FERC Order Aims to Modernize Energy Transmission Systems

“Ben Franklin may have invented electricity – but it is the man who invented
the meter who made the money.”

Earl Wilson

In July 2013, I wrote about the challenges that large-scale renewable energy posed for the existing power grid system. Essentially, large-scale renewable projects produce large amounts of energy in relatively isolated areas and the challenge is to deliver that power to urban load centers. Transmission lines are extremely expensive and current transmission is based on systems that were designed based on an outmoded vertically integrated system of power production and delivery.

The Federal Regulatory Commission (FERC) has for years worked to modernize transmission systems by passing several “orders.” Order 888 created an open-access transmission system. Order 890 requires transmission providers to develop transparent and nondiscriminatory planning process. Another piece of this puzzle included Order 1000, which establishes requirements for transmission planning and cost allocation.

On Aug. 15, the U.S. District Court for the District of Columbia Circuit issued an opinion that upheld Order 1000. The opinion is 97 pages long and covers a variety of legal challenges by literally dozens of petitioners, all of which the court rejected. In essence, the court determined that FERC’s attempt to require inter-regional planning for transmission of power and broad-based cost sharing was within FERC’s legislative mandate.

While I do not intend to describe each of the challenges and the court’s ruling on those challenges, one aspect of the decision is of interest: FERC Order 1000 required transmission owners to acknowledge and plan for “public policy” requirements that may be applicable to power generation in the states in which the particular transmission company is involved. Among those public policy concerns is the development of large-scale renewable energy projects, developed in large part due to state incentives for renewable energy production, and federal regulations restricting the emission of greenhouse gases.

One of FERC’s mandates is to develop policies to coordinate transmission planning and development on a regional and inter-regional basis in a manner that ensures fair access to transmission, and ensure that power rates are not “unjust, unreasonable, unduly discriminatory or preferential.” Order 1000 requires that transmission providers create procedures that address public policy considerations in planning. The court described FERC’s reasons for doing so:

“[T]he Commission expects that many States will require construction of new transmission infrastructure to integrate sources of renewable energy, such as wind farms, into the grid and that new federal environmental regulations will shape utilities’ decisions about when to retire old coal-based generators. Plans that fail to account for such laws and regulations, the Commission reasoned, would not adequately reflect future needs.”

Order 1000 does not mandate that transmission providers incorporate specific changes. Instead, it allows them to implement changes that are relevant to their specific markets and geographical locations in order to better assess possible expansion. The costs for necessary expansion as our power needs and sources change (estimated in the hundreds of billions of dollar range) will be shared by a broader population. In 2005, the Edison Electric Institute noted, “investment in transmission has lagged behind investment in generation.” FERC Order 1000 is designed to assist in resolving the issue, at least for the time being.

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