FERC examines transmission investment trends, Order 1000 impact

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As FERC prepares for a June technical conference on industry compliance with its Order 1000, FERC staff at the commission’s March 17 meeting presented transmission investment data and information from a report that is designed to measure the effectiveness of FERC policies on transmission development.

FERC staff said they used several different categories to examine whether there is sufficient transmission investment in the U.S., with regional price differentials indicating congestion, transmission loading relief data filed with NERC showing possible grid constraints and load-weighted transmission investment figures illustrating where transmission developers are getting more or less bang for their bucks.

Some of the goals of FERC’s transmission policies, including Order 1000, have been to promote cost-effective transmission development through regional planning, provide opportunities for nonincumbent transmission developers to build transmission facilities and establish fair cost allocation methods, FERC staff said.

Transmission development continues to be a key focus of FERC, and the commission will hold a technical conference on Order 1000 on June 27 and 28, FERC Chairman Norman Bay said at the meeting.

Bay praised FERC staff for the research on transmission investments and data in the staff report, and he asked what conclusions could be drawn from the information.

FERC staff cautioned that much of the data, by itself, should not be used to gauge the “cost effectiveness” of transmission investment in different regions because much of the cost of projects are driven by highly variable physical and regulatory challenges particular to each project, region or developer. There are many ways to use some of the data in the report, FERC staff said.

FERC Commissioner Cheryl LaFleur, as she did when Bay said in February that FERC would hold a technical conference on Order 1000, said she is pleased FERC is examining some of the transmission developments and making sure its policies reflect reachable goals.

“It’s great that you’ve laid down a marker” on where transmission investment stands and possible impacts for FERC policy, LaFleur told FERC staff.

She asked if there were clear drivers for some of the transmission projects examined in the report. Other than anecdotal information about moving power from renewable generation projects or addressing reliability concerns, FERC staff said they did not examine the drivers for transmission projects in the report.

On the policy front, the Competitive Renewable Energy Zone initiative in Texas provided a clear boost for transmission development in the state, FERC staff said. The Texas Regional Entity had $6.5 billion in transmission projects go into operation in 2013, with $5.7 billion of that attributed to CREZ projects designed to reduce congestion and integrate wind power projects, which significantly boosted the TRE grid investment figures, FERC staff said.

That grid investment level, which was more than three times the load-weighted average in TRE for the years 2008 to 2014, shows the powerful impact one particular policy initiative can have, FERC staff said.

FERC Commissioner Colette Honorable said there are a lot of lessons FERC could learn from Texas and the CREZ initiative.

Besides addressing the transmission planning and cost allocation measures of Order 1000, Honorable said that the commission should be mindful of transmission costs, which have been creeping up to become a bigger part of consumer utility bills. Compared with 2007, when transmission costs made up about 10 percent of a utility bill on average, those costs now can reach as high as 20 percent of a bill, she said.

In the presentation, FERC staff noted that they provided a load-weighted dollar value of transmission facilities that went into service over the years 2008-2014 in the NERC regions, which allows for better comparisons between regions of different sizes.

The national average for those years was $2.19/MWh, with TRE topping all regions at $4.72/MWh and Southwest Power Pool next at $3.17/MWh, according to the FERC staff presentation. Without the CREZ boost in 2013, the TRE average load-weighted dollar value would have been $2.56/MWh.

At the low end of the figures were the SERC Reliability Corp., in the Southeast, at 88 cents/MWh, and the Florida Reliability Coordinating Council at 51 cents/MWh.

While a higher load-weighted dollar value of transmission facilities may not always be better than less investment reflected in lower dollar values, “tracking how these values change following changes in commission policy may be informative,” FERC staff said at the meeting.

FERC staff also noted that transmission investments tend to be “lumpy” for most regions, with such large infrastructure projects moving investment levels higher or lower from year to year.

At the meeting, FERC staff noted that areas with regional transmission organizations or independent system operators make it easier to see price differentials among different delivery points that can indicate congestion.

Conversely, areas without RTOs or ISOs have less pricing information and TLRs are not used much in the Western Interconnection, making the data a bit limited in applicability for broad assessments, FERC staff said. Grid operators in the Western Interconnection manage unscheduled flows using a combination of controllable devices, such as phase shifting transformers and schedule curtailments that are similar to TLR events, but they are not recorded in NERC TLR logs, thus the TLR data excludes the Western Interconnection.

While a high level of TLR events might indicate a need for more transmission infrastructure and a low level of TLRs might indicate less need for such facilities, FERC staff sought to use pricing data as another indication of grid congestion. That is because “even if a region experiences large numbers of TLR events, in the absence of any significant and persistent price differentials in that region, the TLR events might not indicate a need for additional transmission infrastructure,” FERC staff said at the meeting.

Incomplete or insufficient data on transmission projects and prices in different regions makes drawing conclusions for the U.S. as a whole challenging, FERC staff said at the meeting.

For example, nonincumbent developers proposed many projects in the California ISO (Cal-ISO) and PJM Interconnection (PJM) areas, where more than 60 percent of the projects proposed for 2013-2015 were from nonincumbents, with an exception being 2014 in PJM, when 37 percent of the proposals were from nonincumbent developers. But at the time that staff was preparing the report, relevant data from other ISOs was not available, making a determination of progress difficult for the policy goal of having nonincuments participate more actively in the regional planning process.

FERC’s Order 1000 defined nonincumbent transmission developers either a developer that does not have a utility distribution service territory or a utility transmission provider that proposes a project outside of its utility service territory, and that is what FERC staff said they used.

It is too early in the Order 1000 process to determine if the data and transmission planning among the different regions will produce results similar to what was seen among nonincument proposals in PJM and the Cal-ISO, FERC staff said at the meeting.

In the report, FERC staff said “it is difficult to assess whether the industry is investing in sufficient transmission infrastructure to meet the nation’s needs and whether the investments made are more efficient or cost-effective. Nevertheless, staff has attempted to develop a range of objective and standardized measures of various characteristics of the electric system and its performance to help assess the effectiveness of the commission’s policies.”

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