power of eminent domain should states be unwilling to yield to the inevitable pressure from Washington to approve the plans. “We cannot let 231 state regulators hold up progress,” Reid said. “They should be given every opportunity to see if we can work this out through the state regulators. If that can’t be done I think there are very few alternatives for the American people,” other than eminent domain. But any delays or obstacles would be quickly settled, Reid said. “Whatever we pass at the federal level trumps all that,” he said.

John Podesta, president of the Center for American Progress, said a stronger federal siting authority is needed, given that the 4th U.S. Circuit Court of Appeals ruled that FERC’s interpretation of its backstop siting authority under the 2005 energy bill was too expansive.

“It’s time to get back to the table and find a way so that states and regions can plan for the transmission that they need but that the federal government has a role to play to make sure that gets done,” Podesta said.

Reid has yet to provide any details of his proposed bill but a legislative aid said the bill would contain four main components: an interregional planning component, federal siting authority, a national cost allocation plan and a requirement that any generation that connects to the grid meet “green” standards. The four parts appear very similar to a plan produced by the Energy Future Coalition and the Center for American Progress.

Thankfully, Reid’s proposed legislation has yet to see the light of day given the extraordinary costs involved with constructing new national interstate transmission lines. For example, grid operators in the eastern half of the U.S. earlier released in August a study estimating that more than $80 billion in new transmission infrastructure would be needed to get 20% percent of the region’s electricity from wind generation by 2024.

Does Siting need Fixing?

The Federal Energy Regulatory Commission (FERC) recognizes the challenges posed by bringing electrons from new and disparately located renewable energy sources to population centers. In late May, FERC announced a series of transmission planning meetings that will focus on “wider integration of regional energy resources into the nation’s power grid.” In essence, renewable energy generation, principally wind energy, is located where the transmission infrastructure does not exist, and other distributed energy resources are located in transmission-constrained regions.

According to FERC Chairman Jon Wellinghoff, “Planning is one of the three legs on the transmission policy stool—the others are siting and cost allocation—and all are crucial to meeting the goals of assimilating demand resources, renewable energy and distributed generation into the grid for the benefit of consumers.” Here we go again.

From Market Pull to Product Push

Historically, electric utilities dictated when, where, and how much new generation would be added. Their integrated resource plans (IRP) determined the timing of plant additions, the fuel sources, and the location of the new generation resources. Transmission planners followed the lead of utilities to route the necessary transmission capacity while also seeking to lessen area congestion, if necessary. Traditionally, new power generation resources—and, by extension, new transmission—responded to a market pull: predicted load demand. The role of the state and local governments was oversight, providing access to transmission, and setting rates.

In contrast, renewable mandates have upended the traditional approach to developing an IRP. Rather than anticipated customer demand driving generation and transmission decisions, government mandates are now in the driver’s seat. Twenty-nine states and the District of Columbia have a renewable portfolio standard that requires utilities in those states to supply some percentage of renewable electricity by a date certain.

For instance, the California Public Utility Commission requires that 33% of that state’s power originate from renewable energy sources by 2020. In order to achieve this extraordinary goal, all new power generation procured by the state’s utilities must come from renewable energy sources. In this new world, the “pull” of market demand has been supplanted by a government-mandated “technology push” that determines which renewable developers pushing new power into the system in response to state-mandated levels of renewable power have access to limited transmission infrastructure.

One of the other challenges to building new transmission capacity to move renewable energy long distances that was discussed by Wellinghoff is identifying acceptable siting locations for renewable energy facilities. In spite of FERC’s interest is being part of that decision process, much progress has been made at the local level that makes FERC irrelevant in siting transmission lines in practice.

Transmission Planning Out West

One important initiative toward this goal in the Western Interconnection is the Western Governor’s Association’s (WGA) Western Renewable Energy Zones (WREZ) study. In the WREZ study—which covers 11 western states, two Canadian provinces, and areas of Mexico that are part of the Western Interconnection—as many as 50 zones with substantial renewable resources are in the process of being identified so that renewable projects can be expedited and transmission projects can be planned in advance.

The ultimate goal of the WGA is to “develop 30,000 MW of clean and diversified energy by 2015.” The approach used by WGA is to first identify regions with high potential for generating renewable energy—solar, wind, geothermal, etc by involving all the relevant stakeholders. The results of these studies in turn drive transmission planning.

The most recent draft map from the Western Governor’s Association illustrates Qualified Resource Areas as those areas with a high density of developable renewable energy resources after screening for known technical and environmental limitations for which data are available. These data will be used to determine Western Renewable Energy Zones (WREZ) in the Western Interconnection.

