Key decision-makers at federal and state agencies this week continued to clarify their views on protecting consumers from the cost of building transmission facilities and the role competition could play in keeping those costs down.
Also, on Tuesday, FERC approved a proposal by the Midcontinent Independent System Operator that grants incumbent utilities the right to build certain transmission projects that would have been open to bidding by independent transmission companies.
In an unusual concurrence, four FERC commissioners — Chairman Richard Glick, Allison Clements, Mark Christie and Willie Phillips — acknowledged their decision reduced competition in the transmission arena and said they were concerned consumers weren’t being adequately protected in the transmission review process.
"Making sure that we're controlling consumer costs is absolutely imperative."
The concurrence “highlighted the importance of controlling costs in the transmission build-out,” which could cost hundreds of billions of dollars, Christie said Thursday during the agency’s monthly meeting.
“Making sure that we're controlling consumer costs is absolutely imperative,” Christie said, noting that in some regional transmission organizations as much as 80% of transmission construction are local projects that fall outside FERC’s competitive bidding requirements. It is unclear how much oversight those types of transmission projects get from RTOs or states, he said.
Clements linked an upcoming commission conference on managing transmission costs to the agency’s proposed transmission reforms.
“I view this conference as integrally tied to any final action on the transmission planning front and the proposal that we have put out before you,” Clements said.
Clements said she hopes the October conference will provide more detail around several options for improved cost management, including creating an independent transmission monitor to increase transparency in transmission-related decisions, an idea that is “particularly compelling.”
“I hope we get a better understanding of the scope of cost review that currently exists in states around the country and where and how and if greater cost scrutiny is required,” Clements said.
Glick calls for taking a broad look at competition
Meanwhile, the agency may need to step back and take a broad look at the role of competition in transmission development, Glick told reporters in a briefing after the meeting.
“I'm a big believer that competition, whether it be in the generation sector or transmission sector … can be very helpful to consumers,” Glick said.
However, Glick said he has been concerned that FERC Order 1000, which governs transmission planning and cost allocation, didn't send the right incentives because it divided up which types of transmission projects would be subject to competition and which wouldn’t be.
“So if you're a utility and you want to increase your rate base, what are you going to do? You're going to build these types of projects ... where you don't have to be subject to competition,” Glick said, noting those projects may be less beneficial compared with regional projects that must be open to bidding.
Not only is there a lack of competition for building local projects, there’s a lack of oversight of their costs, according to Glick.
Some people are concerned FERC’s proposed transmission planning rule may reduce transmission competition, Glick noted.
“I really think the commission needs to take another look at this on a broader scale and figure out how can we really get competition going, and that's going to require some work,” Glick said.
The MISO concurrence was important because it indicated, “we're interested in consumer protection, we're interested in competition,” Glick said.
Despite those interests, FERC approved MISO’s proposal to limit competition in certain cases because the agency previously approved a similar plan for the Southwest Power Pool, according to Glick. “I think we're bound by that precedent,” he said.
A view from Kentucky
The MISO decision was “not great,” but the concurrence was encouraging, according to Kent Chandler, Kentucky Public Service Commission Chairman and an advocate for competition in transmission development.
“They are singing from the same hymnal that I have been and given the serial nature of these comments relative to their [notice of proposed rule,] hopefully some final rule looks like a little more pro-competition than they started off,” Chandler said Wednesday during a roundtable hosted by the R Street Institute, a think tank.
As FERC is considering revamping its transmission rules, Chandler said increasing competition in transmission development and ending the separate treatment of regional and local transmission projects were among his top reform issues.
The reason transmission owners, mainly investor-owned utilities, are building “a crazy amount of [local] transmission is because it’s simple, there's no oversight and they're making a ton of money doing it,” Chandler said. “If you want them to do less of it, exert additional oversight, [and] give them less return for investing in those types of capital projects.”
Some states, especially those that deregulated their utilities, have effectively given up oversight of transmission to FERC, according to Chandler.
But FERC has a “hands-off approach” and essentially assumes all transmission investment is prudent during its formula rate process, which leaves it up to intervenors to show that elements of a utility’s transmission rate may be unjust, according to Chandler.
“The reality is that [FERC] over the years has turned itself into an accountant, making sure that somebody did the numbers right,” Chandler said.
Chandler recommended that FERC grant higher returns for the types of projects the agency wants built, and remove the 0.5% return on equity RTO “adder” for local transmission projects.