Enabling New Transmission Entrants: Unleashing Bottom-up Grid Reliability Improvements
The approach to reliability policy under the previous administration heavily emphasized grid resilience. Many energy experts have found that this approach overly emphasized generation relative to transmission and relied on a top-down engineering approach rather than a bottom-up, customer-focused economic response. Generation shortfalls remain important, as evidenced by extreme heat last August and severe cold last month prompted major customer outages. Still, for all the attention generation resource adequacy attracts on reliability policy, the data suggest that the biggest concern about the bulk electric system is its vulnerability to transmission outages. Chairman Glick should redirect reliability and resilience priorities toward these root causes.
The most common cause of widespread power outages—by a wide margin—is the weather, particularly wind, ice, heat and snow. This is nothing new. Studies have identified weather as the leading driver of wide-spread outage events for decades. But weather events are occurring with much greater frequency due to climate change. This dovetails with the FERC’s announcement last month to examine the threat climate change and extreme weather events pose to electric reliability.
The electric industry certainly has progressed in addressing transmission outages to a degree. But these improvements have come largely through refinements to reliability standards developed by the North American Energy Reliability Corporation (NERC) and approved by the FERC. Making minor tweaks to such standards, which are encompassed within a flawed regulatory structure, can only accomplish so much. The FERC should pursue better results by going after the regulatory flaws themselves.
At the intersection of mounting weather risk and FERC Chairman Glick’s expected emphasis on transmission policy reform lies some low-hanging fruit. Better regulatory treatment under existing statutes would remedy chronic pockets of unreliability and second-class service within the transmission system. In particular, removing regulatory obstacles to investment in local transmission projects by non-incumbent transmission utilities is the best way to achieve comparable service reliability for all electric customers across a regional footprint.
The disparity in transmission reliability across the country, and among different customers, reveals a fundamental problem with transmission planning and development incentives. Native load retail customers of incumbent transmission owners often receive higher levels of service reliability than the same incumbent’s wholesale transmission customers, which often are served by rural electric cooperatives and municipal utilities. Incumbents have been and continue to be slow to respond to the needs of their captive customers, while at the same time stifling the efforts of others who are willing and able to address the needs of those customers. New entrants are willing to provide underserved transmission-dependent non-public utilities (TDNPUs) with local planning assistance and co-investment opportunities that would address transmission service reliability disparity, but incumbents have used every trick in the book to block such forms of competition. As a result, reliability “holes” in regional transmission systems are perpetuated.
This is especially prevalent in the American heartland, where severe weather risk is high and regulatory structures insulate incumbent transmission owners from competition, leaving TDNPU customers suffering from lesser service and higher costs. Take the Great Plains, for example, where the transmission system administered by the Southwest Power Pool (SPP) includes numerous TDNPUs whose customers receive less reliable transmission service than the neighboring retail customers directly served by the same incumbent transmission owners—solely because the incumbent transmission owner has no incentive to invest in reliable service for its TDNPUs. This dynamic not only impairs load growth and economic development for the areas served by these TDNPUs, but it perpetuates the preferential rate treatment enjoyed by incumbent retail customers, further compounding the problem. Furthermore, it creates obstacles to a more efficient and reliable integrated regional system.
New entrants are working with TDNPUs in the SPP and Midcontinent Independent System Operator (MISO) region to meet their organic market demand for reliability-enhancing transmission projects. That’s a clear sign of the service quality improvement that has been notoriously lacking under the monopoly model.
But new entrants and their TDNPU partners face daunting resistance from incumbents intent on preserving the monopoly they’ve historically enjoyed on local transmission investment within their service territories. And they’re seeking to use regulatory constructs to insulate themselves from the efforts of others who are better able—or at least more willing—to address the needs of their forgotten customers. This is particularly evident in regional transmission organization (RTO) zonal cost allocation proceedings, where incumbents in the MISO and SPP have repeatedly attempted to deny networked transmission facilities built by non-incumbents the same zonal cost recovery treatment incumbents have relied upon. In other words, though incumbents routinely ignore the needs of TDNPU customers, when non-incumbents step up to address those needs, the incumbents engage in regulatory jujitsu to prevent the new entrants from the same regulatory treatment available to the incumbents and their customers. In one recent example, the incumbent opened up a switch, harming only its reliability, in an attempt to disqualify a TDNPU’s transmission facilities from qualifying for inclusion in the regional tariff and zonal cost recovery treatment. This regulatory sparring often flies under the radar of conversations about climate resilience and Order 1000, the FERC’s landmark pro-competition transmission policy.
Before the FERC moves forward with new policies intended to enhance climate resilience or revamps top-down, regional transmission planning under Order 1000, it should pursue the low-hanging fruit of cultivating bottom-up, local transmission investment. Fortunately, the FERC can do so without a rulemaking or other lengthy regulatory process. At its first opportunity, the FERC should ensure that zonal cost allocation policies treat all networked transmission facilities equally—for incumbents and new entrants alike. This would permit cost recovery for all networked facilities across the zone where those facilities serve customers. In short, now is the time to fix the regulatory framework that is perpetuating the “holes” in transmission reliability.
Image credit: fuyu liu
