What We're Thinking

FERC ORDER 1000, WHAT DOES IT MEAN TO CLEAN LINE?

Posted on 06/18/2012 by Louis Pitre

So, you want to know more about FERC Order No. 1000 and how it will affect the merchant segment of the transmission industry .  When it first came out, Clean Line wanted to know if Order No. 1000 would usher in a new wave of transmission development or, at a more basic level, would make what we’re doing easier.


Let’s start by defining “merchant transmission developer.” According to Order 1000 , “Merchant transmission projects are defined as those for which the costs of constructing the proposed transmission facilities will be recovered through negotiated rates instead of cost-based rates.” More broadly defined, a merchant transmission developer is a non-incumbent that identifies a specific project not recognized by traditional utility transmission development processes and decides to put its faith, effort and, most importantly, dollars, behind the development of that project.


In light of these definitions, Order 1000 has little direct effect on merchant transmission projects, other than reiterating that the requirements of Section 215 of the Federal Power Act  apply to non-incumbent, merchant projects.  For many merchant transmission developers , Order 1000 does not provide much “meat on the bone.” Merchants are allowed – but are not required – to participate in the regional transmission planning processes of approved planning regions, they are not required to seek cost allocation on a regional or inter-regional basis, and jurisdictional transmission providers are not required to submit inter-regional plans. With this limited applicability to true merchant projects, the order is not as revolutionary and market-changing as it could be.


WHERE’S THE MEAT?

  1. Order 1000 lacks muster when it comes to inter-regional coordination and planning. Merchant HVDC projects, like those being developed here at Clean Line, span multiple states and regions, yet Order 1000 only requires coordination between neighboring planning regions.  No common study process is required between regions, resulting in a stepwise process that produces a cumbersome, patchwork of studies.  A requirement for a single study process, encompassing all affected states and regions of a particular project, would go a long way to streamline the development process for inter-regional transmission projects.
  2. Order 1000 perpetuates a free rider problem. Inter-regional benefits may go uncompensated because beneficiaries outside the region in which the transmission facilities are located are free to not pay for the benefits engendered by either a regional project that spills benefits across a seam between regions or a truly inter-regional project that physically spans two regions.  This inefficiency may mean that beneficial projects will not proceed because beneficiaries must voluntarily agree to assume a portion of those costs, giving them the option to receive benefits without providing compensation – further fragmenting our already highly fragmented transmission system.
  3. A Project that might otherwise seek inter-regional cost allocation faces a huge hurdle in the cost-allocation selection process.  Each region, independent of the other(s), must find such project to be more efficient or cost-effective than the transmission facilities currently in the local transmission provider’s plan before it will qualify for inter-regional cost allocation. HVDC projects like those under development by Clean Line are especially challenged by this condition; for example, the windward end of a given project acts primarily as a collector system for the delivery of high-quality renewable resources into adjacent regions.  Although benefits abound in the windward area and billions of dollars will be invested in the development of the renewable projects, these benefits are not generally taken into account by the region evaluating the benefits at the leeward end of the project. The disparity that results from this non-cohesive decision making process makes it difficult for a given transmission project to be selected to be included in a regional transmission plan for purposes of cost recovery.

In short, Order No. 1000 represents an evolutionary change in the way transmission infrastructure is planned and built in the U.S., but, unfortunately for the non-incumbent, merchant sector, it does not represent a revolutionary change in the status quo.