FERC Transmission Incentives - A Handful Of Awful Ideas

We've finally gotten to a handful of really awful ideas buried deep within FERC's Transmission Incentives Inquiry.  Basically, these ideas seek to encourage new, bigger, longer, transmission lines for the express purpose of favoring one kind of generation.  No sense beating around the bush, FERC wants to provide financial encouragement for the building of new interregional transmission with the intent of connecting Midwest industrial wind to both coasts.  It intends to do it through five new incentives for:  Interregional transmission projects; Unlocking locationally constrained resources; Ownership by non-public utilities; Order No. 1000 transmission projects; and Transmission projects in non-RTO/ISO regions.

But before we delve in there, let's go back to Sec. 219.  Sec. 219 was created before industrial wind was a thing (a thing that makes buckets of money for wind companies).  Congress never envisioned using incentives to favor certain kinds of generation, or to encourage the building of a whole bunch of new transmission for the sole purpose of making energy "cleaner."  Sec. 219 is for the purpose of "...incentive-based (including performance-based) rate treatments for the transmission of electric energy in interstate commerce by public utilities for the purpose of benefitting consumers by ensuring reliability and reducing the cost of delivered power by reducing transmission congestion."  There's a lot in there that just doesn't go with these five ideas.  In addition, Sec. 219 was more about "...the enlargement, improvement, maintenance, and operation..."  "... to increase the capacity and efficiency of existing transmission facilities and improve the operation of the facilities."  Nothing in there about wind.  Nothing in there about new transmission, or the size or reach of new transmission, and it is specifically reserved for public utilities.  Aren't we off to an auspicious start?

An interregional transmission project has the potential to improve interregional coordination, help to eliminate seams issues, and provide more efficient power flow among regions. Although Order No. 1000 required coordination among neighboring transmission planning regions to identify potential interregional transmission facilities, such projects have been scarce to date.
Q 44) Should the Commission use incentives to encourage the development of interregional transmission projects? How, if at all, would any such incentive interact with Order No. 1000’s reforms?
Q 45) If the Commission should use incentives to encourage interregional transmission projects, should all interregional projects be eligible or should it be based on some other criteria? How should the Commission consider the benefits of an individual interregional transmission project?
Q 46) If the Commission were to grant incentives for interregional transmission projects, what incentive(s) would be appropriate?

FERC doesn't seem to like the parochialism of regional transmission planning.  A transmission region only plans for its own region.  Some of these regions include more than a dozen states.  Isn't that large enough already?  But FERC wants to join multiple regions together to plan even bigger transmission.  FERC tried to get this idea going with its Order No. 1000 a number of years ago, however that initiative failed.  Two or more regions simply can't work together to plan big interregional projects.  Why?  It's financially infeasible.  Each region that plans for its own transmission needs allocates the cost of the projects it plans to captive electric customers in its own region.  If a region plans to build new transmission, ratepayers in its region foot the bill.  Interregional transmission, by its very nature, doesn't benefit all regions equally, therefore there is too much conflict regarding who will pay for the transmission.  Let's use an example of a transmission line originating in the Midwest for the purpose of exporting wind to the East Coast.  The Midwest region's ratepayers get little to no benefit from such a project because they aren't the ones being served and will use little to none of the electric capacity of the new line.  Midwest ratepayers should not have to pay for the project.  There's no need for this project, and certainly no benefit for these ratepayers.  Therefore, where's the interest in doing it?  The East Coast region gets the benefit of new power sources, but it does not want to pay for the entire project.  Midwest wind isn't so cheap when the cost of big new interregional transmission projects get added to the cost of generation.  It does nothing but raise prices in the East Coast region, and that region may instead choose local renewable resources that don't come with a huge transmission bill (not to mention the reliability issues inherent to being dependent on one very long transmission line for huge amounts of generation).  It's cheaper for the eastern region to use its own renewable resources, and it also provides jobs and economic development within the region.  Why would the eastern region's ratepayers want to spend their energy dollars in another region?  Now FERC wants to add financial incentives on top of a project that is already too expensive.  That only compounds the problem.  Interregional transmission doesn't work simply from a cost perspective.  That's why Order No. 1000 didn't work, and that's why incentives won't work either.

Unlocking locationally constrained resources -- nice words for building new transmission to export power from a region where generation is being overbuilt.

The 2012 Incentives Policy Statement provided that “projects that unlock location constrained generation resources that previously had limited or no access to the wholesale electricity markets” may be eligible for incentives. In subsequent years, interconnection queues in many regions of the country have expanded considerably, with many of the potential resources clustered in specific geographic areas with limited transmission access.
Q 47) Should the Commission use incentives to encourage the development of transmission projects that will facilitate the interconnection of large amounts of resources?
Q 48) If so, what metrics could the Commission consider when evaluating whether a transmission project facilitates the interconnection of generation?
Q 49) Should such an incentive focus on resources already in the queue, a region’s potential for new resources, or some other measure? How could the Commission evaluate the potential for further resource development in a particular geographic area?

