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    Will FERC Order 1000 Affect Hydro?

    What are the implications of the Federal Energy Regulatory Commission's new 620-page ruling on interstate transmission for hydropower development?

    By Sharryn Dotson

    The Federal Energy Regulatory Commission's Order No. 1000 amends FERC's requirements for interstate electric transmission companies to allocate the costs of transmission planning and development to their customers. This is a big step for transmission projects and planning, and the effect it will have on renewable energy projects, especially hydroelectric developments, could be positive.

    The 620-page rule, issued in July 2011, aims to give public utility transmission providers in a region a common method for allocating the costs of new transmission facilities. It also allows them to evaluate transmission alternatives at the regional level that may resolve the region's needs more efficiently or cost-effectively, according to the World Alliance for Decentralized Energy. Similarly, two neighboring transmission-planning regions must have a common cost allocation method for new interregional transmission facilities.

    Other stipulations of the order are:

    • Each public utility transmission provider must participate in a regional transmission planning process that satisfies the principles of Order No. 890 and produces a regional transmission plan, and the method must satisfy six regional cost allocation principles;
    • Local and regional transmission planning processes must consider transmission needs driven by public policy requirements that are established by state or federal laws or regulations or public utility transmission requirements;
    • Transmission planning regions must coordinate to determine if there are more efficient or cost-effective solutions to mutual transmission needs when evaluating proposed solutions; and
    • Participant funding of new transmission facilities is permitted but is not allowed as the regional or interregional cost allocation method.

    The rule also says a non-public utility transmission provider must revise its tariff order to maintain reciprocity, or safe harbor, status. And it eliminates the right of first refusal, which gives the project holder the option to enter into a business transaction before the owner can enter into an agreement with a third party.

     

    As a result of Order 1000, utilities, independent generators, suppliers and developers of renewable technologies, merchant transmission providers, and end-users all have something at stake. In addition, natural gas-fired energy generators and storage projects that can provide alternatives to transmission or support integration of intermittent renewables may also benefit from the regulations.

    "With these new factors in play, it is critical that transmission planners seek the most efficient and cost-effective ways to meet the needs of their region," said FERC Chairman Jon Wellinghoff in a statement. "Transmission providers have in place the foundations for effective planning through their commission-approved Order No. 890 planning processes.

    "However, our monitoring of the implementation of these planning processes, conduct of technical conferences across the country and the numerous comments received in this rulemaking proceeding indicate that there remain gaps that must be filled if the transmission system is going to efficiently and cost-effectively address the trends and challenges that were just appearing on the horizon when Order No. 890 was issued. It is essential that the commission's transmission planning and cost allocation requirements are adequate to support more efficient and cost-effective decisions moving forward."

    The rule went into effective October 11, 2011, according to the Federal Register.

    Effects on hydro

    Any improvement to the transmission system and how projects are planned and developed will have an effect on hydro, said Jim Hoecker, outside counsel to the WIRES Group and senior counsel and energy strategist at Husch Blackwell LLP.

    "One of the biggest challenges is that hydroelectric projects tend to be location constrained," Hoecker said. "In some cases, they are not near customers or near the grid for that matter."

    Hoecker said the new rule could make it easier for different types of generating sources to connect to the grid, including pumped storage and run-of-river projects that are often sited far from consumers and connections to the grid.

    "I think this is very positive rulemaking," Hoecker said. "Order 1000 is completely consistent with previous commission policy and its efforts to promote integration of diverse resources into the energy market and foster competition among those resources."

    One way the new rule helps is that now transmission providers determine who pays for which part of the development.

    "(Right now) it's like trying to plan an interstate system. Often individual states or companies refuse to pay for the part they perceive they don't use," Hoecker said. "But all our infrastructure was built on a share-the-cost basis because highways, railroads and transmission lines ultimately serve a broad array of beneficiaries. (Regional cost allocation) is how we'll get to a strong electricity system in the future."

    With the aging infrastructure and need for new generating sources to reach areas that have an increasing demand for clean energy, Hoecker said investment in transmission could be more than $300 billion over the next 20 years. But for that to happen, the generating sources need to have policy certainty first.

    "Today's grid is subject to a bewildering assortment of local, state and federal requirements. That kind of inefficiency inflicts a penalty on resources such as hydropower," said Hoecker. "Just because we recognize the need doesn't mean we will get it built. Siting is complicated, planning is complicated and expensive and regulation is tremendously uncertain. The order is not the entire solution, but in terms of reinforcing transmission and hydro, it's important."

    Transmission planning must be regional and take into account all options, even non-transmission options.

    "We need to ensure that planned projects can be sited and their costs fairly recovered," he said. "Congress' recent attempts to promote transmission, such as the corridor designation and backstop siting process, have generally not been successful."

    Transmission effects

    Today, FERC can only approve interconnections from authorized, regulated hydro generators, so the new rule is a first step in getting new projects off the ground. But other barriers still exist, such as a lack of a national energy plan that would help determine what needs to be built and where.

    Further, transmission planning and permitting takes a long time.

    For example, Dan Prowse, transmission access officer with Canadian provincial utility Manitoba Hydro, said his company and its wholesale customers in MISO initiated requests to MISO for new transmission capacity in 2007. After consideration of many alternatives and several studies, as well as considerable discussion on cost allocation approaches for regional transmission, benefit and transmission studies are still ongoing. Transmission planning is such a long process that Manitoba Hydro is proceeding with infrastructure development for its 695-MW Keeyask project, which is scheduled to be in operation in 2019, well before studies of supporting transmission are complete.

    The order will also help alleviate barriers to bringing electricity to sparse U.S. regions from border countries.

    Prowse said new transmission will benefit other renewable resources. Transmission allows hydropower's diversity, storage and flexibility to support the integration of wind power within MISO. MISO studies indicate that proposed new transmission from Manitoba Hydro will permit the development of about 3,000 MW of new wind power.

    Former U.S. ambassador to Canada David Wilkins was quoted as saying in The Canadian Press, "I believe we need to do everything we can as a country to promote and facilitate the movement of Canadian energy to the U.S., whether it be a pipeline or hydroelectricity or whatever the form of the energy is."

    While importing electricity is important, most utilities would also like to see more storage solutions, such as pumped-storage hydro, to support the integration of wind and solar. MISO studies are looking at the value of storage options, including the "virtual pumped storage" offered by Manitoba Hydro's reservoirs.

    Significant regional transmission up-grades, Prowse said, have operational and process barriers to overcome, as well as the uncertainty over a national climate change policy. But such transmission will provide many benefits, including more jobs, as noted in the WIRES-Brattle Group report Employment and Economic Benefits of Transmission Infrastructure Investment in the U.S. and Canada.


    Learn More at HydroVision International

    The Policies & Regulations track at HydroVision International, being held July 17-20 in Louisville, Ky., provides valuable access to experts sharing their perspectives on policy and regulatory initiatives. Ther are seven sessions in this track, and some of them cover:

    • Policy Initiatives that Encourage New Hydro Development Worldwide
    • Policies that Make Sense for Renewable Energy
    • What Should NOT be Regulated
    • Do Current Policies and Reg-ulations Overlook the Benefits of Hydropower?

    For more information on this and other tracks, visit www.hydroevent.com.

     


    Sharryn Dotson is online editor for Power Engineering, a PennWell publication.

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