Released July 28, 2011 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Project spending in electric generation and transmission could surge in the coming years now that the Federal Energy Regulatory Commission (FERC) (Washington, D.C.) has finalized transmission planning and cost-allocation principles. The principles, under development for more than a year, were greeted warmly by groups representing renewable energy and transmission interests.
FERC's 620-page Order 1000, adopted July 21, is the first step in fixing a transmission system that many parties agree is broken. The order stems from and expands upon earlier FERC rulings designed to remove legal and institutional roadblocks to building new transmission lines and ensuring fair and non-discriminatory access to transmission lines. FERC adopted the order on a 5-0 vote. The agency received approximately 5,700 pages of comments from about 200 parties. The new rule takes effect within 60 days of publication in the Federal Register.
"This rule is an important step forward, building on FERC's successful market reforms over the past 15 years," FERC Chairman Jon Wellinghoff said in a statement. "Our action today promotes efficient and cost-effective transmission planning and the fair allocation of costs for new transmission facilities. These changes will provide consumers with greater access to efficient, low-cost electricity." He noted that nearly 200 parties filed comments on the issue.
"There is a backlog of 275,000 megawatts (MW) of wind power that is sitting in a queue, unable to move forward because of inadequate transmission capacity," Michael Goggin, manager of transmission policy for the American Wind Energy Association (AWEA) (Washington, D.C.), told Industrial Info in an interview. "We would not expect all of those projects to go forward. But an upper range of what could reasonably expect to get built is 100,000 to 150,000 MW of new wind generation, according to the North American Electric Reliability Corporation (NERC) (Princeton, New Jersey)."
"Building a windfarm and associated transmission lines costs about $2.3 million per megawatt of installed generation capacity," continued Goggin. Using that estimate, construction of 100,000 MW of new wind generation and associated transmission pencils out to $230 billion. And that doesn't include solar power development or construction of non-renewable generation. "There's a lot of money at stake," he observed.
Texas alone has an estimated $2 billion of transmission projects under development. For additional information, see the July 26, 2011, article - Lone Star State Sees $2 Billion in Plans for Transmission Lines. FERC's order does not apply to the state of Texas, which operates its own intrastate electric market. FERC regulates interstate transmission of electricity, among other issues.
"FERC's Order 1000 is a well-reasoned order that reflects the comments" received during the year-long public comment period, commented Joseph Kelliher, a former FERC chairman and current executive vice president for NextEra Energy Incorporated (NYSE:NEE) (Juno Beach, Florida). "Procedurally, the most significant part of this order is that it was issued at all--some FERC rules are never issued," he said in an interview. "But after that, the most important part of this order is the cost-allocation principles set forth by the commission." For more information on the importance of the FERC action, see June 13, 2011, article - Upcoming FERC Vote Critical to Fixing Broken U.S. Electric Grid.
The new FERC rule lays out six cost-allocation principles that are generally designed to ensure costs are roughly commensurate with benefits, that only beneficiaries pay for projects, and that costs are not allocated outside of a regional transmission organization unless the other group agrees to accept those costs.
Allison Clements, a blogger with the Natural Resources Defense Council, made this observation: "While Congress continues to be mired in partisanship and politics, pushing hopes of comprehensive energy reform to the far-back burner, (FERC) ... has demonstrated that it is willing to forge ahead in the transition towards a clean energy future." Order 1000 "will equate to real progress towards the integration of renewable energy resources and state and federal renewable energy, energy efficiency, demand response and distributed generation policies," she commented.
"The rule removes one of the obstacles to developing the grid that the U.S. needs for the 21st century: narrow cost allocation that does not recognize the way the grid operates and impedes cost recovery for grid investment," said Jolly Hayden, president of WIRES (Washington, D.C.), an organization representing utilities, renewable power developers and transmission owners. "Under this new rule, no one who does not benefit from new transmission projects will pay for grid expansion. But the rule recognizes the broad reliability, economic and public policy benefits from grid expansion and avoids the mistake of adopting a rigid benefits test."
The existing transmission cost-allocation methodologies "have discouraged investment in transmission because there was so much uncertainty about how you were going to recover your investment and earn a return on it," Kelliher told Industrial Info. Different parties would benefit to different degrees if a transmission line were constructed, he said. But determining the costs to be borne by those parties has stymied many transmission projects and prevented untold others from being developed, he added.
The new FERC principles are an important first step in untangling the nation's transmission mess. "The level of transmission investment should increase over time and the added procedural clarity should make it easier to plan and price transmission lines," Kelliher said. However, he cautioned that Order 1000 was only the first step in fixing the nation's transmission system. "Order 1000 doesn't address transmission siting, so it wouldn't be reasonable to expect a faster transmission siting process from this order, which focused only on cost allocation and planning.
The next step is for regional transmission organizations to modify their operating principles to reflect the new FERC order, and have FERC review and approve those changes, Kelliher said. After that, state public utility commissions may have to modify some of their policies and procedures to reflect the new rules from FERC and transmission groups.
Kelliher said that FERC is not specifically developing a notice of proposed rulemaking for transmission siting. But he predicted Order 1000 would not be FERC's last word on transmission. In commenting on Order 1000, FERC Commissioner Philip D. Moeller said that "planning for long-distance transmission lines ... is only a subset of the critical issues that are inhibiting needed investment. ... This rule will not resolve all of the difficult issues that discourage this nation from constructing needed transmission lines."
Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
FERC's 620-page Order 1000, adopted July 21, is the first step in fixing a transmission system that many parties agree is broken. The order stems from and expands upon earlier FERC rulings designed to remove legal and institutional roadblocks to building new transmission lines and ensuring fair and non-discriminatory access to transmission lines. FERC adopted the order on a 5-0 vote. The agency received approximately 5,700 pages of comments from about 200 parties. The new rule takes effect within 60 days of publication in the Federal Register.
"This rule is an important step forward, building on FERC's successful market reforms over the past 15 years," FERC Chairman Jon Wellinghoff said in a statement. "Our action today promotes efficient and cost-effective transmission planning and the fair allocation of costs for new transmission facilities. These changes will provide consumers with greater access to efficient, low-cost electricity." He noted that nearly 200 parties filed comments on the issue.
"There is a backlog of 275,000 megawatts (MW) of wind power that is sitting in a queue, unable to move forward because of inadequate transmission capacity," Michael Goggin, manager of transmission policy for the American Wind Energy Association (AWEA) (Washington, D.C.), told Industrial Info in an interview. "We would not expect all of those projects to go forward. But an upper range of what could reasonably expect to get built is 100,000 to 150,000 MW of new wind generation, according to the North American Electric Reliability Corporation (NERC) (Princeton, New Jersey)."
"Building a windfarm and associated transmission lines costs about $2.3 million per megawatt of installed generation capacity," continued Goggin. Using that estimate, construction of 100,000 MW of new wind generation and associated transmission pencils out to $230 billion. And that doesn't include solar power development or construction of non-renewable generation. "There's a lot of money at stake," he observed.
Texas alone has an estimated $2 billion of transmission projects under development. For additional information, see the July 26, 2011, article - Lone Star State Sees $2 Billion in Plans for Transmission Lines. FERC's order does not apply to the state of Texas, which operates its own intrastate electric market. FERC regulates interstate transmission of electricity, among other issues.
"FERC's Order 1000 is a well-reasoned order that reflects the comments" received during the year-long public comment period, commented Joseph Kelliher, a former FERC chairman and current executive vice president for NextEra Energy Incorporated (NYSE:NEE) (Juno Beach, Florida). "Procedurally, the most significant part of this order is that it was issued at all--some FERC rules are never issued," he said in an interview. "But after that, the most important part of this order is the cost-allocation principles set forth by the commission." For more information on the importance of the FERC action, see June 13, 2011, article - Upcoming FERC Vote Critical to Fixing Broken U.S. Electric Grid.
The new FERC rule lays out six cost-allocation principles that are generally designed to ensure costs are roughly commensurate with benefits, that only beneficiaries pay for projects, and that costs are not allocated outside of a regional transmission organization unless the other group agrees to accept those costs.
Allison Clements, a blogger with the Natural Resources Defense Council, made this observation: "While Congress continues to be mired in partisanship and politics, pushing hopes of comprehensive energy reform to the far-back burner, (FERC) ... has demonstrated that it is willing to forge ahead in the transition towards a clean energy future." Order 1000 "will equate to real progress towards the integration of renewable energy resources and state and federal renewable energy, energy efficiency, demand response and distributed generation policies," she commented.
"The rule removes one of the obstacles to developing the grid that the U.S. needs for the 21st century: narrow cost allocation that does not recognize the way the grid operates and impedes cost recovery for grid investment," said Jolly Hayden, president of WIRES (Washington, D.C.), an organization representing utilities, renewable power developers and transmission owners. "Under this new rule, no one who does not benefit from new transmission projects will pay for grid expansion. But the rule recognizes the broad reliability, economic and public policy benefits from grid expansion and avoids the mistake of adopting a rigid benefits test."
The existing transmission cost-allocation methodologies "have discouraged investment in transmission because there was so much uncertainty about how you were going to recover your investment and earn a return on it," Kelliher told Industrial Info. Different parties would benefit to different degrees if a transmission line were constructed, he said. But determining the costs to be borne by those parties has stymied many transmission projects and prevented untold others from being developed, he added.
The new FERC principles are an important first step in untangling the nation's transmission mess. "The level of transmission investment should increase over time and the added procedural clarity should make it easier to plan and price transmission lines," Kelliher said. However, he cautioned that Order 1000 was only the first step in fixing the nation's transmission system. "Order 1000 doesn't address transmission siting, so it wouldn't be reasonable to expect a faster transmission siting process from this order, which focused only on cost allocation and planning.
The next step is for regional transmission organizations to modify their operating principles to reflect the new FERC order, and have FERC review and approve those changes, Kelliher said. After that, state public utility commissions may have to modify some of their policies and procedures to reflect the new rules from FERC and transmission groups.
Kelliher said that FERC is not specifically developing a notice of proposed rulemaking for transmission siting. But he predicted Order 1000 would not be FERC's last word on transmission. In commenting on Order 1000, FERC Commissioner Philip D. Moeller said that "planning for long-distance transmission lines ... is only a subset of the critical issues that are inhibiting needed investment. ... This rule will not resolve all of the difficult issues that discourage this nation from constructing needed transmission lines."
Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