See that sleight of hand?  It's not that Sec. 219 wanted to unlock constrained resources, it's that FERC decided that could be a thing in its last Transmission Incentives review.  There's simply no foundation for this in Sec. 219.  Building on a flawed interpretation doesn't fix this.  It's simply not eligible for incentives.  If we're going to go outside Sec. 219 to cook up incentives, how about using the incentive money to encourage the building of new generation near load centers?  I bet if FERC offered financial incentives to new generators, it could get a whole bunch built near load for the same amount of money.  No transmission needed!  And, can we be frank here... big new cross-country transmission stands about as much chance of being built as a snowman stands in hell.  Think of the sheer volume of properties and communities crossed by a transmission line of this magnitude.  Transmission opposition develops on just about every project, and the more audacious the project, the bigger the opposition.  Transmission opposition has been wildly successful against these kinds of projects, adding years of delay, and ultimately, cancellation.  The only thing FERC could do here is waste a whole bunch of money on transmission ideas that are destined for failure.  Nothing will get built, but ratepayers will be out billions of dollars.  This is a really awful idea.

Incentives for transmission by non-public utilities?  Can't be done.  Sec. 219 is specifically for public utilities.  So, FERC seems to suggest doing an end run here, and providing incentives to public utilities that "partner" with non-public utilities.

Section 219(b)(1) encourages the Commission to facilitate capital investment in transmission infrastructure, regardless of the ownership of those facilities.
Q 50) Are there barriers to non-public utilities’ ownership of transmission facilities?
Q 51) Should the Commission consider granting incentives to promote joint ownership arrangements with non-public utilities and, if so, how?

Since FERC can only provide incentives to public utilities, it wants to add them to non-public utility projects.  Doesn't this just add another layer of cost?  And here's the thing... public utilities collect all their costs from their captive ratepayers.  Non-public utilities don't have captive ratepayers.  They don't have ratepayers at all.  So, in an example here, say Google wants to own a transmission line that will deliver Midwest wind to a string of its data centers all the way to the east coast so that the company can claim to be "powered by wind."  Who is supposed to pay for that?  Are the captive ratepayers of a public utility who partners with Google supposed to pick up the tab for Google's corporate propaganda?  They get no benefit from it, therefore they should bear no cost.  Is Google going to pay for it?  I think something of that magnitude would be too rich for Google's blood.  They don't want to pay for it.  So, if nobody wants to pay for the actual transmission project, who is going to pay for the cost of incentives?

And why would Google need to partner with a public utility in order to build new transmission for its own needs?  Two words... eminent domain.  If Google wanted to build and own a transmission project for its own needs, it would not qualify for eminent domain authority to take right of way for the transmission project.  I guess FERC thinks that a public utility could use its eminent domain authority to clear a path for Google's transmission project.  This would never work in practice.  State courts have taken a hard line against non-public utilities (which are essentially private enterprise) using eminent domain to increase their own profits.

This idea is just crazy.  Let's move on...

FERC wants to use incentives to encourage its failed Order No. 1000.

The Commission has considered whether it could reduce transmission developer risk by granting blanket pre-approval (i.e., a rebuttable presumption) of three risk-reducing incentives for transmission projects selected in a regional transmission plan for purposes of cost allocation: CWIP, abandoned plant, and regulatory asset treatment.
Q 52) Should these or other incentives be granted automatically for transmission projects selected in a regional transmission plan for purposes of cost allocation?
Q 53) If so, what specific incentives are appropriate for such automatic treatment and how should such incentives be designed?

Following Order No. 1000, the Commission has exercised it discretion to grant certain incentives to non-incumbent transmission developers under section 205 of the FPA, in order to further the public policy goal of placing non-incumbent transmission developers on a level playing field with incumbent transmission owners in Order No. 1000 regional transmission planning processes.

Q 54) Should the Commission continue to use certain incentives to seek to place non-incumbent transmission developers on a level playing field with incumbent transmission owners in Order No. 1000 regional transmission planning processes? If so, should the Commission consider requests for such incentives under section 205, or should the Commission consider requests for such incentives for non-incumbent transmission owners under section 219?

I think the Commission should stay within Sec. 219's bailiwick and quit trying to apply incentives to transmission clearly outside the statute.

And last in this post... incentives for transmission projects in non-RTO/ISO regions.  The "non" regions cover a huge chunk of geography -- huge chunks of the Northwest, Southwest, as well as Southeastern states.  Why doesn't FERC award incentives here?  Because it created a threshold for incentives that requires a project to be part of a RTO/ISO plan, or for the owner to demonstrate how its project meets Sec. 219's purpose.

Applications for transmission incentives to date have almost exclusively been for transmission projects proposed to be developed within RTOs/ISOs.
Q 55) Are there factors that discourage developers of transmission projects in non-RTO/ISO regions from seeking incentives?
Q 56) What, if any, additional types of incentives could appropriately encourage the development of transmission in non- RTO/ISO regions?

Sort of looks like FERC has boxed itself in here, perhaps unintended.  If it wants to award incentives to "non" regions, then it needs to rework its threshold for all projects.  It's incredibly easy for a transmission idea to be approved by an RTO/ISO in order to receive incentives.  Maybe it's not a good test in the first place.

What a frightful handful of transmission incentive ideas.  If adopted, these incentive uses will do nothing but increase the cost of power.  And where will the increase come from?  Consumer pockets.  And where will the increase go?  Transmission developer pockets.  It's antithetical to the purpose of Sec. 219... "for the purpose of benefitting consumers by ensuring reliability and reducing the cost of delivered power by reducing transmission congestion."

Almost done here... just one last look at the existing incentives, which were bad enough on their own.  Maybe FERC thought that by adding a whole bunch of new awful ideas it could make the existing incentives look good by comparison?  That's fodder for another day...