Insights from policy experts: Tony Clark, former FERC Commissioner and Senior Advisor at Wilkinson Barker Knauer LLP
The WIRES Spring Newsletter features a perspective on FERC Order 1920 from Tony Clark, former FERC Commissioner and Senior Advisor at Wilkinson Barker Knauer LLP. We’re also sharing a preview of our Summer Member Meeting featuring Jim Robb, CEO of NERC, WIRES' statement on Order 1920, updates on the WIRES Tech Talks webinar series, and much more.
Transmission Thought Leaders – Insight from Federal and State Policy Experts
Fixing the Order 1000 Competition Conundrum
By Tony Clark, former FERC Commissioner and Senior Advisor at Wilkinson Barker Knauer LLP
Few topics in the FERC transmission Order 1920 rulemaking received as much attention as the proposal to reform Order 1000’s treatment of rights of first refusal (ROFR) for transmission projects. Alas, what roared in like a lion, went out like a lamb. The Commission mostly kicked the ROFR can down the road to a further proceeding. While perhaps not unexpected given the contention surrounding the proposal, the problematic nature of FERC’s Order 1000 transmission solicitation scheme is not going away.
Opponents of FERC’s proposed ROFR reforms have based their arguments on two main pillars. First is a general proposition that Order 1000 transmission bidding is “competition,” and competition is good, so the Order 1000 process must be good. Second is the allegation that the real problem with Order 1000 is that it did not go far enough; that utilities are investing only in smaller transmission projects at lower voltages to get around the rule, thereby undercutting its effectiveness.
Let’s take each argument in order. As to the first suggestion, it pays to recall that little in the transmission business resembles free market competition in the classical sense. Order 1000’s bidding solicitation rules merely facilitate the creation of a patchwork of wire monopolies, in which the right to be a regulated monopoly for a portion of the grid is put out for bid, rather than simply being assigned to the existing regulated energy providers with which the project would interconnect.
But isn’t competition supposed to drive down cost? If it’s functioning as it should, the answer would be yes. But despite assertions to the contrary, there is a paucity of data showing that solicited transmission projects are, as delivered, saving customers money as compared to projects assigned to existing transmission operators. The most robust analysis available, which has been sponsored by several WIRES members, shows Order 1000 rules have stymied coordinated transmission planning and buildout and failed to deliver pro-consumer outcomes. If anything, the record demonstrates some eye-popping Order 1000 failures, like, as just one example, the CAISO transmission project that is running hundreds of millions over budget and is being delivered years later than needed.
So why isn’t Order 1000 working? One factor seems to be the flawed nature of the bidding process itself. When utilities are bidding for the right to develop a project under Order 1000, they do not yet have a specific route, they don’t have the detailed design specifications that will be required by the local siting authorities, and they haven’t yet gone through land acquisition and permitting processes. It means that many bids are, if not shots in the dark, then shots in the very early, dim dawn hours of the development process. Developers may have rough ideas of what it could cost to develop and place into service a project, but many don’t really know what will be built and where. It would be like asking for bids from general contractors for the right to build a new four-bedroom home, but without providing the exact location and architectural drawings. Only later would you have a full accounting of the change orders required to get the home built to code and customer preference.
Another factor is the perverse incentive structure that is created by this sort of solicitation process. We have seen that once an Order 1000 project is awarded, despite assurances to the contrary, developers can and do seek rate recovery based on actual costs, not as bid. As noted, these projects are not subject to market pricing discipline, they are placed into service at FERC regulated rates. Thus, the incentive is for developers to offer whatever is needed to win the bid from the RTO, understanding that a separate entity – FERC– will eventually make a determination about cost recovery, which may not hew to the bid itself given the inevitability of project changes.
The second allegation made by ROFR opponents is that the incumbents have undercut Order 1000 by abusing the distinction drawn between the larger projects which are subject to bidding, and local projects which are not. They argue larger transmission projects would be flourishing but for incumbents deliberately finding ways to skirt the bidding rules. I’d suggest other incentives at work.
Local projects and regional projects are not mutually exclusive. The changing grid requires investments at both the local and regional levels. Owing to their smaller size, local projects, often more tied to immediate reliability needs, are easier to permit and faster to be completed. That means the project’s investors will tie-up their capital for a shorter length of time as compared to the massive regional projects that may be subjected to years of regulatory and litigation uncertainty. In short, it’s a logical decision that incumbent energy companies are making.
Nonetheless, for the sake of argument, let’s say that ROFR opponents have a point, and there is an incentive for incumbents to use local investments to undermine regional ones. What is the answer to the problem? There are three alternatives, and only one is viable.
Option A: FERC could take the ROFR opponents up on their suggestion: tighten the screws and impose bidding on all projects, including lower voltages and smaller upgrades. This would be a colossal mistake in my estimation. All the Order 1000 dysfunction, red tape and bureaucracy would be imposed on the many immediate need, smaller transmission projects which are often critical for reliability, and which serve primarily local customers. FERC would be buying itself a briar patch of problems that would likely impede needed grid reliability investments and, based on available evidence to date, produce little to no benefit for customers.
Option B: FERC could do nothing. It could maintain the status quo, not reform Order 1000’s solicitation process and it could hope that past results are not indicative of future performance. Granted, doing the same thing while expecting different outcomes seems a bit folly, but it’s preferable to Option A.
Option C: FERC could adopt reforms again allowing some form of federal ROFR. This would acknowledge the Order 1000 bidding structure has operated as a square peg in a round hole. The most successful transmission efforts, those like MISO’s MVP suite of projects, were the result of regional coordination and occurred outside of the Order 1000 bidding bureaucracy. They happened when planning and collaboration were encouraged and supported by a regulatory framework that included an acceptance of ROFRs and predictable rate regulatory treatment of the transmission asset.
