Order 1000 offers important incremental step
FEDERAL ENERGY REGULATORY COMMISSION (FERC) ORDER 1000 has set the industry abuzz. Energy Central's TransmissionHub discussed the opportunities and challenges offered by Order 1000 in an October webcast with a panel of industry representatives, including one transmission participant. Here, edited for length, are excerpts from Nina Plaushin's comments. Plaushin is vice president of federal affairs for ITC Holdings, the nation's largest independent transmission company.
ITC is a transmission-only company, and what that means is that we do not generate, we do not buy and we do not sell energy. We are simply the carrier for energy for other market participants. We are the eighth largest transmission owner in the country, and we are not a market participant in any markets. We operate in several states: Michigan, Iowa, Kansas, Oklahoma, Minnesota, Missouri, as well as Illinois.
We're in two RTOs (regional transmission organizations), and we've been doing investment across the country for quite a number of years now. My perspective is really that of a transmission developer who's in the field, who is not having a hypothetical conversation, but is actually trying to surmount the challenges that exist to getting transmission built.
Decades of transmission under-investment
There seems to be some general consensus about the idea that we do need more transmission built. One of the things we see, and the reason why we see a movement by FERC to do something like Order 1000, really is the lack of investment. We've had decades of under-investment in transmission. It hasn't kept pace with generation growth or with load growth. And in terms of high-voltage lines, we have a discrepancy about which parts of the country have more development versus other parts of the country.
I think that there are varying degrees of what people mean when they say that they support transmission. Clearly, I think everyone agrees that we need to build transmission to make sure the lights stay on-reliability upgrades. Then there are some who also agree we need to make sure that we connect all market participants, all generators who want to have access to the grid or to the market. And then finally there's the issue about transmission to support the regional markets that do exist within the RTOs, and the transmission that's needed to enable those economic transactions. Not everyone supports all three types of transmission, and that's why planning is such a challenge.
As a transmission developer, we recognize the challenges to getting investment and transmission built are planning, cost allocation and siting. In other words: what are you building, who's paying for it and how are you getting it built?
FERC Order 1000 deals with two of these ideas: planning and cost allocation. One of the first underlying assumptions I want to try to debunk is the idea that this is somehow all very new. We've had ongoing direction to some degree for many years under FERC 890, a previous order by FERC. And what FERC is doing now, really, is trying to go back and reassess what that experience has been, and improve upon the existing regional processes that we have.
Optimized bottom-up planning
Obviously outside of the RTO regions, there are varying levels of coordination and planning but, at least from ITC's experience, we're mostly talking about the areas of the country that have RTOs and organized markets, and the kind of planning that we've been doing, and those regions do bottom-up transmission planning. The local transmission company plans, and that gets rolled up into a larger plan, and then that plan hopefully is optimized.
Optimized means you take all the different projects that you have, and you figure out the most efficient way to build them: the most cost-effective and the best engineering design that takes in the multiple needs that are out there. And so while we recognize that there's a lot of rhetoric about, "Well, we don't want a top-down push on planning, so we have to build something that the local regions don't want," I would argue that that's not the case. I think Order 1000 codifies the notion that the regions are the ones who are making these decisions.
We support regional planning, as well. I think that it's a little bit of a quandary, and another one of these underlying assumptions I worry about a little bit, which is, "Well, we support letting the regions decide how to do planning and having local planning, but when we get to the issue of how we're going to pay for the transmission, we sort of part ways." And in doing so, that directly influences planning. You can't talk about what is a benefit and what isn't a benefit, and not have that filter into the overall planning process. It is the benefits that are the drivers for the projects that get built and selected. So if in fact we aren't comfortable, as some have argued, with allowing the regions to decide what those benefits should be, and we in fact want FERC to dictate what those benefits should be (and thereby, by definition, limit benefits that can be considered), then we are essentially dictating to the regions, and that would be a top-down approach.
Fairness is important
User cost is also a big concern. Everybody wants to make sure that we're not paying for something that we don't need. We don't want a gold-plated system, and we want fairness. I think that we would all agree on those principles. Obviously if this was an easy problem to fix, it would have been fixed by now. And so there are good arguments on both sides, and a lot of where you come out on this question ends up with what are you trying to accomplish.
That goes back to my earlier point about "What are we planning for?" and "What kind of transmission expansion are you supportive of?" Because if all you're worried about is building the next increments to preserve reliability, the answer of how you do cost allocation will be a lot different than if you're looking to facilitate transmission to enable markets.
Transmission is a very small portion of the overall cost of delivered power to the consumer. Most of the cost associated with the power you use in your home comes from the generation portion of your bill. That doesn't mean that transmission costs aren't important. They are important. We certainly don't want to pay for things we don't benefit from. And, in fact, Order 1000 codifies that concept.
But what it also tells you is that a small increase in the transmission component of your bill, if in fact it helps to offset the larger portion- the generation portion-of your bill, might be a good investment. What ITC has been trying to do is educate people about the fact that when we see these big numbers that people are talking about ... by the time you're all done with it, oftentimes we find that transmission not only pays for itself, but actually accomplishes savings for customers in the end. So it should not be assumed that every time you put a piece of steel in the ground and you string wire, that it's money out the door.
In fact, MISO has done a system analysis for their region and Southwest Power Pool has done a system analysis for their region about the benefits that come to consumers from expanding the grid that are not necessarily all negative in terms of "Oh, it's going to cost money."
Plaushin brought up some other cogent points in her presentation about fluid regional borders, cost allocation and border seams, curtailed transactions, the lack of a National Energy Policy for guidance purposes, transmission to enable regional markets, and more. To hear the entire webcast, go to http://bit.ly/thTJTN
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