Finds tolerance for load-shedding ill-advised

Update courtesy of Utility Regulatory News #4069: A regional transmission planning standard proffered by the North American Electric Reliability Corp. (NERC) has met with resistance from the Federal Energy Regulatory Commission (FERC), because the standard does not include enough system strength or redundancy requirements to guarantee that load-shedding can be avoided under all circumstances. NERC had proposed certain modifications to its Standard TPL-002-0b, which governs transmission planning reliability. Under the revised standard, it would be acceptable to recognize in a regional transmission plan the potential for some degree of load-shedding, provided the overall planning process had been open and transparent and had given all stakeholders a chance to voice their concerns about the plan. According to the FERC, however, such openness and transparency are no substitute for technical engineering criteria that would ensure system reliability. Indeed, the FERC said, NERC’s proposed new standard clearly runs counter to the overarching goal of the transmission planning process, which is reliability of service and avoidance of the need to shed load so as to prevent cascading outages. Thus, deeming NERC’s suggested changes impermissibly vague and overly complacent about the possibility of service interruptions, the FERC returned the standard to NERC for further consideration. For the full story, subscribe to URN.

Posted: May 8th, 2012 under reliability, transmission.
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Declares high-voltage facilities to be of benefit to RTOs as a whole

Update courtesy of Utility Regulatory News #4066: On remand from the U.S. Court of Appeals for the 7th Circuit, the Federal Energy Regulatory Commission (FERC) has affirmed the pricing method it had adopted in 2007 for assigning the costs of new high-voltage transmission facilities within the PJM Interconnection regional transmission organization (RTO). In that earlier order, the FERC had determined that those transmission lines of 500 kilovolts (kV) or greater were of benefit to the entirety of the area served by the RTO, such that the costs of those high-voltage projects should be apportioned among all market participants, not just those directly connected to the subject facilities. That approach to transmission pricing is referred to as “postage-stamp” rate making and is distinguished from “license-plate” rates, under which facility costs are allocated on a proportionate basis among various rate zones within the RTO, reflective of the extent to which one zone actually benefits from transmission assets that might be located in another zone. A number of transmission users, together with regulators in Illinois and Ohio, challenged the FERC’s ruling, arguing before the court that the postage-stamp formula was patently unfair and that the FERC had not shown why it could not calculate zone-specific benefits for high-voltage facilities just as it did for lower-voltage lines. The court agreed that the FERC had presented no data indicating that 500-kV or higher lines automatically confer benefits throughout an RTO’s footprint. The court found further that the FERC had provided no explanation for why cost/benefit analyses could not be conducted for higher-voltage lines. Upon review, the FERC reiterated its belief that postage-stamp rates are the most appropriate for high-voltage transmission facilities, pointing out that the planning process involved in designing high-voltage lines relies on RTO-wide needs rather than just local zonal needs. The FERC also noted that 500-kV or greater lines are constructed with an eye toward the future, so that even if their capacity is not needed in every RTO zone in the near term, it undoubtedly will be in the long term. Thus, the FERC averred, there are both economic and engineering reasons for apportioning the costs of high-voltage transmission plant to all market players. For the full story, subscribe to URN.

Posted: April 16th, 2012 under energy markets, ratemaking, transmission.
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Provides advice letter protocol for associated cost claims

Update courtesy of Utility Regulatory News #4061: In order to facilitate interconnections with renewable energy resources, the California Public Utilities Commission has developed new advice letter procedures pursuant to which investor-owned electric utilities can recover from ratepayers certain investments in new transmission facilities. The commission observed that the state’s aggressive renewable portfolio standard (RPS) program seeks to assure that an ever-growing percentage of total electric sales come from green sources of power. However, the commission acknowledged, the state’s existing transmission infrastructure is not always adequate for bringing RPS-compliant energy to the locations where it is needed. In recognition thereof, some utilities have expressed a desire to construct new transmission facilities of their own, but they have been hesitant to go forward with such plans because they lacked guarantees of being able to recoup associated costs. Agreeing that additional transmission capacity was vital to achievement of RPS goals and that, in turn, certainty as to recovery of related preconstruction costs was critical to new transmission investments, the commission devised a “backstop” cost recovery mechanism for certain of those investments. The commission said that only those transmission project costs directly related to RPS requirements and not otherwise included in federally approved transmission rates would be eligible for recovery through the new advice letter process. The commission ruled that to qualify for the advice letter mechanism, a utility need only show that it has a reasonable expectation that the subject project will be necessary for it to comport with RPS mandates. For the full story, subscribe to URN.

Posted: March 13th, 2012 under green energy, renewables, transmission.
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Finds FERC acted reasonably in approving ARC terms

Update courtesy of Utility Regulatory News #4055: The U.S. Court of Appeals for the District of Columbia Circuit has affirmed a pronouncement by the Federal Energy Regulatory Commission (FERC), which ruling adopted a tariff proposed by a regional transmission organization, PJM Interconnection. The tariff establishes a process by which a PJM member can be recognized as an aggregator of retail customers (ARC) for the purpose of entering the demand response efforts of individual retail customers into the wholesale market. While there was general consensus that some accommodation should be made for incorporating demand response into the market, the Indiana Utility Regulatory Commission (URC) had protested that aspect of the PJM tariff that designates electric distribution companies (EDCs), rather than the ARCs, as the party responsible for determining the eligibility of an end-use customer to place demand response into the market. According to Indiana, FERC’s decision to accept the tariff had been arbitrary and capricious and represented an unwarranted intrusion by federal authorities into rate-making matters that had been reserved for the states. Noting that FERC orders are entitled to due deference absent a showing of clear legal error or an abuse of discretion, the court held that there had been nothing patently improper about FERC’s ruling. The court pointed out that there was ample record evidence demonstrating that EDCs and ARCs were equally capable of handling the eligibility certification function, such that FERC’s agreement with PJM that EDCs should perform that task was neither arbitrary nor capricious. As to the arguments about federal interference with state rate-making authority, the court found that the URC had been unable to cite any particular section of the Federal Power Act that would proscribe the challenged tariff provisions. For the full story, subscribe to URN.

Posted: January 30th, 2012 under energy markets, transmission.
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