How does the Federal Energy Regulatory Commission's latest rule change the game on transmission policy? During today's OnPoint, Jon Wellinghoff, chairman of FERC, discusses the details of the commission's new transmission plan. He also explains the principal hurdles to enacting the rule.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Chairman Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission. Mr. Chairman, thanks for coming back on the show.
Jon Wellinghoff: Thank you for having me, Monica.
Monica Trauzzi: FERC released its highly anticipated Transmission and Cost Allocation Rule last week. What will this rule accomplish in terms of the future of energy in the United States? How significant is this?
Jon Wellinghoff: Well, we think it's very significant and it will do a number of things. One, we think it's very pro competition in that it ensures that any developers can come in that are technically and financially competent to start developing transmission in areas of where it's needed. Secondly, we think it will set up the infrastructure necessary to do effective planning for cost effective transmission and also provide for a mechanism to allocate costs as well, so that we can, in essence, pay for transmission, which is really a big part of getting transmission built, as you know.
Monica Trauzzi: What were the commission's biggest challenges in crafting this rule?
Jon Wellinghoff: Well, some of the biggest challenges were the fact that we had over 180 commenters on the rule, so we had, I think, literally over 10,000 pages of comment. We had to go through all the comment, make sure that everybody's interests were considered and analyzed and ultimately put out a rule that would still do the job, but without impinging upon any of the interest of any of the major stakeholders. And I think we did that effectively.
Monica Trauzzi: So, each region will have some flexibility as to how they comply with the standards that you laid out. How do you define what qualifies as a region?
Jon Wellinghoff: Well, they can self-define. It's simply going to be each utility looking at what are their regions of interest. There has to be at least more than one utility in a region, but utilities can self-define and many utilities have already done this, because we have RTOs, regional transmission organizations that have already formed, so those are natural regions that have agreements in place already that will define those regions. And other places that have not done that certainly can have the ability to self-define.
Monica Trauzzi: So, the key item when it comes to cost allocation is determining benefits. How do you define benefits? I mean it seems like that could be a pretty broad definition.
Jon Wellinghoff: Well, first we have one fundamental principle and that is if there are no benefits, then you do not have to pay. Consumers will not pay if there are no benefits for the infrastructure that goes in. But as far as defining those benefits, they can be defined broadly. But, again, it's going to be up to the regions as to how to define them. Economic is one area where benefits have been defined and one where you can quantify them fairly easily. Another area though is reliability. Reliability is very important. It has a very high benefit to consumers ultimately. But actually getting down and quantifying it precisely can be more difficult. But that is another area. The third area are public policy goals. We set forth in the rule that we do need to include in planning the public policy goals and the regulations and laws within both states and at the federal level that will inform the types of public policy that those regions want to put in place. There are certainly benefits from those as well. So all those things can go into the mix. We're allowing it though to the states and to the regions to determine how to precisely define those benefits.
Monica Trauzzi: But do you think that you've been clearly - clear enough when it comes to defining benefits to avoid proposals winding up in the courts and getting stuck in the courts for years?
Jon Wellinghoff: I think we have in the sense that because we do give the regions flexibility, they can do this in the terms of the parameters we give them, but we do outline those three primary areas, reliability, economics and public policy in which those benefit boxes have to fit.
Monica Trauzzi: So, what does this all mean for consumers? How costly will it be for the average consumer?
Jon Wellinghoff: Well, I think what it means for consumers, again, with costs and benefits being on the positive side, we're saying that there needs to be a positive cost-benefit ratio. What it will mean for consumers is they will pay for some infrastructure, but they will see benefits come back to them that exceed those payments that they make. So, what it should mean for consumers is ultimately stabilizing or lowering costs for energy.
Monica Trauzzi: What are going to be the principal hurdles to getting these rules into action?
Jon Wellinghoff: Well, like anything, you know, implementation, devil is in the details. We're going to have to be going to the regions, sitting down with them, explaining to them what the rules mean and what the guidelines mean for them and how to put those guidelines in place. And then what we're going to have to do is look at the compliance filings that come back from all the regions and make sure that they are consistent with the rules. So, it will be in the details of actually implementing the rules. It will be the most difficult part of it. Even though we wrote a 600+ page rule that sounds like a big task, which it was over a year period, it's really the years in the future, the multiple years in the future that are going to tell the tale of whether or not this rule produces the benefits that we hope it will.
Monica Trauzzi: So, the rule has been out for a few days now. What has the reaction been?
Jon Wellinghoff: Reaction has been very positive. I've been making calls to the CEOs of companies who will be directly involved, to state commissioners and others and the reaction uniformly has been positive.
Monica Trauzzi: So taking a look back at the history of FERC, how does this fit in and how is this significant when you consider the history?
Jon Wellinghoff: Well, I think it fits in very well with our prior actions in Order 888, in Order 890, which were really providing for open access for the transmission lines, providing for an open transparent process, providing in Order 890 some level of planning, but this really goes into a little bit more detail of how that planning should take place and really scores the parameters under which that planning should take place as well. So, this is a natural progression from our previous rules.
Monica Trauzzi: OK, we'll end it there. Thank you for coming on the show.
Jon Wellinghoff: Thank you, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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