Wellinghoff: FERC May Rule On Who Builds Transmission

by Jeff Beattie, The Energy Daily, March 31, 2010

Weighing in on a divisive electric industry policy debate, Federal Energy Regulatory Commission Chairman Jon Wellinghoff said last week the commission likely will decide soon whether to significantly alter national transmission policy to allow independent power line companies to compete more easily with incumbent utilities for the right to build new transmission.

“This is, I think, something that’s going to be one of our challenges in the future—who should build transmission lines,” Wellinghoff said during an expansive discussion with reporters Thursday.

“This is a country where transmission lines have traditionally been built by the incumbents who serve that area; the question is whether we should continue that policy in the future,” Wellinghoff said.

On another timely transmission topic, Wellinghoff said he thinks FERC already has authority to compel customers to pay for new national-priority power lines—a controversial notion that some Senate Democrats are struggling to put into law against significant opposition.

Wellinghoff acknowledged that currently FERC would be deriving that power “implicitly” from its existing Federal Power Act authority, and suggested he would prefer to see the pending Senate legislation make it “explicit.”

Slightly more than a year into his chairmanship, a relaxed Wellinghoff ticked off his priorities for the coming 12 months, which include sorting through a “continuous stream” of transmission proposals with different cost-allocation plans.

Other key tasks, Wellinghoff said, will be to consider a rulemaking to set out national cost-allocation principles and ensuring that demand response providers operating in organized markets are paid fairly.

Wellinghoff said FERC remains concerned about security threats to the U.S. grid, and praised legislation pending in Congress that would give the agency substantial new authority to order protective measures against electromagnetic, cyber and other threats to U.S. energy infrastructure.

Wellinghoff said he thought a major looming challenge for FERC will be determining which companies will build the next new set of U.S. power lines, which policymakers agree are badly needed to reduce congestion and deliver renewable resources from remote locations to demand centers.

Wellinghoff said FERC could be compelled to address the question if asked to adjudicate a controversial proposal from the California Independent System Operator (CAL-ISO) that would give incumbent utilities the right of first refusal to build new power lines intended to serve new renewable power generation in that state.

Wellinghoff said that proposal has gotten “strong push-back” from the California Public Utilities Commission, and that FERC might be asked to weigh in.

Alternatively, Wellinghoff said FERC might step in on its own in a rulemaking on cost allocation principles the commission is considering. He cautioned that FERC is only evaluating that rulemaking and has not decided to proceed.

Wellinghoff described a scenario in which the right to build power lines could be simply auctioned—as is the case currently for certain power lines projects in Texas—or in which “incumbents” could be given the right of first refusal to build new lines.

Importantly, Wellinghoff said that “incumbent” for these purposes could be defined two ways—as the utility that historically served a region, or the company that initially proposes a new power line, an approach that would give an advantage to first-movers.

“There are arguments on both sides, and I have had both sides literally come to the commission and sit down with me and give me their arguments, so we are going to have to carefully consider that,” Wellinghoff said.

On the thorny question of cost allocation, Wellinghoff made clear again that he hopes the Senate approves legislation (S.1462) sponsored by Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) that would give FERC broad new powers over siting and cost allocation decisions for new power lines deemed in the national interest.

By far the most controversial provision of the bill would have given FERC the ability to order all customers in a large region of the country to underwrite national-interest power lines, a provision that proponents say is needed to unlock solar power resources in the Southwest and wind in the upper Midwest.

But opponents say that plan is unfair and would force much of the country to underwrite renewable development in those two regions. In a markup of the legislation last year by the Senate energy panel, Sen. Bob Corker (R-Tenn.) inserted language to substantially restrict FERC’s ability to spread power lines costs across a broad swath of consumers.

The initial legislation would have allowed FERC to allocate costs across “a region, or subregion,” unless the costs were “disproportionate to reasonably anticipated benefits.”

In contrast, Corker’s amendment would prohibit FERC from broadly allocating costs in that way “unless the costs are reasonably proportionate to measurable economic and reliability benefits.” Critics say this language would require FERC to prove these benefits would ensue from a proposed line, and that opponents of the line could tie up final approval endlessly by challenging FERC’s benefits analyses in court.

The Corker amendment has sponsored a wave of lobbying and advertising on both sides of the debate, with Bingaman and his allies saying they are determined to remove the language when the bill reaches the floor.

But Wellinghoff had an intriguing take on the matter Thursday, arguing that FERC may not need the new cost-allocation powers that the Bingaman bill originally intended to give FERC, although the chairman would clearly like them written into law more clearly.

In response to a question, Wellinghoff said: “Yes, I think that FERC has fairly wide authority with respect to cost allocation, and the Bingaman bill essentially sort of clarifies that and sort of settles the issue.

“Certainly there is no question we are taking that authority implicitly from our statutes, and if it is put in our statutes explicitly as it is in the Bingaman bill then obviously it is easier to defend in court,” he said.

“But from talking to my lawyers and having discussions about our level of authority under the Federal Power Act, I believe that we do have that authority.”

Wellinghoff said FERC might address that issue also in a future proposed rule on transmission cost allocation, should the commission vote to proceed with that initiative.