Has FERC’s landmark transmission planning effort made transmission building harder?

Source: By Herman K. Trabish, Utility Dive • Posted: Thursday, July 19, 2018

Current and former FERC commissioners, along with two of the largest regional grid operators, are increasingly critical of Order 1000 — a landmark Obama era order on competitive transmission siting — and are pushing a new look at the initiative.

Former commissioner Tony Clark said the red tape added to the planning process by Order 1000 has kept some developers from completing new projects.

Former FERC Chair Jon Wellinghoff, who led the commission when it approved Order 1000 in 2011, said the changes in the national power system since the order was put in place have delayed its effectiveness. It would be better to let the system catch up to what Order 1000 offers, he told Utility Dive.

Commissioner Cheryl LaFleur, a member of the current FERC, agreed with Wellinghoff but told Utility Dive there are pathways by which Clark’s objections can be addressed and added that parts of the order are worth taking a new look at.

The Order 1000 story

Order 1000 was issued in July 2011, a result of concerns about emerging demands on the nation’s aging power infrastructure. Load flattened after the 2008 economic recession, but by 2011, it was clear transmission was inadequate to serve the renewables generation beginning to replace outdated fossil fuel-burning power plants.

The order was intended to drive a transmission building renaissance. It revised rules on transmission planning, on allocating costs for transmission, and on competitive bidding. New transmission has come online in the interim, but 70% of the system is still over 25 years old and replacing it remains a challenge.

Clark’s April whitepaper argued Order 1000 has impeded transmission expansion and should be reassessed. “We have been left in, arguably, a worse position than where we began: more process, more compliance, more delay, more paperwork, more planning; less transmission actually being built,” he wrote.

Order 1000 has been “a mixed success, with less change-making than we hoped for,” Commissioner LaFleur said. But, she added, “this has been a period of transition costs while the benefits could last over a much longer period, so the Clark paper’s argument that its benefits have not been worth the costs are a bit premature.”

Order 1000’s four provisions

The order will drive new transmission building but keep rates “just and reasonable and not unduly discriminatory or preferential,” the commission wrote in the 2011 ruling.

There was “increasing transmission congestion and the need for significant new transmission investment,” FERC decided. But 2007’s Order 890 left it to “the self-interest of transmission providers to expand the grid in a not unduly discriminatory manner,” it added. Order 1000’s four key provisions would proactively drive new development.

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The first provision would produce regional transmission plans that are more efficient, cost-effective and focused on public policy. To do that, Order 1000 required that “each public utility transmission provider” produce “a regional transmission plan.”

The second provision would properly allocate the costs of regional and interregional transmission building to its beneficiaries. To do that, it required transparent, well-documented cost allocation methods that require stakeholders who benefit from new projects to pay the costs and protect those who do not benefit.

The order also required that transmission providers’ planning and rates lead to transmission that meets public policy requirements. This was because state renewables mandates were beginning to drive demand for new, more robust transmission that could deliver remotely located variable wind and solar generation to load centers.

The third provision was to increase competition in transmission building. To introduce the efficiencies of competitive market forces, Order 1000 eliminated incumbent utilities’ right of first refusal on competitors’ new project proposals.

The fourth provision called for coordination between regional planners on “identifying and evaluating the benefits of alternative interregional transmission solutions.”

FERC’s October 2017 “Transmission Metrics Staff Report” described two reasons it is still not clear whether transmission investment is adequate “to meet the nation’s needs.” First, “stakeholders cannot agree on what would constitute an appropriate amount of transmission investment.” Second, “some transmission issues can be addressed using alternatives.”

Throughout the report, FERC staff provided caveats for the findings, reported that data is inadequate to draw conclusions and noted that Order 1000 provisions have not been in place long enough for final judgments.

In some regions, transmission investment has been successful in “reducing persistent congestion,” the report concluded. But results from the competitive provision were limited, and metrics were inadequate to conclude whether this investment cost-effectively addressed policy changes like the need for new transmission to meet state renewables mandates.

