Current and former transmission opposition groups from 14 states filed joint reply comments today on FERC's Transmission Incentives inquiry. It is a joint response to the initial comments that were filed at FERC in June. Those initial comments included calls to increase and expand transmission incentives (coming from the utilities who profit from them and the "big green" groups who want consumers to finance new transmission to enable a huge renewable energy buildout in the Midwest). They also included an equal (or perhaps greater) number of comments to shrink or eliminate transmission incentives from states and customers who pay for incentives.
Transmission incentives came from the Energy Policy Act of 2005. In a lobbyist-fueled kneejerk, Congress decided that we must act to make our electric grid stronger in the wake of the Northeast blackout in 2003. Of course, that had nothing to do with a lack of new transmission and everything to do with FirstEnergy's bad business practices and failure to trim vegetation around its transmission lines. But, nevertheless, FERC developed policy and began awarding financial incentives to transmission owners to encourage the building of new transmission. Consumers got the bill. And it's cost us billions over the past 15 years. Transmission incentives are a solution in search of a problem that no longer exists and has encouraged transmission owners and planning organizations to build big, new transmission projects when rebuild and upgrade of existing transmission would solve the problem cheaper and faster. But because FERC does not reward making use of existing assets, transmission owners always choose to pursue new transmission and the bigger financial returns it produces. And the next thing you know, a community is fighting an unneeded transmission line. We've had enough and are combining our resources to take action.
According to the statute that brought us transmission incentives, they are intended to encourage transmission owners to invest in transmission that benefits consumers by ensuring reliability and reducing the cost of delivered power by reducing transmission congestion. FERC created a "risks and challenges" evaluation process to provide higher returns and special rate treatments to risky transmission projects that may not be attempted but for their potential financial gain. There was no assurance that these projects provide the necessary benefit. Therefore, transmission owners were more likely to pursue "risky" transmission projects, regardless of consumer benefit.
Now some have asked FERC to toss out the risks and challenges test and replace it with a benefits test. They also want FERC to expand the definition of "benefit" to include all sorts of things that cannot be quantified or measured to any satisfactory degree (like "cleaner air"). It's just an attempt to put a thumb on the scale when comparing benefits to costs. In addition, evaluating a project's benefits does nothing to evaluate whether or not a particular transmission project actually needs consumer funded financial incentives to proceed.
Perhaps FERC needs to do both. And it needs to ensure that benefits and costs are measured after the incentive is granted in order to make sure consumers actually receive all the "benefits" transmission owners are being paid to provide.
Consumer Organizations believe that FERC's evaluation of risks and challenges should become more rigorous, and limited in scope. Utilities currently enjoy lifetime financial incentives for undertaking initial project risk that evaporates once the state approval process has concluded. The incentive should end there as well.
Utilities want FERC to provide an incentive by capitalizing vegetation management. In people speak: Tree trimming around transmission lines is a routine maintenance expense for all utilities. Routine maintenance expense is paid back to the utility dollar for dollar. However, capital expenses are long-lived assets that provide benefit over a number of years. They are paid back incrementally over their useful life as their value depreciates. And because of the time involved in repayment, these expenses earn a return, or interest on their remaining value each year. What it all boils down to is allowing utilities to earn interest on the money they spend on routine maintenance trimming trees. Just another way to increase utility profits! Maintenance should be paid for when it is done, especially something that doesn't last, like trimming trees.
Dynamic line ratings were brought up. What's that? In a nutshell, a transmission line's capacity is limited by things such as weather. Transmission lines get hot, and can overheat. This is exacerbated by temperature, wind, and other factors. Each transmission line has a rated limit that operators cannot exceed. However, that limit is based on a worse case scenario -- a hot, windless, sunny day. But for most of the time, the line can carry more power, however its limit is fixed by a worse case scenario. A dynamic rating takes weather into account to be flexible, allowing operators to get more use of existing lines for the majority of the time. It sounds like a good idea, right? Except those who want to make it happen propose that it receive a "shared savings" incentive whereby the utility utilizing DLR is entitled to collect a fixed percentage of a pre-determined monetary benefit consumers should receive from the use of DLR. In other words, the utility "shares" the savings that result from using DLR. However, these same folks resist any "after the fact" tallying of actual benefits when making the utility's cut. Therefore the only thing the utility has to do is overstate the consumer "benefits" of DLR to receive a higher percentage of the savings than it is entitled to. If nobody is measuring the benefits after the fact, the utility could be taking the entire savings, and then some. Who wants to "share" with a bunch of greedy corporations?
