The dramatic increase in generation development, together with the new capacity markets and the surge in demand for renewable generation, has put enormous pressure on transmission providers to efficiently interconnect these critically needed resources and, in particular, to reform how they manage their interconnection queues and the steadily growing logjam in processing interconnection requests.
There are two reasons for queue backlogs. First, in most regions, projects are studied one-by-one instead of simultaneously. Delays caused by having to “wait your turn” are exacerbated when projects drop out of the queue, thereby requiring the transmission provider to start the study process all over again. Second, many developers submit multiple applications for early-stage projects, instead of waiting until they’re further advanced. This increases both the queue’s size and the likelihood that projects will withdraw upon the completion of their studies, which leads only to even more iterative studies.
Each of these problems can be traced in large part to FERC’s pricing policies, pursuant to which the entire cost of a transmission upgrade is allocated to the first project triggering the upgrade. However, but for having to identify the “straw that breaks the camel’s back” and requiring projects to pay the entire cost of whatever upgrades are necessary, upgrades that FERC repeatedly has stated would benefit all system users, projects could be studied simultaneously, and developers would no longer feel compelled to submit multiple and/or premature interconnection applications, or to jockey for queue positions, in order to learn whether their project would in fact “break the camel’s back” and get stuck having to pay for potentially prohibitively expensive upgrades.
Clearly, the Commission must fundamentally reform its pricing policies to avoid the need to tag specific projects with the cost of lumpy grid expansions and to remove any incentive to game the interconnection process. The simplest, and ultimately least expensive, means to do so is to roll in the upgrades costs, an approach successfully used in ERCOT and, tellingly, favored by most independent transmission companies. Otherwise, it is reasonable to assume that transmission construction will continue to lag far behind actual needs, and that the total increase in energy prices attributable to additional congestion and to not having sufficient available generation will dwarf any increase in base transmission rates that some claim will occur should upgrade costs be rolled-in.
In non-RTO areas, the Commission has rejected immediate roll-in in favor of transmission credits, ostensibly because roll-in would not lead to proper siting decisions and more likely result in upgrades being constructed for projects that never go commercial, leaving ratepayers with the check. But, again, given the paltry amount of transmission actually constructed over the last 10 years, the unambiguous consequences of the current pricing policies at least warrant a re-examination of rolled-in pricing and alternative ways to incent both good siting and timely project completion. Indeed, if upgrades were to be rolled-in, developers would have little incentive to pursue their interconnections prematurely, and be considerably more willing and able to pay steadily increasing and non-refundable deposits (up to a cap, for example, of $5 million or some months’ worth of transmission service) prior to their going commercial. At a minimum, transmission providers could pre-classify areas that likely would present few, moderate, or extraordinary upgrade requirements and, on the basis of these classifications, vary the amount and timing of the financial commitments required to interconnect in these areas.
Admittedly, there is no “one size fits all” solution, but rather than awaiting requests by transmission providers for further interconnection “reforms,” it would make considerably more sense for the Commission to adopt a default roll-in policy and to lay out its own interconnection template, which would include both provisions presently common to all or most regions together with some that are not, but which it believes are required under the present circumstances, to allow such reasonable deviations as are proposed and adequately explained. This would be a far better means of proceeding quickly to implement our national policy to build more electric infrastructure.
Larry F. Eisenstat is head of the energy practice at Dickstein Shapiro LLP. He can be reached at [email protected]