October 22, 2011

New Hampshire: What are the implications of FERC's new ruling on interstate transmission for hydropower development?

The Federal Energy Regulatory Commission (FERC) issued Order No. 1000 on July 21. The order amends FERC's requirements for interstate electric transmission companies to allocate the costs of transmission planning and developments to their customers. This is a big step for transmission projects and planning and the effect it will have on renewable energy projects, especially hydroelectric developments, could be positive.

What is Order 1000?

The 620-page rule aims to give public utility transmission providers in a region a common method for allocating the costs of new transmission facilities. It also allows them to evaluate transmission alternatives at the regional level that may resolve the region's needs more efficiently or cost effectively, according to the World Alliance for Decentralized Energy. Similarly, two neighboring transmission-planning regions must have a common interregional cost allocation method for new interregional transmission facilities.

Other stipulations of the order according to FERC are:

  • Each public utility transmission provider must participate in a regional transmission planning process that satisfies the transmission planning principles of Order No. 890 and produces a regional transmission plan and the method must satisfy six regional cost allocation principles,
  • Local and regional transmission planning processes must consider transmission needs driven by public policy requirements that are established by state or federal laws or regulations or public utility transmission requirements,
  • Transmission planning regions must coordinate to determine if there are more efficient or cost-effective solutions to mutual transmission needs when evaluating proposed solutions, and
  • Participant-funding of new transmission facilities is permitted, but is not allowed as the regional or interregional cost allocation method.

The rule also says that a non-public utility transmission provider must revise its tariff order to maintain reciprocity, or safe harbor, status. Other providers do not have to include this. It also eliminates the right of first refusal, which gives the project holder the option to enter into a business transaction before the owner can enter into an agreement with a third party.

As a result of Order No. 1000, utilities, independent generators, suppliers and developers of renewable technologies, merchant transmission providers, and end-users all have something at stake. In addition, natural gas-fired energy generators and storage projects that can provide alternatives to transmission or support integration of intermittent renewables, may also benefit from the new regulations.

"With these new factors in play, it is critical that transmission planners seek the most efficient and cost-effective ways to meet the needs of their region," said FERC Chairman Jon Wellinghoff in a statement. "Transmission providers have in place the foundations for effective planning through their Commission-approved Order No. 890 planning processes.

"However, our monitoring of the implementation of these planning processes, conduct of technical conferences across the country and the numerous comments received in this rulemaking proceeding indicate that there remain gaps that must be filled if the transmission system is going to efficiently and cost-effectively address the trends and challenges that were just appearing on the horizon when Order No. 890 was issued," Wellinghoff continued.

"It is essential that the Commission's transmission planning and cost allocation requirements are adequate to support more efficient and cost-effective decisions moving forward."

The rule is expected to be effective October 11, 2011, 60 days after it is published in the Federal Register.

Effects on Hydro

Any improvement to the transmission system and how projects are planned and developed will have an effect on hydro, said Jim Hoecker, outside counsel to the WIRES Group and senior counsel and energy strategist at Husch Blackwell LLP.

"One of the biggest challenges facing the hydro industry is that hydroelectric projects tend to be location constrained," Hoecker said. "In some cases, they are not near customers or near the grid for that matter."

Hoecker said the new rule could make it easier for different types of generating sources to connect to the grid, including pumped storage and run-of-the-river hydroelectric projects that are often sited far from consumers and connections to the grid.

"I think this is very positive rulemaking," Hoecker said. "Order 1000 is completely consistent with previous commission policy and its efforts to promote integration of diverse resources into the energy market and foster competition among those resources."

One way the new rule helps is that now transmission providers determine who pays for which part of the development.

"[Right now] it's like trying to plan an interstate system. Often individual states or companies refuse to pay for the part they perceive they don't use," Hoecker said. ""But all our infrastructure was built on a share-the-cost basis, because highways and railroads and transmission lines ultimately serve a broad array of beneficiaries," he said. "[Regional cost allocation] is how we'll get to a strong electricity system in the future."

With the aging infrastructure and increasing need for new generating sources to reach areas that have an increasing demand for clean energy, Hoecker said investment in transmission could be more than $300 billion over the next 20 years. But for that to happen, the generating sources need to have policy certainty first.

"Today's grid is subject to a bewildering assortment of local, state, and federal requirements. That kind of inefficiency inflicts a penalty on resources such as hydropower," said Hoecker.

"Just because we recognize the need doesn't mean we will get it built," Hoecker said. "Siting is complicated, planning is complicated and expensive and regulation is tremendously uncertain.

"The order is not the entire solution, but in terms of reinforcing transmission and hydro, it's important," Hoecker said.

Hoecker said that transmission planning must be regional and take into account all options, even non-transmission options. "We need to ensure that planned projects can be sited and their costs fairly recovered," he said. "Congress' recent attempts to promote transmission, such as the corridor designation and backstop siting process, have generally not been successful."

Transmission Effects

Today, FERC can only approve interconnections from authorized, regulated hydro generators so the new rule is a first step in getting new projects off the ground. But other barriers still exist such as a lack of a national energy plan that would help determine what needs to be built and where.

Further, transmission planning and permitting takes a long time. For example, Dan Prowse, transmission access officer with Manitoba Hydro said his company sent 12 proposals to MISO for new transmission projects in 2007. The next year, those dwindled down to 6 and the following year, three projects remained. Out of those three, only one, the Keeyask transmission project, is scheduled to be in operation in 2019.

WIRES' Hoecker said current transmission developments are more competitive than ever before. "They can't be operated just based on economic interests," he said. "We have to look at the grid as a whole and try to ensure that all customers and industry participants are treated equally and the market is competitive."

The order will also help alleviate barriers to bringing electricity to sparse U.S. regions from border countries.

Manitoba Hydro's Prowse said his company is already transmitting about 3,000 MW of wind power to Minnesota from Canada and has 200 MW of hydro in development.

While importing electricity across the border is important, most utilities would like to see more storage solutions like pumped hydro to support the integration of wind and solar. But increasing the use of pumped storage would require significant regional transmission upgrades, Prowse said, and there are other operational and processional barriers to overcome, not to mention the uncertainty over a national climate change policy.


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