NARUC: Common challenges to transmission development identified

More than a dozen delegates representing transmission developers, utilities, ISOs and RTOs, renewable energy developers, and nongovernmental organizations discussed the state of transmission in a discussion billed as Transmission UNPLUGGED! at the National Association of Regulatory Utility Commissioners (NARUC) summer committee meetings in Portland, Ore.

The idea, according to the chair of the July 23 panel, was to create an atmosphere that would encourage a free-wheeling discussion of the issues each participant found important with regard to transmission planning and development. No prepared slide presentations were allowed, and each panelist was allotted only a few minutes for brief opening remarks before tackling questions posed by commissioners and audience members.

As intended, the 2.5 hour discussion was robust but, perhaps as a result of the unstructured approach or perhaps as a reflection of the diversity of interests within the industry, each participant had their own take on the issues that emerged.

One point of general agreement was that the transmission planning process needs to be improved.

The process should be a “multi-driver planning process” where all the benefits are considered: reliability, economic benefits, and the facilitating of public policy issues including bringing renewable energy to market, according to Marc Lewis, vice president of external relations for Indiana Michigan Power.

Acknowledging that there are “significant and well-documented impediments” to getting ISO and RTO planning processes to that level, Lewis said, “We need to get beyond ‘just-in-time, and just-enough’ planning.”

Others called for more regional planning of the sort that Order 1000 “stops just short of mandating,” as one participant put it.

“States can’t do it alone,” Jimmy Field, commissioner with the Louisiana Public Service Commission, said. “We have to [plan] regionally for national security and our national interest.”

Others advocated expanding planning beyond regional planning. “Interconnection-wide planning is a good way to examine different public policy requirements,” Flora Flygt, strategic planning and policy advisor for American Transmission Company (ATC), said.

While most panelists agreed with the idea of regional planning in principle, Illinois Commerce Commission member ErinO’Connell-Diaz asked, “How do you get around states’ rights? Without a federal energy policy that would mandate that, there’s a question of how that would ever work.”

Rate incentives a hot button issue

Transmission incentives were another area of discussion, and an area that developed something close to consensus. While most panelists advocating a reduction in the granting of incentives, not everyone agreed.

“We need incentive rates,” Flygt said. “Building transmission is risky.”

Others said FERC needs to be more judicious in awarding incentive rates, and “distinguish between incentives that reduce the utility’s risk and those that increase the utility’s returns. They are quite different incentives,” John Anderson, president and CEO of the Electricity Consumers Resource Council (ELCON) said, noting that regulators should also reduce the return on equity (ROE). “It absolutely doesn’t make any sense at all to reduce the risk and then leave the ROE the way that it is.”

Whiles some participants called for moderation, others said the time for incentives has passed.

“We’re not saying incentives are never needed, but we would like to make them not the ‘new normal,’ as they have become,” Sue Kelly, vice president of policy analysis and general counsel of the American Public Power Association (APPA), said.

“I’m inclined to believe we don’t need incentive rates,” Field said. “Utilities don’t have a lot of risk anymore.”

One participant cited a study that said incentives were less pervasive than many believe.

“EEI looked at transmission incentives [and found that] only 5% of the transmission built in 2009-2010 had incentives,” Jim Fama, vice president of energy delivery with the Edison Electric Institute (EEI), said.

Cost allocation

Another issue everyone agreed needs to be improved is cost allocation. How to improve the process was the tougher nut to crack.

Cost allocation must match those who benefit with those who pay, Clair Moeller, vice president of transmission asset management with the Midwest ISO (MISO), said.

“We don’t see there being one silver bullet cost allocation for the nation,” Kelly said. “Different regions may need to settle on different solutions, and those solutions may well change over time. Everybody has to learn to give a little bit to get a little bit.”

For some, the breakdown is simple.

“We are strong advocates of the cost-causation principle,” Anderson said. “Those who cause the costs should pay for the costs.”

Legislation intended to aid the process

Toward the end of the session, FERC commissioner John Norris addressed several of the identified areas.

“Incentive policy is a Congressional directive … all under the premise that we need to have a more robust transmission grid to support a wholesale competitive marketplace for dispatching, and access to, least-cost generation,” Norris said.

He also addressed planning, siting, and cost allocation in light of the court decision denying FERC backstop siting authority granted in the Energy Policy Act of 2005 (EPAct05).“Without some sort of backstop siting authority, that seems to me to be the biggest inhibitor to getting transmission built,” Norris said. “Incentives have helped, but if we really want to get transmission built that goes through the regional planning process, the siting is a huge obstacle once we overcome the obstacle of deciding on a proper cost allocation.”

Indiana-Michigan Power is a unit of American Electric Power (NYSE:AEP).