Experts tell lawmakers: FERC transmission order is failing
Seven years after the Federal Energy Regulatory Commission allowed developers to compete against utility companies to upgrade and expand the high-voltage transmission system, industry leaders say the rule is flawed and should be changed or repealed.
“Enacted by FERC in 2011, Order 1000 was touted as landmark reform that would promote efficient and cost efficient transmission planning and remove barriers to development,” said Ralph Izzo, chairman, president and CEO of Public Service Enterprise Group Inc. in New Jersey. “But in the seven years that we’ve been living under Order 1000, the promised efficiency looks more like confusion, controversy and chaos.”
Izzo was among various experts who spoke to the U.S. House Subcommittee on Energy Thursday about efforts to maintain and improve the transmission system.
He cited a case where in 2013, the regional transmission system operator, PJM, launched a competitive process to solve a voltage issue in southern New Jersey.
“To call the process a mess would be generous,” he said. “Five years into the planning process and we still do not have a constructed project to address a major need on this part of the grid.”
“Mr. Chairman, after seven years, these can no longer be called growing pains,” Izzo added.
Beyond the “chaotic implementation,” he said there is a more fundamental concern.
“Order 1000 tends to drive short-term, Band-Aid fixes for the grid. Projects that solve multiple problems and provide long-term value tend not to move forward because they are ruled out as being too costly,” he said. “Competition is a positive force. But the goals must be set to achieve the outcomes we want.”
Izzo said Order 1000 should be repealed.
Fellow New Jersey resident, Rep. Frank Pallone, a Democrat on the subcommittee, said a group of his constituents in Monmouth County blocked a transmission project proposed by FirstEnergy Corp., demonstrating that the company had not sufficiently considered alternatives.
“This project in my home district illustrates that there remains a bias to building transmission rather than using new tools. It is in the financial interest of transmission companies to build, especially when there are clear rules that allow them to recoup those investments,” Pallone said.
“FERC’s efforts to address transmission challenges have been admirable but far from perfect,” he added.
Former FERC Commissioner Tony Clark, who joined the agency in the wake of Order 1000’s adoption, said the rule creates more bureaucracy than benefits and now is a good time for an evaluation.
“However well intentioned the order is, in practice it is falling short of the lofty goals that it set,” Clark said. “Put succinctly, we may today find ourselves in the position of having a rule that ensures significant compliance costs but without a lot of demonstrable benefits coming out the other side.”
Clark said the rule was ambitious but has generated complexity and litigation. “Even amongst those who are broadly supportive of Order 1000, there seems to be a widespread sense that something is amiss with it in terms of the underwhelming results that have come out of it.”
Possible remedies, he suggested, might be for FERC to streamline the rule or tailor it to recognize differences across the industry.
“Regions, particularly those that were served by vertically integrated utilities were already doing a fair amount of planning within their regions prior to the order,” Clark said. “For those regions, Order 1000 replaced that collaborative bottoms-up process with a federal top-down process where there’s a fair amount of bureaucracy that’s involved with it and the name of the game is making sure you’re checking compliance checklists as opposed to actually bringing projects to fruition.”
More stakeholders should be involved in the planning process, said John Twitty, executive director of the Transmission Access Policy Study Group, an association of transmission dependent utilities in 35 states including municipal, cooperative and investor-owned companies.
Twitty and others agreed that price incentives to build transmission may be unnecessary, that they encourage unneeded infrastructure and drive up cost. There’s no shortage of investors for low-risk projects, he said.
“Consumers and businesses should not be burdened with transmission rates that are elevated by above-cost incentives that are not needed to attract investment or that fund unnecessary facilities.”
Engaging a broader group of stakeholders in the process, especially the kind of load-serving entities he represents, would help bring about more favorable outcomes.
“Specifically, more should be done to encourage joint transmission ownership arrangements,” he said in prepared testimony. “Under such arrangements, load-serving entities embedded in the transmission system have the opportunity to invest in their load-ratio share of the transmission grid; they have a seat at the ‘grown up’ table in the planning process, so they can play an integral role in ensuring their load is being properly served with necessary infrastructure.”
The subcommittee chairman, Rep. Fred Upton (R-MI), said alternatives to building new transmission should be considered as part of the transmission discussion. “Smart grid technologies, demand response, energy storage, distributed generation and microgrids can also provide benefits similar to traditional transmission since these alternatives may improve reliability while reducing environmental impacts and cost to consumers.”
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