FINANCE:

A new cost-sharing plan for transmitting more renewable energy

A "highway-byway" plan for sharing costs of large high-voltage power lines, deployed last week by the Southwest Power Pool (SPP) in Little Rock, Ark., could be one model for new federal transmission policy if Congress fails to produce climate and energy legislation this year, some congressional sources and industry representatives say.

Last Tuesday, SPP, a grid operator and power scheduler covering nine states in the Great Plains and lower Mississippi region, conditionally approved five new long-distance transmission lines based on the new cost-sharing plan. The lines would lower consumer costs and improve grid reliability -- and would permit a major expansion of wind power in the lower Great Plains region, SPP said.

If SPP's plan is accepted by the Federal Energy Regulatory Commission, it would set up formulas for cost sharing based on the size of new transmission lines. Costs for building the largest "highway" lines, with 300 kilovolts capacity or more, would be paid by utilities throughout the SPP region based on historical usage. Smaller lines -- the "byways" -- would be paid for partially or totally by local utilities and their customers.

Large high-voltage lines are required to move renewable power long distances to customers, but the power industry and members of Congress are deeply split on how to pay the billions of dollars it will cost for multi-state grid expansion projects.

An energy bill passed last year by the Senate Energy and Natural Resources Committee contains a new directive to FERC on how to handle this cost allocation issue, but renewable energy advocates oppose it. If climate and energy initiatives die in the Senate this year, FERC could step in. It has collected extensive industry comment that could provide a foundation for a new policy, although FERC Chairman Jon Wellinghoff said last month that the issue remains under study and there is no decision yet to proceed.

SPP's decision to widely share -- or "socialize" -- the costs of the largest lines gets to the heart of industry and congressional disputes over future transmission policy.

A rare consensus for 'Who pays?'

The SPP approach has support among advocates for transmission expansion. "I think FERC is going to like this," said Linda Stuntz, an attorney who represents transmission developer ITC Holdings and chaired an Energy Department transmission advisory committee report in 2009. "It is well substantiated and shows the kind of thinking that makes sense in dealing with this difficult issue."

Lined up against the concept of multi-state cost sharing are large segments of the power industry from the mid-Atlantic, Southeast and Pacific Northwest regions and their congressional representatives.

Last Tuesday, Sens. Bob Corker (R-Tenn.) and Ron Wyden (D-Ore.) led off a panel of industry representatives assembled by a new lobbying group, the Coalition for Fair Transmission Policy, who stand opposed to a move by FERC to create a strong national cost-sharing policy. Corker said that if there is to be new policy in this area, Congress -- not FERC -- ought to be the author.

Wyden said his concern was "fairness to consumers," who should not have to pay for long-distance lines that provide no economic benefit to them, as he put it. Paul Hibbard, chairman of the Massachusetts Department of Public Utilities, said states -- not the federal government -- should create renewable energy policies that suit their regions. Jeffrey Goltz, chairman of the Washington Utilities and Transportation Commission, agreed.

The SPP decision went the other way, achieving a consensus on cost sharing among its 57 very diverse members. They include 14 investor-owned utilities, 11 electricity cooperatives, nine municipal power companies and six wholesale electricity marketers. SPP's market operations and policy committee approved the plan by a 3-to-1 margin, and the higher-level members committee adopted it 13-2.

"Most in the electric utility industry agree that new transmission is needed to continue delivering reliable and lower-cost electricity to consumers. The big question has been: Who will pay for that infrastructure?" said SPP President and CEO Nick Brown in a statement earlier this month. SPP members have moved to "a new vision" for a transmission "superhighway" that will increase electric reliability and support climate and renewable energy policies, he said.

Unsnarling a tangle of regional approaches

There are other approaches, experts note. The PJM Interconnection and the ISO New England also have cost-sharing formulas based on the size of transmission lines. Under the California Independent System Operator's policy, costs of a large transmission trunk line going to a designated wind or geothermal project can be spread across the entire state system. The power developer receives a transmission fee that helps pay down the project's debt.

