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FERC handed massive transmission reforms; now the arduous half begins

FERC handed massive transmission reforms; now the arduous half begins


Those politics are typically overt, as with the letter despatched to FERC by 17 Republican state attorneys basic shortly after its transmission rulemaking was launched in 2022 that accused the company of​“socializing the prices of a large transmission build-out to attach renewable power.”

But they will additionally manifest in additional opaque methods, as clear power teams say they’ve within the regional transmission course of that’s unfolded at PJM. The nation’s largest grid operator by inhabitants contains states with clear power targets corresponding to Illinois, Maryland, and New Jersey. It additionally contains states with pro-fossil-fuel insurance policies corresponding to Ohio and West Virginia.

Just final month, PJM introduced it was holding off on taking the following step in its long-running regional transmission planning improvement course of — one which critics say would have nearly definitely didn’t go muster below FERC’s new order.

That’s as a result of FERC Order 1920 requires that regional grid plans assess a frequent set of advantages that come from regional transmission initiatives and allocate the prices of paying for these initiatives throughout all members of the area.

The newest iteration of PJM’s regional plan, against this, had no profit dedication in any respect, and there was no value allocation — they have been simply utilizing the States Agreement Approach, the place one state proposes, one state pays,” mentioned Jon Gordon, a director at clear power commerce group Advanced Energy United.

Under FERC Order 1920, PJM goes to need to do a complete profit dedication,” he mentioned — and so will each different area. And whereas FERC’s order does permit particular person states to suggest various cost-allocation processes, it additionally requires regional grid operators to set a default” technique that assigns prices primarily based on the grid operators’ chosen technique for figuring out advantages.

In different phrases, regional plans can use totally different methodologies to find out what regionally deliberate transmission initiatives are value, however they’ve to make use of FERC’s frequent set of core advantages to do this evaluation, mentioned Tom Rutigliano, senior advocate for local weather and power on the Natural Resources Defense Council. And whereas they will suggest totally different strategies to allocate the prices of these initiatives, on the finish of the day, the prices need to be unfold amongst particular person members primarily based on the anticipated advantages.

This frequent algorithm has swept away the political elements” that led PJM to develop a way more restricted regional plan, Rutigliano mentioned. That leaves PJM in a actually good place, as a result of they’ve performed all of the homework…Just take the small print of what are within the situations, do what FERC instructed you to do with them, and also you’re able to go.”

But U.S. utility commerce group Edison Electric Institute indicated that utilities are displeased by the order’s imposition of frequent advantages and cost-allocation processes on totally different areas — and hinted at the specter of a gradual pathway to complying with it as a outcome.

The failure to offer regional flexibilities for evaluating venture advantages within the remaining rule will result in longer compliance processes and, finally, may gradual the event of much-needed transmission initiatives,” Phil Moeller, a former FERC chair and govt vice chairman at Edison Electric Institute, mentioned in a assertion.

How to shift utilities from shortsighted to long-range grid planning 

FERC’s order, centered on long-range, collaborative grid planning, may also need to deal with the inducement for particular person utilities to easily construct transmission initiatives inside their very own service territories — and thus, earn assured earnings.

Over the previous decade, initiatives proposed by particular person utilities to satisfy near-term reliability wants have change into by far the commonest kind of transmission investments throughout the nation, in keeping with evaluation by Brattle Group. U.S. transmission investments have been on the rise over the previous decade, from a little over $10 billion per 12 months in 2010 to between $20 billion and $25 billion per 12 months from 2017 to 2022, the engineering consulting agency discovered.

But of these investments, greater than 90 % have been justified solely primarily based on reliability wants with out benefit-cost evaluation,” and only a few initiatives are justified primarily based on economics and total value financial savings.” In different phrases, utilities aren’t taking over complicated initiatives that intention to make the grid extra economically environment friendly.

Utilities can suggest and win state regulator approval for these smaller-scale initiatives with out triggering federal necessities to open them as much as aggressive procurement. And if the initiatives are primarily based solely on fixing reliability issues, they will typically keep away from evaluation of whether or not the prices they add to their clients’ payments symbolize the perfect bang for the buck” in contrast with extra well-planned options.

That’s good for utilities’ backside traces, since they earn a assured price of return on these capital investments. But it could be a dropping proposition for his or her clients on value and reliability phrases.

That’s the argument delivered to FERC final 12 months by a consortium of utility buyer advocates and free-market suppose tank R Street. As Devin Hartman, director of R Street’s power and environmental group, wrote in a weblog put up final week, the preponderance of small-scale and regionally oriented investments has eroded billions of {dollars} in web advantages to shoppers and suppressed lower-cost technology and transmission improvement.”

It’s crucial for folks to acknowledge that the established order of not doing regional planning higher is doing extra native and uneconomic transmission improvement into perpetuity,” Hartman mentioned in an interview with Canary Media. That’s untenable from a client perspective, and it additionally doesn’t provide the stage of reliability you want.”

FERC Order 1920 doesn’t straight bar these sorts of initiatives, since they could be important for guaranteeing grid reliability. But Gramlich of Grid Strategies identified just a few methods during which this perverse incentive concerning native versus regional transmission is remedied” within the order.

First, the order lays out a mandate for regional grid operators to boost transparency into these investments,” he mentioned. Second, it requires them to look at alternatives for rightsizing” initiatives that utilities have proposed — maybe to find out if they need to be reconfigured or scaled down as a result of a bigger regional transmission venture will accomplish the targets of the smaller venture in a extra cost-efficient means.

Gordon of Advanced Energy United described that dynamic by means of this instance: The longer-term plan could have a larger line coming in from some place else. Maybe that native venture doesn’t must be as massive, as a result of one other line will likely be coming in to assist the area in one other means.”

How efficient these interventions will likely be relies on how the utilities and different stakeholders inside grid areas find yourself structuring these transparency and rightsizing prescriptions from FERC. Utilities are all the time going to need to do these native reliability initiatives which might be of their management,” Gordon mentioned. But this plan is definitely attempting to get us away from that.”

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