Energy Legal Blog

FERC Tailors Transmission to Connect Renewables

In response to a carefully crafted petition from the California Independent System Operator, the Federal Energy Regulatory Commission took a large step toward facilitating development of the transmission needed to harness wind and other renewable energy sources that are remote from load centers.  With its order granting the CAISO’s petition for declaratory order, FERC approved a financing mechanism that is intended to solve the "chicken or egg" sequencing problem of development of transmission lines and renewable energy generators in areas such as the Tehachapi region of California.

The problem vexing renewable energy advocates is that wind, geothermal and other renewable generators must be built where natural conditions allow.  But wind and geothermal hot spots are often far from the energy-thirsty urban centers, and little transmission is available at these remote locations.  Since most renewable energy projects are much smaller than large hydro or fossil-fuel plants, individual generators can’t afford to develop major new transmission projects.  Nor have transmission owners been keen on building lines to locations where the development of generation is either marginal or uncertain. 

To break this transmission logjam, some states have created transmission development agencies.  But California entities have focused more on creating cost recovery mechanisms that would allow the state's transmission-owning utilities to develop the transmission themselves.  In 2005, Southern California Edison initally proposed a "trunk line" model, but FERC objected  because ratepayers would pay for the entire facility, and because the utility would retain control of it.  FERC solicited an alternative, and the CAISO responded with a program having the following key terms:

• The project must provide access to an area with significant potential for development of remote energy resources.
• Initial costs of qualifying interconnection facilities would be rolled into the transmission revenue requirement of the transmission owner that constructs the facility, subject to a cost cap to protect ratepayers. 
• Later costs would be paid pro rata by generators who interconnect with the line.
• The project would have to be approved through the CAISO transmission planning process.
• A minimum level of generators must commit to the line before it can proceed, and another batch must have shown interest in joining. 

FERC earlier had resisted advantaging renewable energy through favorable transmission rules.  But with its approval of the CAISO program, FERC acknowledges that location-constrained resources are unique and warrant different access rules.