Former Commissioner Clark reads these findings as too little benefit for too much regulatory burden.

The Clark objections

“Siting and permitting of any energy infrastructure is complex and controversial — and transmission lines have long been amongst the most challenging,” Clark told a House of Representatives Energy Subcommittee in May. But “however well-intentioned the Order, in practice today, it is falling short of its goals,” he said.

The major transmission projects that have been built “came out of a pre-Order No. 1000 world,” he told the subcommittee. The post-Order 1000 period “has been marked by bureaucracy, but few tangible projects or empirical data to indicate success.”

FERC needs to reassess and redesign the rule or “we may today find ourselves in the position of having a rule that entails significant compliance costs but without attendant benefits,” he added.

The order “goes in a lot of different directions,” Clark told Utility Dive. “It had something for everybody, lost its focus, and did not resolve tensions between its goals.”

Its goals to drive cooperative planning “can conflict” with its goal to increase competition between developers, he told the congressional subcommittee.

The “nebulous” concept of public policy requirements “was often code for ‘supporting renewables,'” Clark wrote in the white paper. The order fails to consider “that each region’s needs, priorities, and processes are different.”

Pre-1000 projects, like the Midcontinent Independent System Operator (MISO) MultiValue Projects, were successful because vertically integrated utilities were already doing regional planning, he told the congressional subcommittee.

But the order disrupted their “collaborative, bottoms-up” planning, he said. It created “a complex bureaucracy, where the name of the game is completing a compliance checklist that may not actually result in transmission development.”

Debates over the cost allocation method and the right of first refusal resulted in planning that “was revolving around Order 1000 instead of the transmission projects,” Clark told Utility Dive.

But transmission development has also slowed because the drivers have changed, Clark acknowledged. “Low-cost natural gas, a proliferation of state public policies that support generation outside of traditional markets, flattening demand growth and increasing distributed energy resource penetration” make new transmission less necessary.

Still, “one would be hard pressed to point to concrete Order No. 1000 successes in bilateral market regions of the country,” he wrote in the paper. “I cannot help but ask if the bureaucracy imposed by Order No. 1000 may outweigh the benefits to be gained.”

The defense

While Clark highlights a number of shortcomings with Order 1000, LaFleur recognized mixed outcomes and the fact that it may still be too soon to judge it in total.

Order 1000 was put in place “to help reliability, to help market efficiency and to help support public policy changes in the transformation of the resource mix,” Commissioner LaFleur told Utility Dive.

It has been “largely successful” in advancing regional planning and cost allocation, she said. In some places, “it has been slow getting started” but, in other places, there has been more transmission planning “as a result of the order.”

Introducing more competition into transmission development “has been mixed,” LaFleur said. In some places, increased competition “has been documented to help deliver customer savings and better projects.” But eliminating the right of first refusal has been “fiercely opposed” by some incumbent utilities, impeding planning, she acknowledged.

And, clearly, the order “has not led to big interregional projects,” she said.

Commissioner Neil Chatterjee also sees concerns, along with continued promise from the transmission planning initiative.

“Implementation remains a work in progress,” Chatterjee told a June 21 Platts conference. The commission is aware of stakeholder “concerns about whether and how the implementation of Order 1000 is living up to its goals,” he added. But, to suggestions that it be abandoned, “I disagree wholeheartedly.”

LaFleur said the accuracy of Clark’s assertions that the costs of the order are greater than the benefits “depend on the definitions of costs and benefits.” There have been transition compliance costs, as there are in any transition. But she expects those short-term costs to be balanced by long-term benefits that, as described in the FERC staff report, are only just now becoming quantifiable.

Competition has led, in a few cases, to bidding that drove costs up. But the bidding developers paid those costs and, in meetings with us, “they complain that they don’t have enough bidding opportunities, not that it is too expensive,” LaFleur said.

“Order 1000 has not been in place long enough to conclude the benefits have not been worth the cost.”

