Interconnection Overhaul Overdue

by Dan Watkiss

First-come, first-served rules governing interconnection to the high-voltage transmission grid are keeping generation off-line that is needed to serve load, meet capacity reserve requirements and satisfy renewable portfolio standards that have been adopted in a growing number of jurisdictions. Those rules also tend to make the cost of interconnecting a moving target as projects enter and exit interconnection study queues, complicating the financing of needed new generation.

The rules’ author—the Federal Energy Regulatory Commission in Order No. 2003—recently announced that the industry should not expect relief from the current interconnection rules except through case-by-case exceptions. That is unfortunate, as an industry-wide overhaul of interconnection basics is in order.

At the outset, we should recognize that development of new generating projects and transmission expansions are rarely sequential, linear processes, something that the first-come, first-served approach implicitly assumes. Rather, there are long and often episodic lead times that ultimately add not increments but blocks of lumpy capacity, the grid impacts of which cannot be predicted precisely.

Next, we should disseminate the best available information on where generation is needed and repudiate both first-come, first-served study queues and the method of financing transmission network upgrades through so-called participant funding, a misguided practice adopted to induce transmission owners to surrender operation of their transmission systems to independent regional transmission organizations (RTOs). Both have caused generation projects, viable and questionable, to languish together in sequential queues, awaiting often redundant feasibility, system impact and facilities studies.

Industry submissions to FERC during recent hearings to explore interconnection queuing practices disclosed that the problem is particularly acute in organized RTO markets. Backlogged projects total 60,000 MW in the California ISO, 12,600 MW in ISO New England, and a staggering 73,000 MW (of mostly wind energy) in the Midwest ISO.

In lieu of the status quo, a streamlined interconnection application program should require a developer of new generation to specify one or more points of interconnection and commit to pay for a study of the local costs of interconnection. (Requiring a hefty deposit up front to weed out the frivolous, as some have recently suggested, probably has merit too.) Preferably an independent contractor and not the transmission owners or their RTO would perform the study. Upon committing to pay for the local costs of interconnection, the developer would then be eligible for an interconnection agreement.

Feasibility studies should be eliminated as redundant. Almost all interconnections are feasible. What is uncertain and nearly always will be is the dispatchability (and, for capacity purposes, the deliverability) of the generator over time as the topology of the grid changes. Performing endless system impact studies on proposed new projects, studies that must be jiggered and re-jiggered with every exit of or change to higher-queued projects, is a costly exercise that discriminates against new entrants and does little to reduce dispatch or deliverability uncertainty. Requiring transmission owners or their operating RTOs to make available to interconnection applicants as much current information as possible on power flow analyses and projections is the best way to reduce this uncertainty.

In perceptive comments to the FERC, the ISO/RTO Council captured a choice central to this debate: “Should the location of generators be the driver of new transmission upgrades or should new project developers have to fit their projects around a pre-approved transmission plan that is designed to meet the needs of existing and projected future load?” Interconnection policy generally should encourage generation to be sited and to interconnect where it can make best use of the existing high-voltage transmission system at locations where the generation maximizes deliverability (is not bottled) and minimizes transmission losses. For these interconnections, the developer would pay only the local cost of interconnection and not for network upgrades that may later prove necessary to reduce congestion or improve dispatch and deliverability.

The exceptions should be confined to location-constrained resources that command social premiums, such as wind, solar and geothermal. Interconnecting these resources often cannot be made to conform to the existing high-voltage grid and should therefore drive transmission investments, not vice versa. Examples on point are Texas’ Competitive Renewable Energy Zones and California’s Location Constrained Resource Interconnection.

In either case, should interconnec-tion turn on participant funding of network interconnections? If network upgrades are warranted at all, then it is because they contribute to the economics and functionality of a common resource that should be commonly paid for. Targeting these costs, which can be large and even prohibitive in relation to the cost of the interconnecting generation, discriminates against new entry in generation and is a source of considerable mischief. It induces developers to modify projects sub-optimally in order to escape liability for network upgrades and is a key motivation to game the interconnection queues to shift the cost of network upgrades to other projects and other developers.

Author

Dan Watkiss is a partner with Bracewell & Giuliani in Washington, D.C., representing power companies, exploration and production and mid-market companies, natural gas pipelines, power and liquefied natural gas project developers and lenders, as well as government agencies and regulators. Contact Dan at Dan.Watkiss@bgllp.com

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