FERC Approves 12.59% RoE Incentive for Offshore Backbone

Last Friday, FERC approved the transmission incentive return on equity for the proposed Atlantic Wind Connection (AWC), otherwise known as the offshore backbone, designed to provide a single transmission connection for offshore wind farms from East Virginia to New Jersey.

As this NY Times article indicates, the project has lots of enemies, including PJM Interconnection and the big power companies that run the cartel.

“We’ve always stated that the most significant hurdle we have is getting into the RTEP [PJM’s Regional Transmission Expansion Plan],” Mitchell [CEO of one of the AWC partners] said. “With each week and month, it appears as though the understanding of our project and the impact on the rest of the system is better and better understood. And we’re making progress. We still know that it’s a challenge.”

“The key point is that the approval of the incentive is based on the review of the project in the PJM planning process. And that’s where the action is going to be as to whether this project is economically justifiable,” said David Raskin, an attorney with Steptoe & Johnson. “That should be a very interesting process, and probably one that will result in litigation,” said Raskin, who represents another high-profile transmission venture, the Tres Amigas project in New Mexico, which seeks to move wind and solar power between the Eastern and Western grids. FERC has granted Tres Amigas’ request to sell power into the interconnections at market rates.

The AWC proposal has been opposed by major utility companies from New Jersey to Virginia, which insist that it first be endorsed by PJM and placed at the top of the projects’ queue. PJM’s current policy requires generators to pay the costs of building transmission links in the PJM grid, and while that is manageable for a relatively short transmission segment tying in a new generator, the size of the AWC project is too great for wind farms to manage the connection cost, Mitchell says. “Our strategy is not to ask the western states within PJM to cover the cost of the backbone. We’re adopting an approach that beneficiaries pay. We’ve identified that there will be considerable benefits for New Jersey, Delaware, Maryland, Virginia and eastern Pennsylvania.”

A cautious power play

“It’s well and good for FERC to say AWC is entitled to these incentives,” said an attorney whose client opposes the project and who spoke not for attribution. “Under PJM’s tariff, they are not permitted to charge utility customers for the costs of a transmission project to interconnect generation.” In addition to the potential cost, some critics of the project say they are worried about the potential impact of such a large block of power entering the PJM network at a few points. Backers of the project suggest some of the opposition comes from PJM incumbents whose competitive position could be challenged by offshore wind.

So PJM thinks its great to connect deadly, obsolete coal fired plants to east coast consumers with an unreliable transmission line like PATH, but PJM rules do not allow cost recovery to “interconnect generation.”  Keep in mind that wind power is very different from coal or nuke plants.  Wind farms are much more spread out than the energy dense obsolete technologies that currently dominate the US power system.  It is a very different matter to link up widespread wind farms into a single manageable unit than it is to connect the John Amos plant with the Mountaineer plant on the AEP system.

FERC also noted on Friday that it is beginning a process of redesigning its whole incentive rate process.  The article states

At the same time, FERC said it will ask for industry comments on the case-by-case approach the commission has followed with its program to give incentives to major, higher-risk transmission projects, a policy mandated by Congress in 2005. The notice of inquiry may — or may not — lead to a general rulemaking on the issue, said FERC Chairman Jon Wellinghoff, who called himself “very agnostic” on that question.

A debate among the commissioners over the size of incentive returns has intensified, industry participants say, pressed by Commissioner John Norris, former chairman of the Iowa Utilities Board, speaking for state-level concerns over costs of new transmission projects.

“We clearly have more transmission in service or being built today, and that transmission would most likely not have been built, or started, were it not for the work and decisions of this commission to date,” Norris said. “While some may think we do things perfectly here and always get it right, I’m not one of them.” The inquiry “gives us a chance to assess our successes and perhaps mistakes and request input on how we may be able to improve our policies,” he added.

Commissioner Marc Spitzer added: “I understand that some stakeholders have criticized our incentive program for having been unreasonably generous in the incentives we have granted. Given the obligation Congress imposed on us and the continuing need for transmission, we need not apologize for our orders on incentives requests.”

“Our orders on incentives must balance the interests of consumers and the interests of investors,” he added, and now both have an opportunity to tell the commission what they think.

It is not just the amount of incentives that has been “too generous,” it is the fact that failed projects like PATH are allowed to hang on and continue to pick our pockets after they have been abandoned.  The article also does not mention that several months ago, the federal Ninth Circuit Court of Appeals threw out the US Dept. of Energy congestion study and National Impact Electrical Transmission Corridors to which FERC’s incentive system is connected.

I have learned that a comment period will be opening at FERC on the incentive system.  Stay tuned for the details as I can figure them out.