Legal & Regulatory

Regulators Face Worst of Times

It’s not a pleasant time to be an electric utility regulator, as a daylong conference in March at the Federal Energy Regulatory Commission (FERC) in Washington demonstrated. Regulators at the federal and state level face a Herculean set of tasks, not all of them compatible with each other. It could be the most difficult time facing the electricity industry since the fall of the Insull empire in 1932. FERC titled the technical conference, “Integrating Renewable Resources into the Wholesale Electric Grid.”

Countless Challenges

Regulators must deal with state renewable portfolio standards (RPS) and, most likely, a federal RPS mandate. Several state solons already face state-mandated carbon reductions and Uncle Sam will likely implement carbon dioxide limits and a cap-and-trade program. Regulators at all levels must confront cybersecurity for the transmission grid. They’ve got to assure reliable operation of a national grid that has potentially fatal flaws.

On top of all that, they have to help the nation come up with a new, fully interconnected high-voltage transmission system that facilitates least-cost renewables—generally located in remote places but needing to get to places where the people are—while allocating the costs and benefits (who pays and who plays) equitably and ensuring reliability.

All this amidst hopes for a federal system in which the national government and the state governments (and the multistate regional transmission organizations and organized markets) can all get along. That’s a tough agenda.

Unpopular Decisions

The FERC spent a full day pondering these Alpine obstacles, with four panels of experts—regulators, system operators, independent transmission companies, regional transmission organizations , regulated utilities, and the like—offering advice and encouragement, and, most often, displaying confusion and anxiety. FERC Commissioner Suedeen Kelly noted that several recent estimates pegged the cost of building enough transmission by 2030 to compensate for the failure of the nation to improve the grid over the past 20 years at around $300 billion. “That’s before we even talk about renewables,” she said.

That was also before any talk of a “smart grid,” which barely came up at the conference. Most viewed the putatively smart grid as a distribution network issue and not subject to federal jurisdiction. The conference was about a robust grid, brawn without much thought of brains. The task for the high-voltage system is going to be heavy lifting, not higher math.

FERC Commissioner Marc Spitzer, highlighting a crucial and ubiquitous issue, noted, “Given the magnitude of the challenge we face, I hope for a partnership between the federal government and the states.” Good luck.

Lauren Azar, Wisconsin Public Service commissioner and president of the Organization of MISO (Midwest Independent System Operator) States, highlighted regional planning and cost allocation as the regulatory Gordian knots to be untangled, or cut through, in order to integrate renewables efficiently, increase reliability, reduce carbon dioxide emissions, provide reliability and security, and increase energy efficiency (see sidebar).

Renewables, Azar noted, provide special problems because the best generating sites are generally located far from the load, are variable, and nondispatchable. Carbon, added Azar, “is the other elephant in the room.” While complying with renewable portfolio standards is daunting, she said, “complying with carbon limits requires a complete change” in the way the utility industry has conducted itself for nearly a century.

Regional planning, Azar said, is necessary, but the “regional” nature makes it difficult. States bring their own circumstances and needs to the planning roundtable and have long regarded energy planning as their specific bailiwick. Complicating the jurisdictional puzzle, Azar noted, is the possibility, which many regard as crucial, of a federal electric transmission regime.

New Wiring Diagram

Betsy Moler, executive vice president of Chicago-based Exelon Corp. and former FERC chair, endorsed federal siting of electric transmission. She said, “We support passage of federal transmission siting legislation giving this commission plenary authority to site all new high voltage transmission, which we would define to mean transmission lines 345 kV and above, and any feeder lines 100 kV and above that connect new non- or low-emitting generation resources. . . . The authority should be based upon the Natural Gas Act model for interstate natural gas pipelines. We would urge the members of this commission to formally voice their support for federal transmission siting legislation, too.” That congressional action would end the jurisdictional questions in the Fourth Circuit decision, if it withstood further court scrutiny.

Timing of all of these regulatory and policy moving parts vexed the FERC panelists. Azar observed that the states want certainty from the feds—something that doesn’t appear to be coming any time soon. “But,” she added, “we can’t wait for that.” So the state and regional planners must begin their tasks with policy blinders on, unable to see the full landscape around them.

Winners and Losers

Another problem for the FERC panels is how to allocate the costs and identify the benefits of all this activity. What will the price of natural gas be in 10 years? How much are carbon reductions worth? Who really benefits and how are those benefits distributed from new transmission? What can we do with the interests of “pass-through” states (who see power flowing over large lines across their state, without any local benefits)? All those questions were raised; none were answered.

But there was considerable consensus among the panelists. First, all appeared to endorse a plan to build an extra high voltage (alternating and direct current) overlay of the existing transmission system, similar to that envisioned by the Joint Coordinated System Plan 2008 (PDF). This would not be the conventional generator-to-customer transmission system that characterizes the way renewables get to load today, but what one panelist described as a “mesh” that moves power easily from place to place to place.

The panelists also generally agreed that in addition to regional transmission planning, interregional planning—connecting the Balkanized grid, particularly across the Eastern and Western Interconnection—is necessary.

Who should do that interregional planning? FERC drew the short political straw according to virtually all of the panelists. Recognizing that this planning model will require federal legislation, Joe Welch, CEO of ITC Holdings, an independent transmission company, summarized the views: “There has got to be an interconnection planning authority. It has to be FERC.”

—Kennedy Maize is executive editor of MANAGING POWER.

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