FERC's Transmission Incentives - Characteristics and Benefits

The next series of questions in FERC's Transmission inquiry presents a series of hypothetical transmission characteristics and benefits worthy of incentives.  It's helpful to remember the real objectives for transmission incentives from Sec. 219: benefiting consumers by ensuring reliability and reducing the cost of delivered power by reducing transmission congestion.  From there, FERC makes a couple of wrong turns, presuming it can award incentives for standalone reliability or economic efficiency, and that it must provide incentives only to new transmission.  What follows are FERC's ideas of what it may do if it changes a word of Sec. 219 here and there.

Transmission owners are already required to address many facets of reliability through compliance with the North American Electric Reliability Corporation (NERC) reliability standards and various other planning criteria. Nevertheless, the Commission could potentially tailor incentives to promote reliability transmission projects that significantly enhance transmission reliability above and beyond what is required by the NERC reliability standards or other planning criteria.
Q 17) Should the Commission tailor incentives to promote these types of projects based on their expected reliability benefits? If so, how should the Commission differentiate these projects from others required to meet reliability standards?
Q 18) Are there specific reliability benefits or project characteristics that could merit such an approach?
Q 19) If the Commission tailored incentives for reliability benefits, how should the Commission measure the expected enhancement to transmission reliability? Should there be a threshold or bright line
test applied? If so, how?

NERC standards ensure reliability.  Why do we even need more reliability than ordered by the reliability organizations?  Rewarding increased reliability is simple gold-plating, an exercise in seeing who can add the biggest amount of money wasting bells and whistles and come up with the most convincing sales spiel for "needing" them.  Sec. 219 ties reliability to reducing the cost of delivered power using the word "and."  One could deduce that Congress intended for worthy reliability projects to pay for themselves by also reducing the cost of delivered power, not simply increasing rates to pay for gold-plated reliability.

One way in which additional transmission facilities may further encourage reliability is by expanding access to essential reliability services, which can, among other things, allow delivery of sufficient resources to support and stabilize grid frequency during disturbances and ensure adequate voltage control and reactive power capability.
Q 20) Should the Commission incentivize transmission facilities that expand access to essential reliability services, such as frequency support, ramping capability, and voltage support?
Q 21) If so, how should the Commission assess and measure whether transmission projects expand access to essential reliability services?

Who's in charge of reliability standards here?  Is it FERC, or is it NERC?  Does FERC have the authority to add to NERC standards to force the building of "essential reliability services?"  Seems like FERC is edging into NERC's realm when perhaps it doesn't have such authority.

Continuing on its wrong trajectory, FERC makes additional suggestions for granting incentives to economic efficiency transmission projects as if they are a standalone entity that does not also include a requirement for ensuring reliability.

Transmission projects can promote economic efficiency by reducing congestion, which allows efficient dispatch of resources, facilitating the interconnection of additional generation, and facilitating the transmission of additional generation to load centers. The Commission could tailor incentives to promote transmission projects that accomplish either of these two outcomes.

Well, no it can't.  At least not by themselves.  Remember, ensuring reliability AND reducing the cost of delivered power?  Nevertheless, here are the suggestions, masquerading as questions:

Q 22) Should the Commission tailor incentives to promote projects that accomplish the outcomes of reducing congestion or facilitating access to additional generation?
Q 23) Should the Commission establish bright line metrics, such as a specified level of reduction in average production costs, to determine whether a transmission project merits incentives?
Q 24) Should the Commission consider incentivizing transmission projects that are scaled to more efficiently facilitate interconnection of, or transmission to, additional generation? What other measurable economic efficiency benefits should be considered a bright line metric for the purposes of economic efficiency?
Q 25) How should the applicable bright line criteria be established, and, in cases where more than one criterion applies, how should they be evaluated in combination?

Why would FERC need to provide incentives for transmission that connects generation?  Is this generation really needed for reliability?  Or is it intended to replace existing generation closer to load?  And why would consumers not only want to pay for a generator's cost to connect, but reward them further for doing so?

And now that we're so far down the wrong road, FERC starts talking about "persistent geographic needs."

Section 219’s objective of promoting the development of transmission facilities that ensure reliability and/or reduce congestion may be particularly important in regions of the country that have experienced chronic, long-term congestion or require operating procedures in place to address long-term reliability issues.

First of all, Sec. 219 says "and."  It doesn't say "and/or."  Second of all, Sec. 1221 already tasks the U.S. DOE with doing triennial congestion studies and designating "National Interest Electric Transmission Corridors."  Persistent needs isn't in FERC's bailiwick.  Sec. 219 even mentions Sec. 1221 and requires FERC to allow recovery of all prudently incurred costs of transmission pursuant to Sec. 1221. It does not task FERC with rewarding them with incentives. This category isn't needed, but here are FERC's questions/suggestions on how it can duplicate an existing program and provide some delicious FERC candy to all participants:

Q 26) Should the Commission utilize an incentives approach that is based on targeting certain geographic areas where transmission projects would enhance reliability and/or have particular economic efficiency benefits? If so, how should the relevant geographic areas be identified and defined? What entity (e.g., the Commission, RTOs/ISOs, state regulators, other stakeholders) should designate such areas?

Q 27) What criteria should be used to define such geographic areas? Procedurally, how should such geographic areas be determined, monitored, and updated?


Q 28) Should the relevant geographic areas be defined on an ex ante basis and/or should the transmission developer have the burden of demonstrating that the relevant transmission project falls within a geographic region that has an acute need for transmission?

FERC's next two question sections deal with flexibility and security of the transmission system.  Both fine things, but do we need to reward transmission owners for doing them?  Can't they simply be ordered to do them, like they are now?  Must they get a financial reward that comes from my pocket to do it?  Perhaps we're getting just a little too generous with the FERC candy now.

Q 29) How can flexibility characteristics improve the operation of the transmission system? Q 30) Should the Commission incentivize flexibility characteristics and, if so, how should it do so?
Q 31) How could the Commission define “flexibility” in this context?

Q 32) Should the Commission incentivize physical and cyber- security enhancements at transmission facilities? If so, what types of security investments should qualify for transmission incentives? What type of incentive(s) would be appropriate?

Q 33) How should the Commission define “security” in the context of determining eligibility for incentive treatment? For example, should the Commission define security based on specific investments or based on performance of delivering increased security of the transmission system?

And now we get to "resilience."  This is something FERC and other federal energy folks have been tossing around for the last year or so, with some believing that resilience comes from having generators that can run when called, even under adverse conditions.  FERC isn't even sure these investments are within its Sec. 219 mandate.  But yet, here they are.

Q 34) Should transmission projects that enhance resilience be eligible for incentives based upon their reliability-enhancing attributes? Q 35) If so, how could the Commission consider or measure the benefits of an individual project towards grid resilience?

Q 36) If the Commission were to grant incentives for measures that enhance the resilience of the transmission system, what incentive(s) would be appropriate?

Candy!  Get yer FERC Candy!  Belly up to the bar, old boys!  There's plenty of candy for everybody (except you consumers... you get to pay for the candy big energy corporations eat!)

It sure looks like FERC intends to increase incentives, not rein them into serve the purposes of Sec. 219.  This only encourages the building of more transmission of questionable necessity, which will necessarily engender new and widespread opposition to transmission.   We're fast heading to an ugly standoff, where nothing much gets built at all.

Fortunately, the next section deals with investments in existing transmission facilities.  These are the kinds of things that actually happen without delay and expensive opposition.  Unfortunately, FERC's interpretation of how it should look at this needs direction from you.  But, that's a topic for next time...