FERC Order 1000 does not adequately addresses the issue of allocating costs between regions, ITC Holdings (NYSE:ITC) President and CEO Joseph Welch said in testimony presented to the House Energy and Commerce Subcommittee Oct. 13.
Welch noted, however, that ITC does support the order’s six cost allocation principles. He identified three critical barriers to transmission development –planning, pricing and permitting – and said that FERC Order 1000 is a step toward a broader, more efficient approach to energy procurement and delivery.
However, the order “prohibits costs to be allocated outside a region unless they voluntarily agree to pay, regardless of whether the neighboring region benefits,” Welch said. “Clearly, the result of this policy will be to create free riders.”
He said that “requiring benefits to stop at the border when benefits are flowing between regions daily fails to meet FERC’s own cost causation principle.”
To have optimal regional transmission planning there must be a party that has no financial or other stake in the outcome to evaluate the multiple needs driving development and the potential solutions for a broad area. Welch also said that the regional transmission organizations have been established to serve this function and Order 1000 goes further in the direction of achieving that goal, but not as far as ITC would like.
“Investments are needed to require more participation in RTO planning by parties that are in similar geographic areas,” Welch said, adding that a funding mechanism must be developed to reduce or eliminate the influence of financial generation-related interests in the planning process.
While Order 1000 begins the process of bringing regions together to pursue more efficient planning, the provisions do not require that they actually coordinate planning activities or pursue the most efficient option between regions. Instead, Welch added, there is a requirement for neighboring regions to discuss potentially beneficial joint projects, but the actual planning is still done at the individual regional level.
Those who are concerned about being charged for transmission that does not benefit them should be supportive of Order 1000, Welch said, adding that this policy, along with the just and reasonable standard mandated for any transmission rate, gives parties recourse if they believe a project’s costs exceed the benefits received.
Noting that Order 1000 requires transmission providers to remove from commission-approved tariffs and agreements any right-of-first-refusal (ROFR) for transmission facilities selected in a regional transmission plan for purposes of cost allocation, Welch said that while ITC does not believe that ROFR has been a major impediment to transmission development, the company agrees with FERC that an unlimited ROFR could be used to block needed transmission development.
“Order 1000 raises many implementation questions and real concerns as to the ultimate impact on the planning process, which is a bottom-up process where, at least in [the Midwest ISO], projects change over time as increased optimization is identified making ownership ‘rights’ less than clear,” he said.
The issue of who builds transmission has always been under state jurisdiction and Order 1000 blurs that delineation, he said, adding that ITC is well situated to be competitive in a post-Order 1000 world.
With regard to permitting and siting, Welch said DOE must stipulate that any project seeking federal backstop siting authority must be included in a regional plan under Order 1000.