And then there's the folks who want incentives for long distance, interregional transmission "for renewables." Our response includes:
Transmission incentives came from the Energy Policy Act of 2005. In a lobbyist-fueled kneejerk, Congress decided that we must act to make our electric grid stronger in the wake of the Northeast blackout in 2003. Of course, that had nothing to do with a lack of new transmission and everything to do with FirstEnergy's bad business practices and failure to trim vegetation around its transmission lines. But, nevertheless, FERC developed policy and began awarding financial incentives to transmission owners to encourage the building of new transmission. Consumers got the bill. And it's cost us billions over the past 15 years. Transmission incentives are a solution in search of a problem that no longer exists and has encouraged transmission owners and planning organizations to build big, new transmission projects when rebuild and upgrade of existing transmission would solve the problem cheaper and faster. But because FERC does not reward making use of existing assets, transmission owners always choose to pursue new transmission and the bigger financial returns it produces. And the next thing you know, a community is fighting an unneeded transmission line. We've had enough and are combining our resources to take action.
According to the statute that brought us transmission incentives, they are intended to encourage transmission owners to invest in transmission that benefits consumers by ensuring reliability and reducing the cost of delivered power by reducing transmission congestion. FERC created a "risks and challenges" evaluation process to provide higher returns and special rate treatments to risky transmission projects that may not be attempted but for their potential financial gain. There was no assurance that these projects provide the necessary benefit. Therefore, transmission owners were more likely to pursue "risky" transmission projects, regardless of consumer benefit.
Now some have asked FERC to toss out the risks and challenges test and replace it with a benefits test. They also want FERC to expand the definition of "benefit" to include all sorts of things that cannot be quantified or measured to any satisfactory degree (like "cleaner air"). It's just an attempt to put a thumb on the scale when comparing benefits to costs. In addition, evaluating a project's benefits does nothing to evaluate whether or not a particular transmission project actually needs consumer funded financial incentives to proceed.
Perhaps FERC needs to do both. And it needs to ensure that benefits and costs are measured after the incentive is granted in order to make sure consumers actually receive all the "benefits" transmission owners are being paid to provide.
Consumer Organizations believe that FERC's evaluation of risks and challenges should become more rigorous, and limited in scope. Utilities currently enjoy lifetime financial incentives for undertaking initial project risk that evaporates once the state approval process has concluded. The incentive should end there as well.
Utilities want FERC to provide an incentive by capitalizing vegetation management. In people speak: Tree trimming around transmission lines is a routine maintenance expense for all utilities. Routine maintenance expense is paid back to the utility dollar for dollar. However, capital expenses are long-lived assets that provide benefit over a number of years. They are paid back incrementally over their useful life as their value depreciates. And because of the time involved in repayment, these expenses earn a return, or interest on their remaining value each year. What it all boils down to is allowing utilities to earn interest on the money they spend on routine maintenance trimming trees. Just another way to increase utility profits! Maintenance should be paid for when it is done, especially something that doesn't last, like trimming trees.