The benefits from reliability drivers in Order 1000 “are usually quite well understood,” she said. The benefits from market efficiency drivers “tend to be well understood, though their calculations can be complicated.” But benefits from drivers for transmission planning to meet public policy “have been more difficult to quantify.”

In the Order 1000 proceeding, “we heard loudly from stakeholders that we should allow regional flexibility in the defining of those benefits, so we provided it,” LaFleur said.

Some regions require a “quite constraining” avoided-cost analysis, while others allow less-formulaic proposals, she said. “We should think more broadly about benefits, and not allow the more constrained process.”

Overall, she added, “Order 1000 has not been in place long enough to conclude the benefits have not been worth the cost.”

Former FERC Chair Wellinghoff agreed.

It is valid to criticize Order 1000 because many of those projects have not been built, Welllinghoff acknowledged. But a key reason for that is “loads have basically been flat, reducing the need for new transmission,” he said.

Instead of completely reassessing Order 1000 now, as Clark proposed, “there is nothing wrong with waiting until new loads increase the need for planning,” Wellinghoff said.

Reassessment of the right of first refusal provision would be valid now because, “to provide flexibility, we left loopholes that incumbents are driving trucks through,” Wellinghoff acknowledged. “It may be time to go back and double down on the competition issue.”

Other voices

The Order 1000 planning objectives largely reflect MISO’s approach, according to System Planning VP Jennifer Curran. She agreed with Clark that they are “the right objectives” although they come with “a higher compliance burden and some limitations on flexibility.”

Order 1000’s success, however, “is not just a count of regional, competitive and interregional projects,” Curran emailed Utility Dive. It is in the “quality of the transmission plans in addressing system needs.”

For PJM Interconnection, Order 1000 has “led to a notable increase in the number and variety of solutions to reduce congestion on the grid,” Craig Glazer, PJM’s federal policy VP, told the House Energy Subcommittee last September. But the order is hampered by an “extreme focus on documentation of processes at a level of detail that can stifle the flexibility and discretion needed,” he added.

“Market design is as much an art as a science,” Glazer added. Order 1000’s record on interregional planning is “mixed,” but counting the number of “major interregional transmission projects covering hundreds of miles may be unrealistic and an inappropriate metric of success.”

What FERC should do

Any action in response to the Clark critique will likely be delayed until the vacancy created by Commissioner Robert Powelon’s mid-August retirement is filled by a new presidential appointee. But Clark does not believe the response should be put off too long.

The time to begin the reassessment of Order 1000 “is now,” he told Utility Dive. “Those things don’t happen fast.” It could be through a notice of inquiry, a workshop or another type of open-ended proceeding that would begin with gathering new data.

The outcome could be “scrapping ” the order, he said. A step short of that could be easing prescriptive requirements on vertically integrated utilities already doing planning and focusing the rule on restructured markets. “The other end of the spectrum would be to take Order 1000 deeper into the transmission grid.”

There is wide agreement that the order has shortcomings, but there are “widely divergent views on what the answer is,” Clark said. “The place to start is a FERC inquiry.”

In his conference remarks, Commissioner Chatterjee said it was “a personal priority” to find ways “to better deliver on Order 1000’s promise.”

Order 1000 is not going away, LaFleur said. “FERC has prevailed repeatedly in federal circuit court challenges, on grounds that it is needed to keep rates just and reasonable and build projects to serve the public interest. This is now the law.”

A recent two-day FERC technical conference identified things that could be reassessed, including changes to the competitive bidding and interregional planning provisions, she added.

There are other issues the newly-constituted Trump FERC must address, most notably siting, to improve transmission development, LaFleur said. But there are two potential approaches to a reassessment of Order 1000.

One is a “generic docket,” she said, echoing Clark. The other is “another technical conference or taking up a complaint or proposal by a developer or regional transmission organization. Either way, Order 1000 is very much a live issue and we welcome input about how we can make it better.”