New regulations allow independent developers to compete against traditional utilities.
Federal Energy Regulatory Commission Order 890 required transmission providers to organize into different regions and that transmission planning be built on coordinated, open and transparent processes. It also set the stage for FERC Order 1000, which requires grid operators to work together on regional planning and allows independent developers to compete with traditional utilities in building new power lines. The order, “The Final Rule on Transmission Planning and Cost Allocations by Transmission Owning and Operating Public Utilities,” applies to new transmission facilities.
Craig Cano, a spokesperson for FERC, explained the reasons for the new order. “Order 1000 will remove barriers to the development of transmission, promoting cost-effective planning and the fair allocation of costs for new transmission facilities,” Cano said. “This enhanced transmission planning will provide a strong foundation for updating the grid to provide reliable transmission service as well as an opportunity to achieve goals that states and local authorities have set for lower emissions, demand-side resources and renewable energy.”
Public utility transmission providers are required to participate in a regional transmission planning process that satisfies Order 890's principles and produces a regional transmission plan.
Additionally, local and regional transmission planning processes must consider transmission needs driven by public policy requirements, established by state or federal laws or regulations. Specifically, transmission lines that help achieve the goal of a public policy, such as a state renewable energy standard, should be considered in the planning and cost allocation process.
Also, public utility transmission providers in neighboring transmission planning regions must coordinate to determine if more efficient or cost-effective solutions are available.
Each transmission planning region must produce a regional transmission plan reflecting solutions that meet the region's needs more efficiently and cost-effectively. Stakeholders must have an opportunity to participate in identifying and evaluating potential solutions to regional needs.
In terms of interregional coordination, neighboring transmission planning regions must share information regarding the respective needs of each region and potential solutions to those needs. Each also should identify and jointly evaluate interregional transmission facilities that may be more efficient or cost-effective solutions to those regional needs. Transmission facilities are considered interregional when located in neighboring transmission planning regions.
Regional transmission planning processes must have a regional cost-allocation method for a new transmission facility selected in the regional transmission plan. The method must satisfy the following principles:
Costs allocated must be roughly commensurate with estimated benefits.
Those who do not benefit from the transmission do not have to pay for it.
Benefit-to-cost thresholds must not exclude projects with significant net benefits.
There will be no allocation of costs outside a region unless the other region agrees.
Cost-allocation methods and the identification of beneficiaries must be transparent.
Different cost-allocation methods could apply to different types of transmission facilities.
Each region must develop its own proposed cost-allocation method. If the region is unable to decide on a method, FERC will decide based on the record. Also, there will be no interconnection-wide cost allocation.
Removal of Federal Right of First Refusal
Order 1000 removes any federal right of first refusal from FERC-approved tariffs and agreements with respect to new transmission facilities selected in a regional transmission plan for cost-allocation purposes. However, four limitations exist:
This does not apply to a transmission facility that is not selected in a regional transmission plan for purposes of cost allocation.
This does not apply to transmission facility upgrades.
The rule allows, but does not require, the use of competitive bidding to solicit transmission projects or project developers.
Nothing in this requirement affects state or local laws or regulations regarding the construction of transmission facilities. This includes, but is not limited to, authority over siting or permitting of transmission facilities.
In terms of a timeline, FERC issued Order 1000 on July 21, 2011, and affirmed it in May 2012 with Order 1000-A. Local and regional compliance filings were due Oct. 11, 2012, and interregional compliance filings will be due on April 11, 2013.
Chris Underwood, a project manager with Burns & McDonnell, noted that Order 1000 is a landmark ruling that aims to increase competition in the electric transmission industry. “The electric transmission industry is in the process of evaluating options,” Underwood said. “Each region has its own set of unique challenges. However, one constant across North America is that the landscape is changing.”
Integrating Renewable Energy
In addition to increasing competition, compliance with FERC Order 1000 would spur the development and use of more renewable energy. Traditionally, planners have considered new transmission for two primary reasons: to improve reliability and to potentially reduce rates by providing more competition in the open market. The public policy aspect of FERC Order 1000 means planners must now consider building lines to wind farms and solar arrays, which often are not located near population centers. These transmission lines would ensure states meet their targets for renewable energy as part of the renewable portfolio standards.