Dynamic line ratings were brought up. What's that? In a nutshell, a transmission line's capacity is limited by things such as weather. Transmission lines get hot, and can overheat. This is exacerbated by temperature, wind, and other factors. Each transmission line has a rated limit that operators cannot exceed. However, that limit is based on a worse case scenario -- a hot, windless, sunny day. But for most of the time, the line can carry more power, however its limit is fixed by a worse case scenario. A dynamic rating takes weather into account to be flexible, allowing operators to get more use of existing lines for the majority of the time. It sounds like a good idea, right? Except those who want to make it happen propose that it receive a "shared savings" incentive whereby the utility utilizing DLR is entitled to collect a fixed percentage of a pre-determined monetary benefit consumers should receive from the use of DLR. In other words, the utility "shares" the savings that result from using DLR. However, these same folks resist any "after the fact" tallying of actual benefits when making the utility's cut. Therefore the only thing the utility has to do is overstate the consumer "benefits" of DLR to receive a higher percentage of the savings than it is entitled to. If nobody is measuring the benefits after the fact, the utility could be taking the entire savings, and then some. Who wants to "share" with a bunch of greedy corporations?
And then there's the folks who want incentives for long distance, interregional transmission "for renewables." Our response includes:
We can’t ignore the elephant in the room – these kinds of projects are intended to facilitate the transfer of “clean” energy resources across multiple regions, and often provide no benefit to communities who are asked to bear invasive new infrastructure that only benefits others in far-distant cities. These kinds of projects are an attempt at top-down pressure to force load in one region to choose resources from another, favored, region. There is no empirical evidence that beneficiary communities would choose these resources if offered through new transmission. In fact, experience gained by the failure of the Clean Line Energy Partners merchant transmission projects suggests that even when these kinds of energy choices are offered to load, they are not selected. When left to their own devices, states may choose to use renewables from their own state or region, rather than import generation from another part of the country. Local resources provide more than “cheap” energy; they provide economic growth to the community and keep energy dollars working within the community, state, or region.
Interregional and resource unlocking transmission projects are some of the most hotly opposed transmission today. The larger a project’s geography, the more opponents it garners, and opposition to these kinds of projects has been wildly successful because of its mass and momentum. Rural landowners and businesses will continue to vociferously resist this unnecessary and sacrificial invasion, making these kinds of projects a non-starter.
Providing financial incentives to these projects cannot overcome opposition and the state politics that drive rejection. Until a way to transfer energy long distances that does not rely on overhead structures and eminent domain is developed for common use, these projects are best left to existing planning processes and the merchant transmission world. Incentive rates cannot solve this problem.
Consumer Organizations also take on the RTO adder incentive, which gives member utilities an additional .5% on their return.
What does this have to do with baseball? Ahh... we're getting to that. Some transmission owners have suggested that FERC order consumers to pay their costs to compete at RTOs to build new transmission. In certain regions, some new transmission is competitive, where utilities submit project ideas to solve an identified issue. The best project is selected. This kind of competition happens all the time in the business world, right? Except these companies want to be compensated for their cost to participate, develop ideas, submit them, and usher them through the process. Essentially, everyone gets paid to compete for consumers, by consumers.
What does this have to do with baseball? Ahh... we're getting to that. Some transmission owners have suggested that FERC order consumers to pay their costs to compete at RTOs to build new transmission. In certain regions, some new transmission is competitive, where utilities submit project ideas to solve an identified issue. The best project is selected. This kind of competition happens all the time in the business world, right? Except these companies want to be compensated for their cost to participate, develop ideas, submit them, and usher them through the process. Essentially, everyone gets paid to compete for consumers, by consumers.
Paying everyone for their costs to compete completely upends the competitive process
and removes any consumer benefit from the competition itself. This isn’t Little League Baseball, where every player gets a trophy for participating; it’s big business with large financial rewards.
And we discuss the abandonment incentive, where utilities are guaranteed to be able to collect their prudent costs from consumers, even when a transmission project is cancelled (like our dearly departed PATH project, still gouging our wallets 8 years after being cancelled). This equates to consumers paying hundreds of millions of dollars for absolutely nothing... bad transmission ideas that never got built.
The true magnitude of its burden on consumers for circumstances out of their control has been taken rather lightly. Consumer interests deserve serious consideration in a fair evaluation of the use of the abandonment incentive, instead of being a voiceless speed bump thoughtlessly tossed under the bus in an attempt to protect utility interests.
