CQ WEEKLY – IN FOCUS
Sept. 3, 2011 – 11:54 a.m.
A Contested Transfer of Power
By Margaret Kriz Hobson, CQ Staff
For the past two decades, the federal government has been encouraging energy companies to build a national electricity grid to give homeowners and businesses access to the cheapest power available, whether it comes from wind projects in the Great Plains or natural gas plants in the Northeast. Now Washington is imposing a national regulatory network to facilitate it — and some utilities and local politicians are unhappy about it.
Congress took the first step in creating a nationwide competitive electricity market in the 1990s by letting entrepreneurs build new power plants and sell low-cost electricity directly to large companies and to utilities that needed more power to serve their customer bases. Before long, several states with high electricity rates expanded competition to cover homeowners and small businesses. Today, about half the states allow consumers to shop for at least some of their electric power on the open market.
The nation’s power grid was built, however, by local utilities that had monopoly control over defined service areas, and they saw little need for expensive long-distance lines. So for years, the utility industry kept operating like a local road system that lacked interstate highways. Some local utilities joined regional planning groups to coordinate construction of a few electric superhighways, but the voluntary groups have been slow to meet the nation’s increasing transmission demands.
Federal regulators have been working to alleviate the bottlenecks, and in late July, the Federal Energy Regulatory Commission issued 600 pages of regulations requiring all electric utilities to join regional planning organizations. The groups will decide which multimillion-dollar transmission projects will be built in their regions and which customers will be required to pay for them. They also must coordinate construction plans with neighboring groups.
The FERC plan has received widespread praise from utilities and independent companies seeking to link their solar plants in the Southwest and wind facilities in the Midwest to population centers along the coasts.
“We have a grid right now that was designed for yesterday’s electricity supply — to deliver mostly coal electric generation to the country,” said former FERC Chairman Joe Kelliher, who is now a lobbyist with NextEra Energy Resources and Florida Power & Light Company. “We basically need a very different grid to develop a cleaner energy supply.”
But some states and utility companies oppose the new regulations, and they’re asking Congress to examine FERC’s ruling. Kentucky Republican
The Senate Energy and Natural Resources Committee is also likely to hold hearings on the rules. In 2009, New Mexico Democrat
The state utility regulators contend that the planning groups will undercut their authority over local power-line projects. Meanwhile, utilities in regions with cheap power — such as the Northwest’s hydroelectric producers — face pressure to keep their power close to home. Other utilities want to hold onto the old regulatory structure, in which they profited from building their own power plants. Southern Company and a handful of other utilities in the Southeast say they have no need for electricity from distant renewable-energy projects.
State and utility officials who oppose the new regulations warn that the FERC planning system could force consumers to pay for big-ticket electric lines, even if the ratepayers receive no direct benefits from the projects. For example, Michigan state officials and industrial groups complain that the commission has already approved a Midwestern project that would force Michigan residents to pay millions of dollars to build a massive interstate transmission line that will provide almost no benefit to the state.
FERC Chairman Jon Wellinghoff agrees that the states should continue to play a critical role in planning new electricity lines. But he says it’s up to the regional planning groups — whose membership will include utility company executives, state regulators, consumer groups and transmission advocates — to determine what new electric lines are built and how the costs are spread among consumers.
The new regulations are essential, he says, to pave the way for a more competitive national electricity system. “More and more transmission is [moving] across state lines as we start to develop remotely located energy resources, whether they be offshore wind in the Atlantic or geothermal energy resources in northern Nevada,” he said. “Traditionally we built power plants where people lived. Now we’re going more and more to remotely located resources.”
A Contested Transfer of Power
Investment in new transmission lines has quadrupled in the last 20 years, according to a 2010 report from the Brattle Group Inc., an economic consulting company. During the 1990s, electric utilities spent $2 billion per year on their high-voltage lines; in 2008-09, investment jumped to $8 billion per year. A May report by Brattle predicted that U.S. transmission investment could soar to as much as $16 billion annually and provide up to 200,000 jobs each year through 2030 — “assuming current barriers to planning, permitting and cost recovery of regional transmission projects can be overcome.”
The most controversial part of FERC’s rule gives the regional planning groups unprecedented authority to determine who should pay for construction of long-distance power lines.
Wellinghoff says that the planning groups can require only consumers who benefit from the new lines to pay, but the key is how the commission defines those benefits. The rule allows the regional groups to spread construction costs not just among consumers who get power from the new lines, but also to those whose networks will become less congested and more reliable as a result.
Most alarming to critics, consumers could also be forced to contribute to projects that help utilities meet state or federal public policy requirements, such as state renewable-electricity mandates or clean-energy requirements. Thirty states now require their electric utility companies to provide customers with electricity from renewable sources, Wellinghoff says.
The regional groups also are required to consider the benefits that projects could have for neighboring power coalitions. “In essence, a government authority is telling the regions that they not only have to coordinate with their neighbors, but with the neighbors’ neighbors,” says John Moura, manager of reliability assessments at the North American Electric Reliability Corporation, a quasi-governmental group that monitors the reliability of the nation’s electricity network. “This is necessary because this is a dynamic grid. Any addition to the transmission system is a benefit to all.”
FERC’s broad interpretation of who will benefit from a new line is raising red flags in Michigan, where state officials and consumers continue to fight a 2010 FERC ruling that allowed an existing regional planning group to charge Michigan customers $500 million for long-distance lines that the state officials say would provide almost no benefit to the state’s customers.
“We’re being told to pay for lines that will carry wind out of North Dakota,” said Steve Transeth, who represents a coalition fighting the ruling. “But we won’t benefit from that because we have our own electricity standards that require our utilities to build renewable energy in the state.”
Michigan’s congressional delegation is calling for greater scrutiny of the case. In March, Michigan Democratic Sen.
Meanwhile, critics complain that electricity regulators have overstepped their authority, perhaps in service to the Obama administration’s commitment to green energy.
“Congress has never directed FERC to take this kind of step,” says Sue Sheridan, who heads the Coalition for Fair Transmission Policy. “FERC’s job is to make sure that rates are just and reasonable, but this seems far afield from the core mission that Congress assigned FERC.”
Other critics challenge FERC’s backing for an expansion of renewable energy. “We seem to be accepting the premise that we need to build new transmission to bring wind out of the West,” Transeth says. “But we haven’t actually engaged in the right debate, which is: Is it better to have a more localized distributive system like Michigan advocates? What is most economical? And what is going to be the most efficient in terms of actually delivering for our power ratepayers?”
The FERC plan is just the latest step in a long effort to modernize the nation’s electricity network, according to James Hoecker, who headed FERC during the Clinton administration. “A lot of folks portray this rule as a pretty radical order that plows a lot of new ground,” noted Hoecker, now a lobbyist for WIRES, a transmission owners and investors group. “But it really doesn’t. We forget that this process has been going on since the 1990s.”
A Contested Transfer of Power
The ultimate goal, Hoecker said, “is the most competitive markets possible, the most liquidity, the most accessibility, the most diverse resources of energy as possible. And then let the market decide what’s cheap and what isn’t.”
FOR FURTHER READING: Electricity demand, CQ Weekly, p. 1196; costs, 2010 CQ Weekly, p. 1785; rate deregulation, 1998 Almanac, p. 15-16.