The state with the largest installed wind power capacity has already identified Competitive Renewable Energy Zones (CREZ) within the ERCOT Interconnection. In March, the Texas PUC assigned approximately $5 billion of transmission projects to be constructed in these CREZ that will eventually transmit 18,456 MW of wind power over more than 2,300 miles of new transmission lines from power-heavy West Texas and the Panhandle to highly populated metropolitan areas of the state. To put the magnitude of these numbers into perspective, the cost of transmission is over $2,000,000 per mile or over $270/kW of installed capacity.

The regulatory body expects that the new lines will be in service within four or five years. The Texas PUC took about three years to select the most productive wind zones in the state, designate them as CREZ, and devise a transmission plan to move power generated from those zones to various populated areas in the state. Many of these new transmission projects will begin construction later this year.

As an aside, T. Boone Pickens’ investment in his now delayed plan to build 1,000 MW of wind power in the Texas panhandle is in jeopardy. The ERCOT transmission plans do not extend the wires far enough into the Panhandle to reach Pickens’ projects. Pickens now has 687 wind turbines available that cost him a cool $2 billion that he hopes to recycle on a number of smaller projects in the U.S. and Canada. That’s a lot of wind turbines.

The Cost of New Transmission Is Substantial

More insidious are unpredictable transmission costs. Power sellers, buyers, and investors adamantly want price certainty in the total delivered cost. However, congestion charges can make the delivered price vary, especially in locational marginal pricing.

Everyone wants to know the answer to the question: What is the added premium to deliver renewable energy? Many transmission networks have both fossil fuel and renewable generators sharing the same network. Certainly, intermittent renewable sources have higher system-integration costs. Load balancing is more involved as well.

A recent Lawrence Berkeley National Laboratory study may provide an early answer to the cost question. Lawrence Berkeley National Laboratory (LBNL) recently issued a research report that examines the expected costs for new transmission infrastructure that would be needed to support an accelerated program for renewable energy projects, particularly wind energy. The report, “The Cost of Transmission for Wind Energy: A Review of Transmission Planning Studies” was released in February 2009. (A copy of the report can be downloaded at http://eetd.lbl.gov/ea/ems/reports/lbnl-1471e.pdf.)

The authors’ objectives in preparing this report were threefold: to define the transmission costs for a rapidly growing wind power industry, to discuss different transmission planning approaches, and to examine the models used to estimate future wind deployment. Our interest is this article is to focus on the transmission cost estimates prepared by LBNL.

The cost estimates are based on a review of 40 transmission planning studies completed between 2001 and 2008 by various developers, independent system operators/regional transmission operators, state agencies, and individual utilities. There is a wide range in transmission costs, although the costs are generally less than $500/kW. The cost of the median study scenario was $300/kW, or about 15% to 23% of the typical installed cost of a wind turbine plant. These numbers are quite consistent with the $270/kW from ERCOT discussed above.

The authors also concluded that variation in the study methodologies used in these 40 transmission siting studies and the characteristics of the specific grid may affect transmission installation costs (see table). Depending on the original purpose of the transmission line under study (whether it was congestion or deliverability focused), the authors concluded that the purpose affected the costs of adding wind energy to the mix.

Estimated Installed Cost of Wind Transmission Based on Three Higher-Level Studies of Wind Transmission. Source: LBNL

Study

Wind Capacity

Unit Cost of Transmission for Wind Power

10% Wind Energy by 2030: AEP 765 kV Overlay Study

200-400 GW

$150-$300/kW

20% Wind Energy by 2030: Wind Deployment System

290 GW

$207/kW

Annual Energy Outlook 2008 Projections for 2030: National Energy Modeling System

40 GW

$450/kW consisting of $316/kW for transmission and $133/kW for “long-term” multipliers

The study also reviewed three high-level wind transmission–only studies, as shown in the table above. These costs are generally consistent with the median cost identified in the original study sample of $500/kW, or about 25% of the $2,000/kW cost of constructing a new wind project.

The study also concluded that the historic cost of transmission was in the range of $35/MWh to $79/MWh with an average of $45/MWh. Using reasonable economic assumptions on the ERCOT transmission projects and a 33% capacity factor, the transmission lines add about $50/MWh to the price of power generated by the wind projects. For perspective, existing nuclear plants as an industry deliver power to the grid at less than $20/MWh and coal plants are in the range of $30 MWh.

