September 3, 2009

MIT Project Paper Urges Federal Standards, Authority For More Coherent Power Grid

Eric Lindeman and Jeff Beattie

Describing electric power grids as a critical enabler of technological innovations, a paper issued by the Massachusetts Institute of Technology’s Industrial Performance Center last month calls on the U.S. government to establish a coherent public policy for transmission upgrades and on the electric utility industry to facilitate a transition to a secure and sustainable energy future.

“Electricity Transmission Policy for America: Enabling a Smart Grid, End-to-End,” is authored by Mason Willrich, a senior advisor to the MIT project. Although his distinguished resume is too long even to summarize adequately, his current activities include serving as the chair of the Governing Board of the California Independent System Operator, as a director of the California Clean Energy Fund, and as a trustee and past chair of the World Affairs Council of Northern California.
 
Policy oversight of the electric power industry today is a “hodge podge,” Willrich maintains, rooted in the idea of the rights of the 50 U.S. states. Although federal authority frequently overlaps on issues of electric industry structure, generation adequacy, energy resource mix, transmission siting and cost recovery, and retail electricity prices, the report said, “diverse state regulatory policies predominate.”

Willrich’s general conclusion is that carefully considered federal authority must be established over state policies to make the grid system coherent. That, he believes, will require legislation to:

--Clarify that the electric high-voltage transmission planning authority of the Federal Energy Regulatory Commission (FERC) applies to all electric transmission owners, operators and developers, and to local, state, and federal agencies with transmission planning responsibilities.

--Authorize FERC to designate regional transmission planning entities within the Eastern and Western Interconnections.

--Empower regional planning entities, in consultation with industry, governmental, and non-governmental stakeholders and drawing on available planned proposals, to develop regional transmission plans which include an approved list of specific projects, including approved routes and cost estimates.

--Authorize FERC to establish defined timelines for the completion of regional transmission planning results for FERC review, modification and approval.

--Provide that FERC approval of proposed projects included in regional plans has conclusive effects in other governmental agency proceedings.

Willrich’s call for more centralized authority over transmission planning and siting in most ways mirrors provisions of stalled legislative proposals in Congress, particularly in the Senate. The Obama administration and Democratic lawmakers say enhanced federal authority is needed to induce construction of new power lines to bring renewable power from remote locations to cities.

In the past, states have often blocked construction of lines needed to ship that power long distances, particularly if the lines merely shipped power across the state and delivered none inside its borders.

The House approved measures that would substantially expand federal jurisdiction over power line siting only in the West—a scaled-back plan that avoids controversy over enhanced federal transmission authority in the East but also differs significantly from Senate proposals to provide nationwide grid expansion reform. The House language on transmission was added to the energy and climate change bill (H.R. 2454) that was narrowly approved June 26.

The bill establishes new “backstop” authority for FERC to approve certain new power lines in the Western Interconnection if the power lines have been blessed by regional planning efforts and if an affected state then fails to approve the line. That would substantially change current policy, which gives states nearly exclusive authority over power line siting.

Nevertheless, it is less comprehensive then previous transmission reform proposals from Sen. Jay Inslee (D-Wash.) and from pending legislation in the Senate, both of which would grant FERC some form of backstop authority in the East as well.

While H.R. 2454 gives FERC new siting power in the Western Interconnection, FERC would get no new authority in the Eastern Interconnection, the alternating-current grid east of the Rockies and the Great Plains.

That differs with Sen. Jeff Bingaman’s (D-N.M.) bill, passed out of the Senate Energy and Natural Resources Committee at the end of May, which would give FERC similar backstop authority in both the East and West.

Generally, Bingaman’s bill calls for elaborate regional planning processes to reach consensus on and prioritize new national-interest power lines. However, controversial sections of the bill also would give FERC authority to trump state objections to power lines, albeit under limited circumstances.

But perhaps the most contentious provisions of Bingaman’s bill would allow FERC to broadly distribute the costs of building national interest lines to nearly all customers in a given region, based on the idea that the lines will produce region-wide economic benefits, such as reduced power line congestion.

Willrich, whose ideas are in line with those in the Senate bill, believes Congress should direct FERC to determine cost recovery for future high voltage interstate transmission projects and clearly direct that FERC’s cost recovery decisions take precedence over any state cost recovery determinations.

In legislation, according to the MIT project advisor, Congress could include cost allocation guidance for high voltage transmission projects. “With or without statutory guidance, however, FERC should conduct a rulemaking proceeding with the aim of developing cost allocation principles appropriate for a variety of different circumstances.

“A key factor to consider during rule making should be that a cost allocation method, if applied to an otherwise meritorious project, should result in a project that can attract financing.”

Willrich said that Congress should direct FERC to develop and implement a plan to reduce the number of electric power balancing authorities and to establish independent system operators (ISOs) and organized wholesale power markets covering the northwest and southwest United States, which do not already have coverage. He suggested a three-year transition period during which those changes would be put into effect.
 
He also said that the Department of Energy should develop and guide implementation of a national grid innovation strategy in cooperation with the North American Electric Reliability Corporation and the Electric Power Research Institute.

“The strategy should result,” he wrote, “in specific plans for all transmission owners to incorporate ‘best available, cost effective’ technologies that will improve the operating performance of their existing transmission facilities within a defined period of years.”

The MIT project paper stressed the need for nationwide smart grid standards, in parallel with which, transmission system operators should demonstrate demand response programs with utilities and their customers.

That would enable utility customers to participate in wholesale power markets, selling “negawatts” during peak demand periods, he said. Demonstration projects involving distributed power generating systems and energy storage should be deployed on utility customer premises and inside utility distribution networks, he added.

Transmission system operators must be full partners in these projects, Willrich stressed. “Such programs would, of course, be accompanied by utility implementation of advanced metering infrastructure enabling two-way interactions between customers and the grid operator.

“Depending on results of demonstration programs, state regulatory agencies should approve rules and rate designs, including dynamic pricing, appropriate for wide-scale deployments incorporating national smart grid standards.”

According to the MIT project’s preface, Willrich’s paper is intended to contribute to the “active public policy debate on the future of the nation’s electric power system by laying out a set of primarily institutional recommendations for upgrading the transmission network.”

“Electricity Transmission Policy for America: Enabling a Smart Grid, End-to-End” is posted in the “White Papers” section of the Clean Energy Daily website under “Transmission.”