Discussing the technical conference that FERC held last summer on Order 1000, Dan Belin, director – electric transmission, Ecology & Environment, Inc., said on Nov. 15 that the majority consensus is that the process is working, and while it is moving slowly, the order is doing what it is supposed to do.
“[W]hat FERC Order 1000 has meant is really an extra layer of legislation on top of the planning process and on top of the permitting process,” Belin said during a panel on Order 1000 at TransForum East, which was held in Washington, D.C., and presented by PennWell’s TransmissionHub.
Belin said that what the order “has translated into has been some disjointed actions and policies, particularly between the ISO and the [state Public Service Commission, or] PSC. There have been some growing pains, they’re getting a little better, but that’s been the big challenge.”
For project developers, that means there is a lot more uncertainty, and from a schedule standpoint, what it means is a longer process, he said.
While “large, interregional, long-haul projects” tend to take 10 to 15 years or so to develop, now, “intrastate [projects] with the single ISO that are less than 100 miles” long are also on the 10-year development range, he said.
A spokesperson for the New York ISO (NYISO) on Dec. 1 told TransmissionHub that the NYISO issues a solicitation and receives proposals. Specifically, the spokesperson said, the first step in the process is that the NYISO issues a notice to the market asking for potential public policy needs to be identified. The NYISO gathers those responses and sends them to the PSC, which then makes a determination on whether there is a particular public policy need that it would identify. Once the PSC has identified a public policy need, the NYISO solicits potential solutions, the spokesperson added.
As noted in Belin’s presentation, the process for the “New York Energy Highway – AC proceeding (sponsorship model)” began in October 2013; the PSC identified the need in December 2015; proposals were received in April 2015; and the NYISO made its evaluation last month.
“[W]e’re three years into that process, and there’s been no selection,” he said, adding that once a selection is made, that is when the permitting process begins.
An in-service date on any of the projects selected under that process would be 2023, which is “a pretty significant amount of time,” he said.
The NYISO spokesperson on Dec. 1 said that the New York Energy Highway – AC proceeding "merged into our public policy proceeding, after the PSC had already started that AC transmission Energy Highway proceeding in 2013."
The PSC "only identified the public policy need in the Order 1000 process in December 2015, so while that other proceeding has been going on for three years, the process under Order 1000 really got started last year," the spokesperson said.
As noted in Belin’s presentation, the “Western NY Public Policy” proceeding is also ongoing. The NYISO initiated the proceeding in October 2014, and the PSC identified the need in July 2015. Proposals were received in December 2015, the NYISO issued its sufficiency viability determination in June, and the PSC confirmed that determination last month, Belin said.
According to his presentation, the NYISO is beginning its selection process and a likely in-service date for project(s) in that proceeding is 2021.
A major challenge for independent developers in terms of permitting is that while best practices call for developers to engage early and often with affected stakeholders, in the “Order 1000 space, you can’t really do that until you’re selected and so that’s really delaying all that upfront work.”
He continued, “[W]ho wants to risk the capital and the expenditures if you don’t know that you’re going to be selected?”
Noting that there have been lessons learned between the NYISO and PSC, including on communication between the two entities, Belin said that from a big picture standpoint, the process under Order 1000 is working.
“The entire point of the process was to spur competition,” he said, adding that “by the number of entrants, it’s certainly done that.”
He continued, “I think one of the fears prior to FERC Order 1000 was that there wouldn’t be enough qualified entrants, and I think that fear has been proven wrong.”
Panelist David DesLauriers, director, Black & Veatch Management Consulting LLC, noted that all of the regions now have their regional plans approved by FERC, and as stated in his presentation, the interregional plans are nearing full compliance.
The NYISO spokesperson on Dec. 1 noted that the NYISO is "still waiting for a final order on our regional compliance filing."
Discussing where Order 1000 stands today, DesLauriers said, “There are some very successful, early competitive solicitations in [California ISO, or] Cal-ISO. I would say Cal-ISO is probably the most prolific in terms of the ISOs that have executed actual bids and chosen results based upon competition.”
He noted that PJM Interconnection was an early front-runner with the Artificial Island competitive bid.
However, as reported in August, with costs rising, the PJM board decided to suspend “all elements” of the Artificial Island project in New Jersey and directed PJM to perform a comprehensive analysis to support a future course of action.
A PJM spokesperson on Dec. 1 told TransmissionHub that regarding Artificial Island, PJM chose to look at the project as a pilot case for Order 1000. It was not officially PJM’s first project with the order. The spokesperson further noted that because of the competitive process, PJM has applied the Order 1000 process to not only reliability projects but market efficiency projects that last year resulted in more than $800m in transmission costs savings.
The Southwest Power Pool (SPP) had a competitive solicitation with the Walkemeyer Project, but that project was canceled, DesLauriers said.
As TransmissionHub reported, SPP in April said that its board selected Mid-Kansas Electric Company (Mid-Kansas) to build the North Liberal to Walkemeyer 115-kV transmission line in western Kansas, the first transmission project in SPP to go through a competitive bidding process.