And some in the debate question whether SPP's formula would work outside its borders.

"It's a very good model," said an energy attorney for a transmission developer, who could not be quoted on policy issues. But it likely would not settle disputes involving power lines that cross major grid segments, as at the boundary between MISO, the Midwest Independent Transmission System Operator, and the PJM Interconnection to the east, he said. "I don't think you would get the same consensus," the attorney said.

For SPP, the sharing of transmission costs is offset by the opportunity to boost wind power output from Oklahoma, the Texas Panhandle and Kansas. The cost-benefit calculation does not appear the same to utilities in the Southeast, where wind resources are thin, or in New England states and the Pacific Northwest that want to develop their own wind power industries, they say.

The divisions were on view last week at dueling press briefing in Capitol Hill. The WIRES coalition of energy companies held a briefing on how national policies for large-scale transmission expansion could bring wind and solar power to distant markets.

Michael Jacobs, a senior engineer at the National Renewable Energy Laboratory in Golden, Colo., summed up conclusions from NREL's recently released study of wind expansion in the Eastern Interconnection grid. NREL found that 20 percent of generation could be produced by renewable energy in 2024 under several scenarios. But hitting that target would require as much as 17,000 to 22,700 miles of high-voltage "overlay" lines to be built, costing between $65 billion and $93 billion in 2009 dollars.

"There are no overwhelming technical showstoppers," Jacobs said. "But this is not going to come just because we ask. ... To do any of these scenarios it's absolutely necessary to have more transmission." Regional cooperation will be essential, he added.

Arthur Haubenstock, chief counsel of solar developer BrightSource Energy, agreed that the renewable goal is reachable. "We're not going to get there unless we build out transmission a lot more quickly," he added.

State regulators worry about FERC intervention

WIRES has called on FERC to write broad rules for handling cost allocation across the country.

Wellinghoff told a House Energy and Commerce subcommittee last month: "Sharing the costs of transmission, I hope, is initially and primarily decided by the regions and the states. And, again, it's something that I hope can be worked out on that regional/state level."

But FERC will be drawn into a crucial cost-sharing policy debate involving MISO. Its stakeholders have not resolved cost sharing for new lines called for by the rapid expansion of wind projects in the upper Great Plains region and by state renewable energy standards.

Wind project developers are fighting utility proposals to make wind generators pay for most transmission interconnection. Some transmission owners and generators are threatening to leave the grid organization if costs of a big transmission build-out land on their customers. State regulators are pushing back against FERC intervention.

Minutes of a MISO committee meeting April 21 record a warning by Lauren Azar of the Wisconsin Public Service Commission: "FERC is watching; they have identified on a nearly daily basis that they are ready, willing and able ... to engage in and take action in the cost allocation debate."

MISO is scheduled to submit a plan to FERC by July. They "may be coming to FERC, ultimately, to have us resolve for them which would be the most appropriate way to do it," Wellinghoff told the House panel. "But my preference would be to have the states and the regions work it out on their own."

Wellinghoff added that the commission is reviewing several thousand pages of industry comments responding to its inquiry (AD09-8) on transmission planning and cost allocation, and he expects FERC to decide within six months whether to propose a new cost allocation policy. "It is possible that we would move to rulemaking. I can't tell you today that it's a certainty."

As the oil industry and state and federal agencies struggled to contain the devastating oil spill in the Gulf of Mexico, environmental groups have begun to push Congress and the administration to speed up the availability of more renewable energy, which could push a political resolution of this tangled dispute.

Maggie Fox, president and CEO of the Alliance for Climate Protection, put it this way: "Responding quickly to this [Gulf] disaster is not enough. If we want to truly protect our environment, our national security and our economic well-being, the president and the Senate must step up their efforts to pass comprehensive clean energy and climate legislation. The legislation must heed the lessons learned from this disaster."

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