Offshore wind transmission 'backbone' clears one hurdle, faces several more

The Atlantic Wind Connection, a visionary $6 billion plan to build a transmission backbone for offshore wind farms off the mid-Atlantic coast, succeeded in getting one obstacle removed from its hurdle-filled path yesterday. The Federal Energy Regulatory Commission approved an above-market 12.59 percent return on equity as an incentive to move the project forward.

At the same time, FERC said it will ask for industry comments on the case-by-case approach the commission has followed with its program to give incentives to major, higher-risk transmission projects, a policy mandated by Congress in 2005. The notice of inquiry may -- or may not -- lead to a general rulemaking on the issue, said FERC Chairman Jon Wellinghoff, who called himself "very agnostic" on that question.

A debate among the commissioners over the size of incentive returns has intensified, industry participants say, pressed by Commissioner John Norris, former chairman of the Iowa Utilities Board, speaking for state-level concerns over costs of new transmission projects.

"We clearly have more transmission in service or being built today, and that transmission would most likely not have been built, or started, were it not for the work and decisions of this commission to date," Norris said. "While some may think we do things perfectly here and always get it right, I'm not one of them." The inquiry "gives us a chance to assess our successes and perhaps mistakes and request input on how we may be able to improve our policies," he added.

Commissioner Marc Spitzer added: "I understand that some stakeholders have criticized our incentive program for having been unreasonably generous in the incentives we have granted. Given the obligation Congress imposed on us and the continuing need for transmission, we need not apologize for our orders on incentives requests."


"Our orders on incentives must balance the interests of consumers and the interests of investors," he added, and now both have an opportunity to tell the commission what they think.

The approval of the Atlantic Wind Connection (AWC) incentive request was in line with other commission transmission incentive actions, industry participants said. AWC, led by Trans-Elect Development Corp. and Atlantic Grid Development, with Good Energies, Google and Marubeni Corp. as sponsors, got much, but not all, that it sought from the commission.

The commission added a conditional 2.5 percent to the return on equity figure as an incentive. AWC had asked for 3 percent. Following its pattern, FERC said it would permit AWC to recover construction costs as they occur, and all prudently incurred costs if the project is abandoned for reasons beyond the developers' control.

"Developing transmission is highly risky," said Robert Mitchell, Trans-Elect CEO. "Ours is about as risky as you can get. So it is rewarding to see FERC acknowledge that with some incentives. Frankly, without incentives to investors, it is nearly impossible for us as developers to attract investment. This is a very positive step forward, not just for us, but really for all the benefits that our project is going to bring to the mid-Atlantic region," Mitchell said.

The reduction in AWC's request was "somewhat disappointing, but we believe that we'll be able to make the numbers work and go forward," he added.

Just starting down the regulatory track

The plan envisions burying high-voltage direct-current cables 22 miles off the coast, linking wind farms with 7,000 megawatts of capacity and carrying the power to several large transfer stations on shore for conversion to alternating current. Offshore leases must be secured. An environmental impact statement must be prepared. Regulators must be comfortable with the project's advanced technology for integrating the wind power into the mid-Atlantic grid. Governors must endorse the concept of a single backbone line rather than smaller, radial lines that would enter their individual states.

But the biggest challenges remain finding customers for relatively costly offshore wind and persuading power industry stakeholders in the PJM Interconnection -- the mid-Atlantic grid organization -- to give the project a top priority in the transmission project queue, sponsors and skeptics agree.

"We've always stated that the most significant hurdle we have is getting into the RTEP [PJM's Regional Transmission Expansion Plan]," Mitchell said. "With each week and month, it appears as though the understanding of our project and the impact on the rest of the system is better and better understood. And we're making progress. We still know that it's a challenge."

"The key point is that the approval of the incentive is based on the review of the project in the PJM planning process. And that's where the action is going to be as to whether this project is economically justifiable," said David Raskin, an attorney with Steptoe & Johnson. "That should be a very interesting process, and probably one that will result in litigation," said Raskin, who represents another high-profile transmission venture, the Tres Amigas project in New Mexico, which seeks to move wind and solar power between the Eastern and Western grids. FERC has granted Tres Amigas' request to sell power into the interconnections at market rates.

The AWC proposal has been opposed by major utility companies from New Jersey to Virginia, which insist that it first be endorsed by PJM and placed at the top of the projects' queue. PJM's current policy requires generators to pay the costs of building transmission links in the PJM grid, and while that is manageable for a relatively short transmission segment tying in a new generator, the size of the AWC project is too great for wind farms to manage the connection cost, Mitchell says. "Our strategy is not to ask the western states within PJM to cover the cost of the backbone. We're adopting an approach that beneficiaries pay. We've identified that there will be considerable benefits for New Jersey, Delaware, Maryland, Virginia and eastern Pennsylvania."

A cautious power play

"It's well and good for FERC to say AWC is entitled to these incentives," said an attorney whose client opposes the project and who spoke not for attribution. "Under PJM's tariff, they are not permitted to charge utility customers for the costs of a transmission project to interconnect generation." In addition to the potential cost, some critics of the project say they are worried about the potential impact of such a large block of power entering the PJM network at a few points. Backers of the project suggest some of the opposition comes from PJM incumbents whose competitive position could be challenged by offshore wind.

The commission's meeting yesterday was delayed by about an hour while commissioners concluded their final closed-door negotiations on the announcement. The text of the notice had not been issued as of yesterday afternoon.

Wellinghoff said there was no single issue responsible for the delay. But according to unconfirmed reports, a pivotal issue was whether a new rule, if there is one, would be prospective only and not affect previous incentive decisions.

Commissioner Philip Moeller led off his statement in support of the notice by saying, "Because regulatory certainty is critically important to those who invest in our nation's infrastructure, this Commission should ensure that if it decides to make changes to its incentive policies, it does so only prospectively."

One industry participant speculated that the commission was eager to remove the incentives issue from the hot debate that is anticipated this fall after FERC issues its new policy on the planning and cost allocation of major transmission projects. "I think they felt they needed to deal with this in some way. They didn't want this issue hanging over the NOPR [the notice of proposed rulemaking on which the forthcoming cost allocation rule will be based]," said this person.

Comments on the notice of inquiry will be due within 60 days of its publication in the Federal Register.

Like what you see?

We thought you might.

Start a free trial now.

Get access to our comprehensive, daily coverage of energy and environmental politics and policy.



Latest Selected Headlines

More headlinesMore headlines

More headlinesMore headlines

More headlinesMore headlines

More headlinesMore headlines