Another Approach: Requiring Backup Power

Nevertheless, renewables do add additional costs to the whole system. For instance, speedy ramp-up of backup power is essential when a wind farm goes down with as little as one-hour warning. Reliability issues kick in as well.

For example, an ERCOT report concluded that only 8.7% of historic wind generation was produced during peak power hours limiting its effectiveness in trimming system peak demand.

Someplace in the delivery chain this intermittency of energy production versus load demand must be smoothed out. Utilities traditionally have taken on this burden themselves. Typically, a utility backfills wind/solar gaps with gas-fired plants to make up for any shortfall in energy production based on a number of factors, including the season, weather, and the region’s operating experience. Using the same approach with very remote wind and solar farms isn’t as straightforward. To do so would make the entire long-distance energy delivery chain, in effect, run intermittently—if the remediating, balancing measures are not applied.

A more recent procurement practice is for the electric utility to insist that the renewable producer directly supply steady, baseload-style power. In particular the utility expects the renewable power producer to have its own storage or natural gas backups. An example would be Xcel Energy’s April 2009 request for proposal for 600 MW of solar thermal that is “fortified” in this way.

Conclusion

Central planning based on temporary political majorities–or, dare one say, ‘political whim’–is not a viable long-term electricity policy. Free-market incentives to expand and build are preferable, and do not expect a 3,000-mile ‘green’ superhighway as a result.

— Also contributing to this article was Sonal Patel, POWER senior writer, and Martin Piszczalski (Ph.D), an industry analyst with Sextant Research

September 23, 2009   No Comments

The Federal “Green” Superhighway: 3,000 Miles to Nowhere? (Part II: Obama’s power grab, high cost)

[Yesterday's post discussed how FERC failed to implement the siting authority granted in the Energy Policy Act of 2005 and examined a case study about why it failed. Part II looks at Obama’s “green power” superhighway, the recent work by regional transmission planning organizations to bring renewable energy to market, and the extremely high costs to do so.]

Public policy has long supported the ability to construct new transmission lines that relieve congestion and reduce the cost of energy to consumers. However, it is another question entirely to construct a new “green” coast-to-coast transmission corridor given the mess our transmission system is in today and its prohibitive cost. Critics have complaint that it is throwing good (transmission) money at bad (renewable) generation money.

Slowly, regional system operators are resolving transmission bottlenecks and improving the smooth flow of energy in their service territories. The good news is that virtually all of the most important regional projects are likely to be in-service well before our Washington representatives will complete their transmission siting authority “power grab” (not that it will change their game plan). Also, regional transmission planning organizations are actively promoting and siting transmission lines. The regional system is working and they don’t need FERC or congress to help to fix it.

The local siting processes are working (regardless of how you feel about siting renewables-only transmission lines) but the costs for constructing this transmission is extremely expensive per unit of energy generated given the periodicity of the output from wind and solar power installations. Costs of constructing new transmission for renewable projects can easily equal a quarter of the cost of building the generation alone. In ERCOT, the price is over $2 million per mile to bring renewable energy into the existing grid and will add at least 5 cents/kWh for the transmission portion of the cost of renewable electricity alone—more than double the cost of electricity from our existing fleet of nuclear power plants and 60% more than the cost of coal-fired electricity at the busbar. The Western Interconnect planning process is currently identifying likely renewable sites and looking at transmission line corridors. [Read more →]

September 23, 2009   7 Comments

The Federal 'Green' Superhighway: 3,000 Miles to Nowhere? (Part I: siting politics and state wealth transfers)

Investment in interstate transmission has not kept pace with the need for more electricity capacity, despite wakeup calls such as the widespread Northeast and Midwest blackout in August 2003. Transmission siting authority has become the mantra for those who claim that the “not in my backyard” (NIMBY) syndrome is driving U.S. energy policy. FERC was given the opportunity to flex their national siting authority muscle with passage of the Energy Policy Act of 2005 (EPAct), but their game plan failed to pass court scrutiny. Today, siting new transmission remains a state’s rights issue as it has always been.

Transmission siting controversies are increasing given the growing number of renewable energy projects that want to interconnect with scarce transmission capacity. Now, another layer of complexity is in play due to the potential of a national renewable portfolio standard that portends hundreds if not thousands of new renewable projects that will all seek priority for grid access.

There are new renewable projects in development today that are already in the queue waiting for transmission capacity on existing lines or the construction of new lines because of the prohibitive costs of transmission upgrades. Other projects are so remote that only a purpose-built transmission line can bring the energy to market.