According to a statement by FERC Chairman John Wellinghoff, “The North American Electric Reliability Corporation (NERC) projects in its 2010 long-term reliability assessment that approximately 60% of all new resources expected to be added to the bulk power system by 2019 will be new wind and solar resources.”
Regional Transmission Organizations Weigh In
On the regional side, the Southwest Power Pool Electric Energy Network (SPP) is compliant in practice with Order 1000, said Paul Suskie, SPP's senior vice president of regulatory policy and general counsel. “In fact, the day that the FERC approved SPP's highway/byway cost-allocation plan was the day that the FERC issued the note that led to Order 1000. A month after that, the FERC approved SPP's planning process. On the interregional side, we don't have interregional cost allocation, and we aren't as synced up with our seams.”
The highway/byway methodology is part of SPP's ongoing effort to move from a traditional planning approach that focuses on local reliability issues to one that takes a more holistic approach that meets the needs of the region as a whole. SPP states that one such regional goal is the integration of the western and eastern portions of its grid to enable renewable resources, predominantly in the western areas of the SPP region, to serve load centers in the east.
Suskie noted that the challenging aspect of Order 1000 is the elimination of the right of first refusal. “There is a great deal of uncertainty as to what is the law on the right of first refusal in each of our states. The issue of nonincumbents building transmission in most of our footprint could lead to a lot of litigation. There has been some talk in our region of state legislatures addressing the matter,” he said.
Nearly all of the utilities in the SPP footprint are vertically integrated. As a result, the utility owns everything from the power plant to the meter in the home. “The challenge is that somewhere between the meter and the power plant is a transmission line that could be owned by an entity such as a New York City hedge fund,” Suskie said. “When the lights are out and we need restoration, will that entity be there to turn the lights on and what is their incentive to do so? The load-serving utilities need to get the power back on to their customers.”
Suskie noted that Order 1000 is generally a good ruling because its intent is to get new transmission built. “Our concern is that if a nonincumbent is picked to build the transmission line, the ensuing litigation would greatly delay the project,” he explained.
“SPP has a regional state committee of regulators in our footprint and they unanimously support SPP's filing to retain right of first refusal for projects 300 kV and below, but to bid out projects above 300 kV,” Suskie said.
The most challenging aspect of Order 1000 for PJM is the right of first refusal, according to Steve Herling, vice president of planning for PJM. “What we filed with FERC was a series of proposal windows related to projects in various time frames,” Herling said. “One of our guiding principles was that whatever procedures we put in place to facilitate greater competition could not be allowed to prevent us from implementing a solution for reliability needs in a timely fashion.”
To keep projects moving forward, PJM would have a four-month proposal window for developers on projects that are more than five years out. Projects that are four or five years out would have a one-month proposal window. PJM will evaluate projects that must be completed any sooner to determine whether there is sufficient time to evaluate proposals.
“If that can't be done, then we'll find our best solution and designate our incumbent to build it,” Herling said.
PJM will engage an independent contractor to evaluate the cost of the proposals and the ability to site the project. Herling noted that this ruling will likely increase the number of proposals to be evaluated. “Each year, our board has approved about 450 transmission projects,” Herling said. “If even 10% of those projects are of interest to developers and if we get 10 proposals for each project, that would be 450 new proposals we must evaluate.”
In terms of integrating renewable energy, California ISO filed significant tariff amendments in 2010 with the FERC to enable the state to meet ambitious renewable portfolio standards and environmental goals. Those amendments included the public policy requirement and the elimination of right of first refusal, which put the ISO in compliance with Order 1000.
The effort to comply with the interregional requirements will prove more challenging, said Tom Flynn, California ISO's infrastructure policy development manager. “The order requires that we hold extensive discussions with our neighboring transmission regions, which are the Columbia Grid, the Northern Tier Transmission Group and West Connect,” Flynn said. “We started that several months ago, but to put together an interregional proposal and tariff revisions by April 2013 will prove challenging. Here in the West, the transmission providers already did a lot of coordination and sharing of data. This will just increase the sharing of data. Allocating costs on interregional projects will be a new feature, however.”
Editor's note: This is the second article in a series on the impact of FERC Order 1000 on transmission construction. The first article was published in the October 2012 issue of T&D World.