Cindy Hertel with Sunflower Electric Power Corporation told TransmissionHub on Nov. 15 that the SPP Board approved the withdrawal of the Walkemeyer Phase II Project (a 22.6-mile, 115-kV line) due to decreasing load projections.
“Prior to winning the competitive bid for the project, Mid-Kansas asked SPP staff to restudy the need for the project,” Hertel said.
During the second week in July, the SPP Board voted in favor of SPP’s staff’s recommendations to withdraw Phase II of the project but keep Phase I, Hertel said, adding that the Walkemeyer project’s noncompetitive first phase, a new 345/115-kV substation and transformer and a one-mile line to the Walkemeyer 115-kV station, will still be built.
As noted on Mid-Kansas Electric’s website, Mid-Kansas members own and manage Sunflower Electric Power, a generation and transmission service provider headquartered in Hays, Kansas.
As noted in DesLauriers’ presentation, the Midcontinent ISO (MISO) and NYISO bids are in process, and there have been no interregional bids solicited to date.
The presentation further noted that possible influences to the pace and market rollout of Order 1000 include:
- Cost containment and risk balance
- Divergent models (sponsorship versus competitive)
- Transparency of process
- Seams issues – interregional projects and planning
- Right of first refusal (ROFR) impacts – some states have retained ROFR through state law; federal ROFR is impeding competitive opportunities
DesLauriers noted, for instance, that cost containment is a goal for policymakers, yet, if too much emphasis is placed on cost, it could be a question of, “are we sacrificing something in the way of creativity, or other kinds of projects that may in the long run be more beneficial?”
On transparency, DesLauriers noted that ISOs and RTOs reveal information about bids, for instance, and that information is distributed in different ways across the ISOs and RTOs, which has been a troubling issue for some transmission developers.
He discussed two recent dockets that are symbolic of some of the issues that are being seen in the market. For instance, as noted in his presentation, a September 2013 NIPSCO complaint (EL13-88-000) requested six reforms to the MISO/PJM joint operating agreement, including coordinated timing of transmission planning.
According to his presentation, FERC issued an order in April approving, among other things, closer alignment of planning processes (timing and cycles); denying a request to include market to market payments as benefits, for instance; and deferring certain issues for technical conference.
The other docket that he discussed involved ITC Grid Development LLC’s July 2015 petition for a declaratory order (EL15-86-000), in which the company requested that FERC find that binding revenue requirement bids selected as the result of FERC-approved, FERC Order 1000-compliant, and demonstrably competitive transmission project selection processes would be deemed just and reasonable when filed at FERC as a stated rate under the Federal Power Act.
As TransmissionHub reported, while FERC in March dismissed ITC’s petition, FERC said, “[W]e recognize that this case highlights broader policy considerations and … we intend to convene a technical conference in the future to explore further these considerations.”
Panelist Bill Babcock, managing consultant, PA Consulting Group, discussed changing market fundamentals and their effect on transmission development. As noted in his presentation, “gas forwards are basically flat for the next four years.”
Also, gas capacity additions outstrip coal retirements and wind capacity additions.
He said that gas additions tend to be closer to load than the resource that they might be replacing, and they are closer to load than wind energy resources.
Babcock also noted that there is little difference in construction costs for new combined cycle gas units across the United States. According to his presentation, such construction costs in the Southeast and Midwest would be $1,200-$1,300/kW, with the cost being higher in areas such as New York City.
Meanwhile, his presentation noted, there has been a dramatic increase in transmission investment in recent years.
Among other things, he also addressed planning process complexities and differences, including public policy goals. For instance, he noted that merchant transmission lines aiming to move low-cost wind energy to load raises the question about how those lines factor in to the public policy part of Order 1000 and who competes.
Panelist Steven Ross, partner, Steptoe & Johnson LLP, said that in terms of competitive transmission development versus traditional regulation, key questions that remain open following FERC’s technical conference include:
- How light-handed a regulator can FERC be when it comes to transmission projects selected in an open and transparent competitive process?
- How far can an open and competitive bid selection go in taking the place of traditional cost-of-service regulation?
There appears to be some consensus that came out of the technical conference, he said. As noted in his presentation, cost containment can be a feature that reduces costs to consumers and should be carefully considered by transmission providers. However, do cost containment bids always lead to the lowest-cost project, his presentation asked.
His presentation further noted:
- More FERC guidance on the specific cost-containment features that would be viewed as reasonable would be helpful, unless the FERC guidance is too proscriptive – then could it stifle innovation?
- FERC’s current incentive rate regime should continue, but does cost containment add risk that should be accounted for through an incentive ROE or is that built into the base ROE?
- RTOs should not be rate settlers, but if the RTO awards a project to a bidder with a cost-containment provision, has the RTO effectively set a rate?
“Thorny unanswered questions” include can FERC establish presumptions of just and reasonable transmission rates based upon the efficacy of the selection process, and if costs caps are part of the awarded bid, how long do they stay in place, his presentation noted.
Article amended at 7:20 p.m., EST, on Dec. 5, 2016, to add statements from NYISO and PJM spokespersons to clarify certain information.