Chairman Wellinghoff outlines the goals of his chairmanship and discusses the challenges of incorporating advanced technologies onto the grid.
Monica Trauzzi: Mr. Chairman, there's been a lot of attention on FERC in recent months. How would you qualify your goals as chairman? Would you consider your agenda aggressive?
Jon Wellinghoff: Well, I think we certainly are trying to move forward with markets and I know that I feel the commissioners, as well as myself, are very interested in ensuring that we have the structural framework in place for markets to flourish in this country, because we do think that energy markets that are open and transparent and that provide for flexibility and participation by all members are ultimately going to benefit consumers. So, if that's aggressive, we are being aggressive by ensuring that markets are going to be available to consumers.
Monica Trauzzi: So, the overarching theme of your chairmanship would be…?
Jon Wellinghoff: The overarching theme would be ultimately markets inefficiency, improving efficiency in the operations overall and also improving efficiency in markets themselves and having those markets expand, if possible, to areas where consumers can see the advantages.
Monica Trauzzi: Order 1000 was a major rule. How would you rate your performance as chairman up until this point?
Jon Wellinghoff: Well, I would rate my performance as, I think, pretty steady from a standpoint of moving in a natural steady progression. We started prior to my chairmanship with Order 890, which started the planning process of regional planning and then from that, I think we progressed in an orderly fashion to Order 1000, which makes planning a little bit more comprehensive, brings in the public policy aspect of planning and also incorporates in the cost allocation aspect into transmission, which is essential. You have to have not only the planning for transmission to really be able to be there, but you also have to have cost allocation and, of course, transmission overall, the ability to ensure that you have the opportunity to build transmission is part of making sure that markets work well, because you have to have deliverability like we do on the gas side. We have a tremendous amount of deliverability for natural gas. We're trying to do the same thing on the electric side to make sure that we have the deliverability there. I think Order 1000 does that in a natural progression.
Monica Trauzzi: And Order 1000 has its fair share of critics. Do you see any areas where the commission may have missed the mark when it comes to Order 1000?
Jon Wellinghoff: I think generally we didn't. It's been, from the feedback I've gotten so far, I think fairly well received. There have been sort of pockets of critics, but I think in general people do understand it is an order it's flexible, that allows for a lot of regional diversity and allows for those regions to create those types of planning and cost allocation structures that best meet the needs of the region. So, from that standpoint, we've had a lot of good feedback.
Monica Trauzzi: Does it increase competition in energy markets and sort of level the playing field for renewables?
Jon Wellinghoff: Well, it allows for additional competition in the development of transmission in that there's a specific provision in the order that indicates that the former provisions in federal tariffs of allowing a right of first refusal for incumbents needs to be removed and by removing that, it will allow for more alternative independent developers to come in and develop transmission and to do so bringing in new sources of capital and hopefully new technologies as well. So that aspect of it, I think, will enhance and encourage the ability to build transmission in this country. And by doing that, again, will allow for more deliverability, for more resources, including renewables. And the order is, I think, generally resource neutral, but it does allow for transmission to be built. And by doing so, we can enable things like renewables that are usually located far from loads and need transmission.
Monica Trauzzi: The critical piece that critics seem to have an issue with is the cost allocation piece, the definition of benefits. Why didn't you go further with that?
Jon Wellinghoff: Well, we certainly wanted to ensure that, number one, the guiding principle of no benefits, no costs, that you will not pay anything if there are no benefits to you, is the number one criteria that's used to determine a cost allocation methodology. But beyond that, we wanted to provide them the flexibility that was contained in the Circuit Court order, I believe the Seventh Circuit, that basically indicated that the parameters of benefits need to be such that benefits have to be reasonably commensurate with costs. So, we thought that criteria was an appropriate one. It was one that was set in a court order that we were certainly bound to follow and, as such, we thought it gave enough guidance to the regions to tell them, you know, where the out of bounds is on the one hand, but on the other hand, I think it also gave the regions enough flexibility so that they now can shape those cost allocation plans and the criteria for their individual regions in ways that meet those individual region needs. So that's why we didn't go further. We wanted to take that minimum criteria in the Seventh Circuit, utilize that. We also wanted to set that outer bound, that if there's no benefits, no costs and then allow the regions to go from there.
Monica Trauzzi: How soon will we start seeing Order 1000 taking shape?
Jon Wellinghoff: Compliance filings will have to come in a year from when the order was published in the Federal Register, which I think was October. So, we should see them about a year from now.
Monica Trauzzi: What's your take on Secretary Chu's recent decision to not grant FERC a larger role in transmission siting? Was that sort of a blow to your overarching agenda?
Jon Wellinghoff: Not really. Secretary Chu had to make a decision, a very hard one, as to whether or not to transfer to FERC authority that they already have, which is the authority to do the congestion studies and then to designate corridors. We still retain all the authority that we have under that statute to do the actual siting. Once a court order is designated and a developer wants to develop in a corridor, we still can do the siting with respect to that. But we thought given the expertise that we have, we had and still have with our energy projects office, that we could be of assistance on the other issues of congestion studies and corridor designation. Even though he didn't designate that to us, we're still now cooperating with Department of Energy and working with them in providing our expertise in an advisory role to them for them to move forward with that authority that they have. I mean it wasn't a matter of anybody expanding authority. Certainly, neither the secretary of energy nor myself can expand what is contained in a congressional legislation. It was certainly -- it was simply a matter of whether or not that would be transferred from one agency to another. So, I think his decision, even though it was somewhat disappointing to us, is one that still we can work within and we can provide them with the expertise for them to move forward and act under the statute, given their statutory authority.
