Transcript Best Approach to Implementing Order 1000 in ISO/RTOs Bruce Edelston President, Energy Policy Group and Executive Director, Coalition for Fair Transmission Policy Restructuring Today Webinar August 8,

Best Approach to Implementing
Order 1000 in ISO/RTOs
Bruce Edelston
President, Energy Policy Group and
Executive Director, Coalition for Fair
Transmission Policy
Restructuring Today Webinar
August 8, 2012
CFTP
 The Coalition was formed in January of 2010 to
address emerging concerns on the direction of
transmission policy:
 Efforts to broadly socialize the costs of new
transmission projects intended to develop remote
renewable energy resources, without regards to
the beneficiaries of such development.
 Efforts to give FERC new authority to develop topdown, interconnection-wide plans and/or over-ride
local and regional transmission planning efforts.
Membership
 Membership composed of geographically diverse
electric utilities operating in both organized and
traditional vertically-integrated markets.
 Members include CMS Energy, ConEdison, DTE
Energy, Duke/Progress Energy, Public Service
Enterprise Group, SCANA Corporation, and
Southern Company
CFTP Principles
 Transmission Planning
 Any effort to improve transmission planning must
build on existing regional processes, and be
inclusive of all stakeholders.
 Transmission planning must be initiated at the local
and regional level based on the needs of the
customers who bear the burden and benefits of the
decisions driven by the planning processes.
CFTP Principles
 Cost Allocation
 Costs for new transmission investments required to
meet reliability standards must be allocated to the
area(s) where the investments are required to meet the
standards.
 Costs for new transmission investments not otherwise
required to meet reliability standards must be allocated
to the parties in a manner that clearly aligns cost
responsibility with cost causation.
CFTP Principles
 Cost Allocation
 Costs for new transmission investments required to
meet reliability standards must be allocated to the
area(s) where the investments are required to meet the
standards.
 Costs for new transmission investments not otherwise
required to meet reliability standards must be allocated
to the parties in a manner that clearly aligns cost
responsibility with cost causation.
FERC Order 1000
 Costs must be allocated roughly commensurate with
benefits, but the NOPR does not define benefits
 Cost allocation and planning processes are left up to
individual regions to develop and file with the
Commission based on regional “consensus”, which is
also not defined
 Order 1000-A introduced new concept – “a
proposed transmission facility in a regional plan
for purposes of cost allocation”
FERC Order 1000 (cont.)
 Requires all utilities (or RTOs/ISOs) to file regional
transmission plans and to develop inter-regional
planning agreements with neighboring utilities
 Regional transmission planning must take into
account state and federal public policy requirements
 Requires all utilities to file cost allocation
methodologies and to develop cost allocation
agreements with neighboring utilities)
CFTP Questions – Implementation
 Can regions develop planning processes that
don’t conflict or ultimately pre-empt state
prerogatives?
 Will “Top down” planning processes - where
regional entity makes decisions, replace “Bottomup” processes – where local needs are first
determined by local utilities and their regulators?
 What will happen if regional and state objectives
conflict, or state objectives or requirements
conflict among each other?
CFTP Questions (cont.)
 While “beneficiary pays” is the right principle, how
“benefits” get defined truly matters
 Should only economic and reliability benefits that
can reasonably be projected in planning and
other modeling studies should be considered? Or
are generalized “social benefits,” or far-off and
speculative benefits a rational or sufficient basis
for cost allocation?
 Will cost socialization prevail, and what is the
impact on a utility’s/state’s responsibilities to its
own customers?
CFTP Questions (cont.)
 How are local versus regional facilities defined?
 What role will municipal and cooperative (non-public)
utilities play, given the potential for them to be
allocated costs that they haven’t agreed to or
budgeted for (vs. reciprocity considerations)?
 Not clear how FERC can or will implement its notion
of allocating costs to entities that don’t have a
contractual or customer relationship with transmission
developer
 Particularly in non-RTO areas, will another planning
process create a bureaucratic nightmare
The Road Ahead
 FERC Order 1000’s lack of clarity provides the
opportunity to get it right, or the opportunity to get it
terribly wrong – with potentially harmful results for
consumers
 Need to keep the objectives of transmission planning
and cost allocation in the forefront – ensure reliability
and efficient markets for generation while providing
electricity to end-use customers at the lowest
reasonable cost
The Road Ahead (cont)
 Getting it wrong could mean:
 Local renewable generation is disadvantaged relative to
remote resources because someone else is paying for
transmission for the remote resources
 Customers pay for transmission for which benefits are
speculative at best
 Locational marginal pricing does not provide the right price
signals for buyers and sellers because congestion costs are
subsidized
 Stranded transmission investment could result as there is no
incentive to ensure that transmission investment is truly
needed
The Road Ahead (cont)
 Some recent decisions in specific cases give us
concern regarding what the Commission means by
Order 1000 and how it may be implemented
What’s the problem?
 Utilities have recognized the need to modernize and
expand the nation’s electric grid—and have
responded accordingly
 In 2013 and 2014, annual investment in transmission
will double from the $7 billion spent on transmission in
2012, a major accomplishment during an economic
slum
 Investment will then double again in 2015 to $31
billion, according to Transmission Hub
What’s the Problem?
Source: Transmission Hub
What’s the Problem?
 A paradigm shift for transmission ?
 Decentralization vs. long-distance transmission
− Distributed generation from solar PV panels and other sources can limit the need for
expensive long-distance new transmission and reduce congestion
− Off-shore wind may provide an economic alternative to the combination of
Midwestern-sourced wind and hundreds of miles of new transmission
− No need for the giant extension cord that plugs green power from remote generation
into load hundreds of miles away
 Abundant, affordable, clean and domestically-produced natural gas
has replaced coal as the utility industry’s fuel of choice, a market
development never envisioned by FERC when it formulated a
transmission plan focused on renewable energy
 Neither the cap and trade policy nor a national renewable energy
standard have been adopted, undercutting FERC’s public policy
rationale for a massive transmission build out
Further Information
Coalition for Fair Transmission Policy
www.fairtransmission.org
[email protected]