Transmission sector impeded by FERC agenda to enable competition

The transmission industry would have been better served if FERC had addressed siting rather than right of first refusal (ROFR) issues in Order 1000, ITC Holdings (NYSE:ITC) CEO Joseph Welch said April 24.

FERC’s elimination of the ROFR in federal transmission tariffs may pave the way for more competitive project proposals, but it may also hold up regional transmission planning.

“[F]or the development of regional projects, it’s going to be something that’s going to actually cause more problems than it is going to solve,” Welch said during ITC’s 1Q13 earnings conference call. “There was never a problem dealing with right of first refusal; the next problem on the radar screen has been siting.”

One of the biggest concerns ITC has with the ROFR requirement is the uncertainty it could create in transmission planning processes in the short term, CFO Cameron Bready said.

“Because the rules are not yet well established as to how the selection process will work in a competitive solicitation environment, we are somewhat concerned with the pace of planning over the course of the next year or so,” Bready said.

FERC found the Midwest ISO’s (MISO) proposed competitive process for project selection and the companion process for developer certification to be partly in compliance with Order 1000, but found fault with many of the specifics, Welch said. MISO’s forthcoming compliance filing will address these deficiencies, and will include removing provisions to allow a state to select a transmission developer, and adjusting the weight of certain selection criteria, Welch said.

The selection process may be further complicated by state actions, as some states have been passing legislation to allow utilities to retain a ROFR.

“[If] you have a project that crosses a state with the ROFR requirement and one that doesn’t ” [it] will create some complexities as to how developers and owners will ultimately be chosen through a selection process,” Bready said. “[That] selection process remains somewhat unsettled.”

He added that regardless of what the selection criteria are, incumbent utilities with existing infrastructure and resources will be better positioned to prevail in those solicitations. He added, however, that ITC remains “well positioned, if not better than most, to be successful in that environment.”

“[As] we continue to look at the projects that we have in our pipeline that we’re looking to advance, we do have to be tactical and thoughtful about how and when we actively promote those through the planning process, given that we don’t know with great certainty how the selection process is going to be implemented under Order 1000 in MISO or SPP at this stage,” Bready said.

The CFO added that the ROFR removal will probably be litigated, and that it remains to be seen how the courts might rule on it.

“We’re preparing ourselves for the inevitability, but exactly how it’s going to play out, I think it’s still somewhat up in the air,” Bready said.

The executives maintained that FERC’s ruling on MISO’s Order 1000 compliance filing contained little that was unexpected.

“FERC’s order was largely in line with expectations, and we were pleased to see MISO’s existing policies around planning and cost allocation were largely in line with Order 1000 requirements, allowing MISO to proceed with its planning and cost allocation process already under way,” Welch said.

In addition to ROFR clarification, FERC has required MISO to clarify some points concerning cost allocation. MISO must address cost allocation issues related to projects that are built within MISO but benefit other regions, and to clarify whether it has agreed to bear the cost of system upgrades that are made in other regions but benefit MISO’s members.

MISO must also explain how previously approved projects in Entergy‘s (NYSE:ETR) 2014-2018 construction plan will be treated and evaluated in the RTO’s transmission expansion process, Welch said. ITC is acquiring Entergy’s transmission assets in a reverse Morris trust transaction that is expected to close before year-end, and Entergy is moving from the Southwest Power Pool (SPP) to MISO.

FERC found MISO’s regional transmission planning process in compliance with Order 1000 and accepted changes to MISO’s tariff, effective June 1, which is the beginning of MISO’s 2014 transmission expansion planning cycle (MTEP14). Any changes to the tariff will apply first to projects approved in MTEP14, Welch noted.

The Novi, Mich.-based company reported 1Q13 net income of $50.2m, or 95 cents per share, compared to $46.1m, or 88 cents per share for 1Q12.

This article was originally published at TransmissionHub. It was republished by permission.

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