Monica Trauzzi: Let's move on to smart grid. How critical of an issue do you see cyber security being when it comes to the grid?
Jon Wellinghoff: I think cyber security is very critical and I've been talking about it for a number of years, since I've been at the commission. And I do still think there needs to be additional legislation with respect to cyber security, especially with respect to known threats and vulnerabilities. And this is an issue that there's been a number of proposed pieces of legislation, none of which have yet to move forward. But I'm hoping that, you know, Congress will undertake this effort to ensure that we do have the tools in place, either for our agency or another one, and I really don't care which agency. It could be DHS. I think the administration has indicated they'd like to focus it in DHS or it could be us, but some entity to have the authority, if there's a known threat or a vulnerability, to be able to contact the utilities through some type of secure means, so that information is not spread out widely, and direct those utilities to take necessary action to prevent those threats from causing harm to this country.
Monica Trauzzi: Some people take a look at the cyber security issue and they say that security should fall in the hands of utilities, that they should be ultimately responsible for making sure that their processes are safe. Do you think that that should be delegated to the utilities or is this really a government issue that the government needs to lead on?
Jon Wellinghoff: I think it's really a government issue, because it's the government, ultimately the security agencies like DHS and the FBI and others, who are going to be the first responders who are going to know first about a known threat or vulnerability. It's unlikely that a particular utility in a particular state is going to have that information. So, for the government to have that information, there has to be a way for it to be effectively communicated to the utility and then there has to be some way to verify or enforce that that utility has taken action that adequately will alleviate the threat or vulnerability.
Monica Trauzzi: How vulnerable are we right now?
Jon Wellinghoff: Well, there certainly are things going on all the time that we become aware of. We try to transmit that information to the utilities as best we can. We have no-I have no authority to provide secure information to utilities. Anything I provide to a utility is FOIA-able or can be discovered and ultimately then can fall in the hands of people who are trying to do us harm and they can use that then to change their tactics. So, it is a very difficult situation right now. We act as best we can knowing what we do have. I know DHS as well those that and tries to communicate to utilities issues that they have. But I think those vulnerabilities continue to exist.
Monica Trauzzi: So, at what point then will a decision be made on who has jurisdiction and how critical is that decision?
Jon Wellinghoff: Well, it will be up to Congress and, again, as I indicated, Congress is debating that. There's number of pieces of legislation. At one time, we were given some authority in some of that legislation, DHS at other times was given authority and, again, I don't care who. I just hope it gets done, because it really does need to get done.
Monica Trauzzi: So, on smart grid, what are the biggest holes that you see in the current structure? And some may say it's a fragmented structure throughout the United States.
Jon Wellinghoff: Well, I think one of the holes is nailing down the jurisdictional co-ordination between federal and state. There's the issue between the wholesale and the retail on smart grid. And right now, with new technologies in smart grid, with the new communications technologies that allow consumers down at the retail level to, in essence, have their individual end uses, like all the way down to dishwashers or in a commercial industrial setting, you know, lights and motors and drives, communicate up to the grid, we need to ensure that those entities can participate in the grid operations in ways that can ensure the grid is improved from a standpoint of efficiency. And there continue to be issues between state jurisdictions and the federal jurisdiction as to how those consumers can participate, whether they have to participate through their local utility, whether they can go directly up to the RTO or ISO, the regional transmission operator and not have to go through their utility. We need to resolve those issues ultimately, I believe, because if we do, then it's going to allow consumers, number one, to take those end uses, bid them in and apply them in ways that will, in essence, allow the grid to be more efficient, but also allow consumers to lower their bill. So it helps consumers, it helps the grid. We need to resolve the issue so that consumers can fully participate in all states that do that. Right now there's a limited number of states where they can do that and I think we need to see if we can expand that.
Monica Trauzzi: Do you think right now the average consumer cares to have a smarter grid or are they really just concerned about having reliable electricity?
Jon Wellinghoff: Consumers are concerned, number one, about reliability and, number two, about bills. They're concerned about what their total bill is. If we can enable these types of communications between consumer appliances and the grid, we can give consumers better both those things, better reliability and lower total bills. And so once consumers realize that and it's communicated to them, I think they'll start to fully participate in the smart grid overall. But, again, there are these regulatory barriers or the barrier between state and federal jurisdictions that we also need to overcome to ensure that consumers can fully participate in ways that can be fully to their economic benefit.
Monica Trauzzi: So many smart grid projects were funded by stimulus money and that money is running out now. Where do you think the funding is going to come from next and is there a concrete funding source at this point?
Jon Wellinghoff: Well, I think where it's going to come from next is from private entrepreneurs and venture capitalists who are going to see the opportunity to go in and help consumers lower their total bills and, by doing that, you know, make a tremendous amount of money as private companies inventing new ways for consumers to participate in the grid and lower their costs.
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