Adding uncertainty to uncertainty, Congressional leaders have proposed constructing new transmission lines dedicated to moving only renewable energy coast-to-coast whereby state’s rights will be of secondary importance. Regardless, ratepayers will end up paying the tens of billions of dollars for these new lines and further driving up the cost of electricity.

Below, we discuss how FERC failed to implement the siting authority granted in the Energy Policy Act of 2005 and provide a case study on the reasons for failure. Part II (tomorrow) will look at the latest rendition of the siting authority power grab: Obama’s promise of a 3,000 mile coast-to-coast “green power” superhighway. We’ll also discuss the recent work by regional transmission planning organizations to bring renewable energy to market and the costs to do so. It won’t come as a surprise that the costs are extremely high.

 

 

New Transmission Sites May Take Years

Siting new transmission lines is an exercise in patience and endurance. The industry has plenty of war stories about state, county or local authorities being unable or unwilling to approve new transmission projects, especially projects that merely transit through a state to get energy to an out-of-state market. One of the long running and always contentious debates is the resistance of Connecticut residents to allow transmission of electricity generated upstate to pass that power through to New York City.

One of the most egregious examples of how a project can become a career in my memory is AEP’s Wyoming-Jackson Ferry line completed in 2006—16 years after the project’s launch, 14 of which were spent wrangling over siting.

Another example; a plan hatched in the late 1980s to move surplus power from coal power-rich West Virginia to power-short New Jersey and New York crashed in the early 1990s due to the opposition of Pennsylvania. Delegates from the Keystone State asked, appropriately, “What’s in it for us?” The answer: “Not much.” Pennsylvania responded, “No thanks.” End of project, after nearly a decade of contention.

Congress has made numerous attempts to reduce these delays and shorten the time required to add new transmission capacity where it is most needed. And each time the new laws have failed miserably.

The most recent attempt was provisions in EPAct that gave FERC the authority to override state and local opposition to the construction of interstate transmission lines if the agency determines that they will reduce system congestion. In April 2007, the Department of Energy designated two regions that qualify for such treatment as “national interest electric transmission corridors.” One covers a broad territory stretching from Maryland to New York and as far west as Ohio. The other includes a large chunk of southern California, southern Nevada (including Las Vegas), and parts of Arizona all the way to Phoenix.

In announcing FERC’s plan at the time, then-Energy Secretary Samuel Bodman said, “The parochial interests that shaped energy policy in the 20th century will no longer work.” Maybe so, but instead of serving the “national interest,” the proposed corridors look a lot like a lot of poaching routes to me. Their result was said to enable regions that have resisted building generation locally—in hopes of buying cheaper power from other regions—to avoid paying the full costs of “their” power. The problem with this plan is that it saddles out-of-state generating regions with the environmental and lost-resources costs and consequences.

California Dreamin’

The Sunrise Powerlink is certainly the most ambitious project developed by San Diego Gas & Electric (SDG&E) in many years. The recently approved project is running a new 150-mile transmission line east from San Diego into the deserts. SDG&E claims the link will spur development of renewables (geothermal and solar), lower transmission system congestion costs, and “reduce subsidies paid to local, aging power plants that are more expensive to operate.”

The second and third justifications are closely related and often given short shrift by the media. In the report backing its national corridor designations, the DOE states that one of the biggest reasons it considers the southern California grid “troubled” is the high cost of running those old plants in California—typically gas-fired units in urban areas. No surprise: SDG&E hasn’t built a new power plant in its service territory in more than 30 years.

In the interest of full disclosure, I worked on the design and construction of SDG&E’s last major power plant project Encina Unit 5 when it was constructed in 1976-78. I was also present when then-CEO Tom Page announced in 1978 that SDG&E was not going to construct any more plants but would become a “wires” company and in the future import energy from other sources rather than construct any new plants. To do so was a pure business decision made at the time given the resistance of local governments and citizens to building any more power plants. This business plan was a conscious decision to avoid building local generation and rely solely on imported energy to cover load growth. To their credit, the plan has worked for over 30 years, but now Arizona has the surplus power capacity and a growing population and is unwilling to share their electricity resources. This is a game changer for Southern California.

Buddy, Can You Spare a Megawatt?

I recently drove my 4WD truck to the top of a small mountain just south of the Palo Verde Nuclear Generating Station in Arizona, about 100 miles from the California border. The power park view warms a power engineer’s heart: The three-unit 3,739-MW nuke lies to the north, and to the south sit Sempra’s 1,250-MW Mesquite Generating Station, Pinnacle West Energy’s 1,136-MW Redhawk Power Plant, and LS Power’s 713-MW Arlington Valley Energy Facility. Travel over the next hill and south a few miles and you’ll find the 2,400-MW Panda Gila River Project. All but Palo Verde are gas-fired combined-cycle plants.