Where FERC goes from here is anyone’s guess. The contentiousness of the issue is not going away, but neither are the problems sowed by the Order 1000’s inherent tension between competition policy and the natural monopoly characteristics of the wires portion of the utility industry. Hopefully, FERC will use the next phase of its rulemaking as a second chance to make the hard, but necessary decision to revisit the Order 1000 transmission solicitation framework.
On May 13th, FERC issued Order 1920, a landmark rule addressing regional transmission planning and cost allocation. WIRES shared the following preliminary statement in response to the new rule:
WIRES Statement
“WIRES shares FERC’s objective of ensuring that rules are in place to facilitate investment in transmission infrastructure required to meet the nation’s well-documented needs. Building the grid of the future must be a bipartisan effort driving towards a common goal – a safe, reliable, and affordable grid.
While WIRES is still reviewing and evaluating the details of Order 1920, we are pleased that FERC has declined to adopt the NOPR proposal to limit the availability of the CWIP Incentive. We agree with FERC that action on incentives should be done in a holistic manner; otherwise, we risk sending the wrong signals to the investment community at precisely the wrong time.
WIRES commends FERC’s decision to take a first step to expand federal ROFR rights to include right-sized replacement transmission facilities selected to meet Long-Term Transmission Needs and urges the Commission to continue to consider other potential federal ROFR issues that could facilitate collaboration and more efficient and cost-effective transmission for the benefit of consumers. WIRES looks forward to continuing to work with the Commission to advance constructive policies that ensure adequate investment in transmission infrastructure so that the grid continues to serve customers safely, reliably, and affordably.”
6/12/24 – Order 1920 Rehearing Filing
WIRES is looking forward to convening our members in Boston on July 24-25 for the WIRES Summer Member Meeting. We are delighted to welcome Jim Robb, CEO of NERC as our keynote speaker. The program will include two timely panels, one on transmission solutions for strengthening the grid amid extreme weather, and a second taking a closer look at the anticipated impact of FERC Order 1920 and compliance issues.
Visit the WIRES Summer Member Meeting page to learn more about the agenda and our expert guest speakers.
Visit the WIRES Spring Meeting page to access the recordings including the keynote by FERC Commissioner Christie.
With the growing interest in advanced transmission technology such as DLR, superconductors, AI and other technologies, last year WIRES initiated a webinar series to share information about these promising technologies.
To date we’ve hosted nine sessions featuring WIRES Associate Members and have several more webinars scheduled over the next few months.
Links to recordings of the 2024 WIRES Tech Talks are listed below. Visit the WIRES Events page to access all the webinars!
6/18/24 – WIRES Tech Talk – Great River Energy – Employing Mobile Substations for Improved Resilience
Mark your calendars for the next in the series:
8/13/24 at 2pm ET – GridAssurance
September TBD – Enline
October TBD – Bureau Veritas
Recommended by LinkedIn
In total, WIRES’ membership accounts for ~165,000 miles of high voltage transmission, nearly 25% of all transmission lines in the U.S.
Profiling two WIRES Associate Members, LineVision and MetOx.
Associate Member
Less than 1% of today’s transmission grid has real-time monitoring beyond the substation and 50%+ of all transmission lines are nearing the end of their useful life. LineVision is tackling this challenge head-on by partnering with utilities around the world to deploy the LineVision LUX™ non-contact sensor and advanced transmission monitoring software suite. The tower-mounted sensors collect real-time data on the transmission grid to unlock additional capacity, monitor conductor health and detect potential threats to the network. LineVision’s platform is rapidly deployed at scale without the need for scheduled outages, live line work, or specialized installation equipment. For more information visit: www.LineVisionInc.com
Associate Member
MetOx International, Inc. is a leading manufacturer of superconducting technology. To help utilities meet the challenges of expanding grid capacity, interconnecting renewables, building infrastructure for electric vehicles, serving the rapidly growing AI data center industry and creating an offshore grid, MetOx is a leading voice in an ecosystem of next generation solutions.
XEUS™ Wire, our high-performance conductor, can transmit 5x-10x the power of conventional conductor technology, in smaller rights-of-way, at lower voltages for the same power, and with essentially zero loss. Superconducting cables have been installed in grids all over the world, including here in the United States.
MetOx’s recently opened plant in Houston, Texas, is now able to supply the world with high-quality, US-made superconducting wire. FERC’s recent action in Orders 2023 and 1920 call upon grid planners to consider high performance conductors, including superconductors. We’re excited to partner with WIRES members on implementing these new policies and upgrading their grids for the energy transition.
We welcome the opportunity to connect! Email: connect@metoxtech.com / MetOx LinkedIn / metoxtech.com
Larry Gasteiger is a sought-after speaker on transmission issues, and has an active speaking appearance schedule for the second half of 2024, including:
Trade and business media look to WIRES for insightful research on transmission issues and to Larry for commentary on transmission policy and FERC developments. Highlighting a number of articles that include coverage of the WIRES Spring Member Meeting, insights from the recent Grid Strategies report on the importance of collaboration, and WIRES position on transmission competition and the recent FERC rule:
3/4/24 – BloombergLaw
3/7/24 – RTO Insider
4/5/24 – Utility Dive
Don’t count on FERC as 'the big sugar daddy” for new transmission, generation: Commissioner Christie
4/7/24 – RTO Insider
4/8/24 – RTO Insider
4/22/24 – RTO Insider
5/2/24 – E&E News
5/7/24 – Canary Media
5/13/24 – WSJ
5/14/24 – RTO Insider
5/16/24 – Utility Dive
5/23/24 – Business Insider
For a complete listing of earned media, visit the WIRES in the News page.
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