Author
Dan Watkiss is a partner with Bracewell & Giuliani in Washington, D.C., representing power companies, exploration and production and mid-market companies, natural gas pipelines, power and liquefied natural gas project developers and lenders, as well as government agencies and regulators. Contact Dan at Dan. Watkiss@ bgllp.com
First-come, first-served rules governing ing recent hearings to explore intercon-
interconnection to the high-voltage nection queuing practices disclosed that
transmission grid are keeping generation the problem is particularly acute in orga-
off-line that is needed to serve load, nized RTOmarkets. Backloggedprojects
meet capacity reserve requirements and total 60,000 MW in the California ISO,
satisfy renewable portfolio standards 12,600 MW in ISO New England, and a
that have been adopted in a growing staggering 73,000 MW (of mostly wind
number of jurisdictions. Those rules also energy) in the Midwest ISO.
tend to make the cost of interconnecting In lieu of the status quo, a
a moving target as projects enter and streamlined interconnection application
exit interconnection study queues, program should require a developer of
complicating the financing of needed new generation to specify one or more
newgeneration. points of interconnection and commit
The rules’ author—the Federal to pay for a study of the local costs of
Energy Regulatory Commission in Order interconnection. (Requiring a hefty
No. 2003—recently announced that the deposit up front to weed out the frivolous,
industry should not expect relief from as some have recently suggested,
the current interconnection rules except probably has merit too.) Preferably
through case-by-case exceptions. That is an independent contractor and not the
unfortunate, as an industry-wide overhaul transmission owners or their RTO would
of interconnection basics is in order. perform the study. Upon committing to
At the outset, we should recognize pay for the local costs of interconnection,
that development of new generating the developer would then be eligible for
projects and transmission expansions aninterconnectionagreement.
are rarely sequential, linear processes, Feasibility studies should be
something that the first-come, first- eliminated as redundant. Almost all
served approach implicitly assumes. interconnections are feasible. What is
Rather, there are long and often episodic uncertain and nearly always will be is
lead times that ultimately add not the dispatchability (and, for capacity
increments but blocks of lumpy capacity, purposes, the deliverability) of the
the grid impacts of which cannot be generator over time as the topology of
predictedprecisely. the grid changes. Performing endless
Next, we should disseminate the system impact studies on proposed new
best available information on where projects, studies that must be jiggered
generation is needed and repudiate both and re-jiggered with every exit of or
first-come, first-servedstudy queuesand change to higher-queued projects, is a
the method of financing transmission costly exercise that discriminates against
network upgrades through so-called new entrants and does little to reduce
participant funding, a misguided dispatch or deliverability uncertainty.
practice adopted to induce transmission Requiring transmission owners or their
owners to surrender operation of their operating RTOs to make available to
transmission systems to independent interconnection applicants as much
regional transmission organizations current information as possible on power
(RTOs). Both have caused generation flow analyses and projections is the best
projects, viable and questionable, to way to reduce this uncertainty.
languish together in sequential queues, In perceptive comments to the
awaiting often redundant feasibility, FERC, the ISO/RTO Council captured
system impact and facilities studies. a choice central to this debate: “Should
Industry submissions to FERC dur- the location of generators be the driver of
by Dan Watkiss
new transmission upgrades or should new project developers have to fit their projects around a pre-approved transmission plan that is designed to meet the needs of existing and projected future load?” Interconnection policy generally should encourage generation to be sited and to interconnect where it can make best use of the existing high-voltage transmission system at locations where the generation maximizes deliverability (is not bottled) and minimizes transmission losses. For these interconnections, the developer would pay only the local cost of interconnection and not for network upgrades that may later prove necessary to reduce congestion or improve dispatch and deliverability.
The exceptions should be confined to location-constrained resources that command social premiums, such as wind, solar and geothermal. Interconnecting these resources often cannot be made to conform to the existing high-voltage grid and should therefore drive transmission investments, not vice versa. Examples on point are Texas’ Competitive Renewable Energy Zones and California’s Location Constrained Resource Interconnection.
In either case, should interconnection turn on participant funding of network interconnections? If network upgrades are warranted at all, then it is because they contribute to the economics and functionality of a common resource that should be commonly paid for. Targeting these costs, which can be large and even prohibitive in relation to the cost of the interconnecting generation, discriminates against new entry in generation and is a source of considerable mischief. It induces developers to modify projects sub-optimally in order to escape liability for network upgrades and is a key motivation to game the interconnection queues to shift the cost of network upgrades to other projects and other developers.
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