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Competitive Transmission: Progress by Region and Issues Considerations

Posted on: August 26, 2016

In 2003, much of the northeastern U.S. and eastern Canada experienced a blackout triggered by a failure in transmission. This proved to be a pivotal moment in the regulation of transmission systems, spurring the U.S. Congress to pass the Energy Policy Act of 2005, which established mandatory standards for transmission reliability. The subsequent implementation of the act through Federal Energy Regulatory Commission (FERC) rules, as well as the planning and development of new transmission by regional transmission organizations and transmission utilities, led to significant investments in transmission systems across the country.

In 2011, amid concerns over the rising costs of electricity due to transmission infrastructure spending, FERC issued its Order 1000, which, for the first time, included provisions to open the transmission business to competition as a means to assure transmission development at just and reasonable rates.

Five years from that action, in June 2016, FERC held a technical conference to gain insights into the progress and issues related to competitive transmission development processes in regions around the country. The discussions at this conference showed that competitive transmission processes are broadly established and that some regions have tangible examples and results from the process. It should be noted that the conference was almost exclusively focused on Regional Transmission Organizations (RTOs), rather than non-RTO regions (such as the Southeast). Some takeaways:

  • California Independent System Operator (CAISO) and PJM are the leading regions in terms of actual competitive solicitations for transmission solutions. For some time now, CAISO has been using a competitive bidding process for identified transmission solutions (beginning prior to Order 1000). PJM has run several solicitations, using a “sponsorship model” to take proposals for identified needs (rather than for identified solutions, as is done in California).
  • MISO and SPP have processes in place and have had robust interest/participation by competitive transmission providers. The MISO MVP and the SPP Balanced Portfolio projects leave those systems with less immediate need for new transmission, so the experience on actual solicitations is more limited.
  • NYISO has little experience to date, but a substantial need is seen, due to the plans for expanded renewables in the state.
  • ISO-NE has a process established, but an expectation that the only projects needed for a while are those with short lead-time needs; thus, there is little experience to date and little expected for some time.
  • Many New England and out-of-region commenters cited the Massachusetts/Connecticut/Rhode Island Clean Energy RFP as an interesting model. Two aspects of note: the procurement conducted by states rather than RTOs and the model for cost containment developed by NESCOE for that process.

While each region moves forward in this new competitive transmission landscape, several issues could significantly impact its effectiveness, the most prominent including:

  • Cost containment: This is an issue of competitive bidding for resources that are ultimately treated under a cost of service (regulated) tariff, making many bids arbitrary. While none of the processes, to date, has a clear way to address this issue, the Clean Energy RFP model has been cited as a promising model to consider.
  • Competitive bidding vs. sponsorship models: There are two models in play: competitive bidding on an identified solution and a sponsorship model that solicits competing solutions to identified needs. Advocates of the sponsorship model argue that it offers the promise of larger cost savings; the creativity of competitive suppliers will result in value. Supporters of the competitive bidding model argue that the planning process does a good job at getting to the right solution, enabling a more focused bidding process that saves time and money.

FERC is now entertaining further comments on the questions raised in its June technical conference. Those comments are due by September 1, 2016. The next steps are to be determined. However, statements made by the commissioners at the conference make it clear that they are considering additional actions to provide guidance to the industry on these topics, which may include further rulemaking.

FERC continues to assess the industry and implementation of Order 1000, and it will be following up with additional information as this process moves forward. If you have questions about any of the issues or insights around competitive transmission, please contact Dan Peaco here.