We suggest new transparency, where consumers can find out how much they pay for transmission incentives, and how much they benefit.
And then there's a whole bunch of garbage suggested by other parties that simply falls outside the scope of this inquiry.
And then there's a whole bunch of garbage suggested by other parties that simply falls outside the scope of this inquiry.
Environmental and business interests call for the development of transmission incentives
to spur the construction of a “build it and they will come” proactive grid of the future. The
suggestion that we go “all in” on forced use of remote renewables may be a bad bet because it conflicts with the recent rise of distributed generation, local renewables, and non-transmission alternatives, and may not be the cheapest or most effective way to reduce carbon emissions.
It is no surprise that environmental groups, transmission developers and suppliers, and even corporations with their own voluntary renewable energy goals, are urging the Commission to use incentives to force the building of new consumer-financed transmission that meets their self-imposed goals, or ensures decades of new profit.
Commenter Advanced Energy Buyers Group thinks the Commission should award incentives to encourage new transmission to meet the voluntary goals of its member corporations. Corporations, no matter how big, should not be directing and demanding where
and when consumer-financed energy infrastructure is built. Consumers cannot bear the financial responsibility of this kind of corporate virtue signaling.
Commenter American Wind Energy Association’s support for building a new grid for renewable energy at consumer expense may be a poorly disguised attempt to reduce generator connection and transmission costs in order to make up for the financial loss of the expiring Federal Production Tax Credit. Once the credit is gone for good, remote industrial wind is going to need all the financial help it can get to compete on a cost basis with local renewables. Reducing transmission congestion and costs by pro-actively building a consumer-financed grid for export is one way to accomplish that.
And then there's big green front group Americans for a Clean Energy Grid. Names can be confusing, but this front group represents environmental groups and those who profit from building transmission. And what they suggested...
It suggests wider cost allocation and an expanded definition of “benefit” so that the cost of new transmission can be increased while still scaling pre-defined cost/benefit ratios. ACEG wrongly suggests that such a plan will show state and local authorities the benefit of transmission and convince them to approve more projects. In addition, ACEG believes it can smooth siting by increasing project costs to provide “mitigation” payments to landowners and local communities who may oppose new transmission projects.
"If FERC were to reinforce its policy of permitting transmission project developers
to include in their project costs expenses that were incurred to mitigate the concerns of a local community inclined to oppose the construction of a nearby transmission line, a less contentious project approval could save more than their cost. This might include such expenses as providing a new railroad track
overpass, upgrading a school or community center, or repaving some of the community’s streets. The ability to make such social investments could help build the case for state and local acceptance of a project, and could allow that transmission line to be completed more quickly…"
ACEG has it wrong on all counts. The Commission does not have “a policy of permitting transmission project developers to include in their project costs expenses that were incurred to mitigate concerns of a local community...”. ACEG conflates several misconceptions of existing rate precedent that was recently settled by the Commission in Opinion No. 554. It’s almost as if ACEG failed to take notice of that decision at all. Payments to local communities intended to influence their opinion and decisions in a transmission permitting case are expenditures “…for the purpose of influencing the decisions of public officials…” that belong in Uniform System of Accounts (USoA) account 426.4. Account 426.4 is not included for recovery in transmission formula rates, and its recovery through stated rates requires individualized Commission review and approval.
Furthermore, the idea that landowners and communities can be influenced to support transmission proposals by what essentially amounts to bribe money is the contention of a
Pollyanna. Money is not the issue that foments opposition and we consider this contention insulting. Adding to the insult is the absurdity of paying financial rewards to a community and then collecting the cost of those rewards from the very same community through electric rates (in some instances with added return). In that instance, communities would be paying to bribe themselves.
Interested in reading more yet? The whole document is available here. (Roughly 20 pages, double spaced).
So, what happens next? That's up to FERC, but we stand ready for further action!
So, what happens next? That's up to FERC, but we stand ready for further action!
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