I’d venture that a big chunk of the more than 9,200 MW is just aching to find a path into Southern California. Why? The average retail electricity price is almost 50% higher there than in Arizona: 15 cents/kWh vs. 8.5 cents/kWh. Finding new customers willing to pay more for the same commodity would be a business coup for the plants’ owners. The only hurdle would be permitting the new lines needed to deliver it. But the Arizona Corporation Commission (ACC) has a different vision of how that power will be used—generate it in Arizona, use it in Arizona.

To its credit, the ACC saw through the “master plan” scheme and unanimously voted down a Southern California Edison (SCE) proposal to build a 231-mile transmission line to connect the power park to a substation near Palm Springs (and ultimately to the Sunrise Powerlink and points west). SCE execs argued that the link would “increase the state’s ability to transmit energy.” What they really meant was the ability to transmit energy to Southern California. Bill Mundell, an Arizona energy commissioner, explained the rejection succinctly at the time: “I don’t want Arizona to be the energy farm for California.” Commissioner Kris Mayes added, “You [SCE] are trying to drop a giant extension cord into Arizona.”

The final meeting on the project turned a bit testy when commissioners quizzed Dian Grueneich of the California Public Utilities Commission about her state’s recent lack of progress building new power plants and transmission lines. Mundell asked, “Why should Arizona put its natural resources, environment, and future energy supply on the line while California does relatively little?”

That’s indeed what California is asking Arizona to do, in an updated version of Aesop’s fable of the grasshopper and the ant. And that’s precisely why the entire national interest corridors program will face challenges from power “donor states.” In California’s case, taxing that nasty coal-fired power coming into the state up north and strong-arming its neighbor to the east for a bigger slice of existing gas-fired capacity is an energy plan doomed to failure. Nevada, keep an eye on these guys.

New Developments

Unable to convince Arizona’s utility commissioners to approve the new power line, the California utilities did just as was expected: ask FERC to step in and exercise some of that authority vested in them by EPAct to make Arizona plug in their extension line. FERC tried to mediate the disagreement with no success and subsequently developed an order forcing Arizona to agree to the interconnection. The inevitable federal court case resulted.

In February 2009, a federal appeals court slapped FERC’s hand for overreaching the authority granted to the agency by EPAct when it took an “expansive interpretation” of the law in asserting its power to override state decisions.

The U.S. Fourth Circuit Court of Appeals in Richmond, Va., issued its decision in a case brought against the regulatory commission by the Piedmont Environmental Council and multiple states and parties—including the New York Public Service Commission (PSC) and the Minnesota Public Utilities Commission (PUC).

At the heart of the matter was the authority granted by EPAct, which allowed the commission to approve interstate power lines after the affected state had “withheld approval for more than a year.” But in an issuance of a final November 2006 rule, FERC substantively interpreted the phrase, “withheld approval for more than one year” to include a state’s denial of a permit within the one-year statutory timeframe.

The petitioners had filed requests for rehearing on FERC’s final rule, arguing that the agency had erred in its interpretation. The parties also asked the court to review several rulemaking decisions FERC had made with the application of that interpretation.

“FERC’s interpretation is contrary to the plain meaning of the statute,” wrote Judge Blane Michael for the majority. “Simply put, the statute does not give FERC permitting authority when a state has affirmatively denied a permit application within a one-year deadline.”

Michael said that FERC’s standing interpretation would mean that state commissions would lose jurisdiction unless they approved every permit application in a national interest corridor. “Under such a reading it would be futile for a state commission to deny a permit based on traditional considerations like cost and benefit, land use and environmental impacts, and health and safety. It would be futile, in other words, for a commission to do its normal work,” he wrote.

The court’s decision now sets hurdles for FERC-approved projects whose public commissions have issued denials but that hasn’t slowed down the pressure to overhaul (again) the provision of the EPAct failed to pass judicial scrutiny.

In essence, FERC powers granted under EPAct were neutralized by the appeals court’s decision and Arizona’s rejection of the construction of a new transmission line stands.

But, this court decision doesn’t bring an end to the push for federalizing transmission siting authority. Far from it. The next page of the game plan uses the supposed need for a “green” coast-to-coast transmission superhighway as cover for nationalizing all future transmission siting decisions.

— Also contributing to this article was Sonal Patel, POWER senior writer

September 22, 2009   5 Comments