Coming out of the 2018 Infocast Transmission Summit, ScottMadden director, Stephen Haubrich, and partner and energy practice leader, Cristin Lyons, share key takeaways related to strategies and policy considerations for an uncertain grid market.
Mr. Haubrich’s panel addressed key challenges in transmission infrastructure development, state- and federal-level transmission policies with the biggest impact on utilities, and what might be done at the state and federal levels to streamline transmission development.
The panelists were Tony Clark, former FERC commissioner and currently Senior Advisor at Wilkinson Barker Knauer; Peggy Simmons, Managing Director of Transmission Asset Strategy for American Electric Power; and John Lucas, General Manager of Transmission Policy and Services for Southern Company.
One of the primary observations from the panel was that infrastructure challenges vary significantly by region and by state. At the state level, some companies are seeing challenges related to both increased pushback from rate payers on infrastructure investments that might impact rates as well as from increased involvement of counties in the state siting process. At the federal level, Ms. Simmons noted that more clarity is needed on the direction transmission ROEs are headed to ensure adequate incentives for transmission investment, which carries higher risk than other utility investments. In contrast, Mr. Lucas noted that Southern Company is more focused on potential material and labor constraints associated with the company’s plans for significant increases in transmission investment.
On the topic of changes that could be made to improve the transmission development process, the panelists focused on the federal level and Order 1000 in particular. Mr. Clark shared his view that although the intent of Order 1000 was good, less benefit has come from it than expected, explaining that one of the biggest issues with Order 1000 is that the primary goal of the order was not adequately defined. Mr. Clark suggested that if the order is revisited by the FERC, the commission should consider clarifying what they are trying to accomplish and revising it to accomplish that objective with less bureaucracy. Mr. Clark’s perspective is that the most successful multi-state projects were pre-Order 1000 and were driven from the ground up.
Perhaps the biggest issue affecting transmission is the uncertainty over generation mix in markets being driven by an ongoing debate over capacity market reforms and price formation. These issues are not only the subject of a FERC proceeding but also a flurry of activity being driven by the ISOs and RTOs themselves.
Ms. Lyons’ panel included Keith Collins, Executive Director Market Monitoring, Southwest Power Pool; John Lawhorn, Senior Director, Policy & Economic Studies for MISO; and Vince Dwayne, Senior Vice President, General Counsel, Law, Compliance & External Relations for PJM.
All three panelists noted dramatic shifts in their respective regions’ generation mixes with reductions in coal offset by increases in natural gas and renewables. These changes have been accompanied by increases in negative prices and pressures for some types of generation to exit the market. However, there has been substantial resistance from both generators and states to allow some generators to exit. The key issue seems to revolve around consideration of market externalities, such as fuel security, jobs, importance of plants to local communities, and zero emissions, in the decision for generators to exit.
The question in deregulated markets seems to be “Have states and owners of generation that have entered wholesale markets relinquished their rights to determine the generation resource mix in their respective states?” This question raises others such as, “Do we want to use a market to make resource adequacy decisions?” If so, “How do we strike a balance between free markets and full regulation?”
This debate is leading to uncertainty and risk for the RTOs/ISOs regarding how much baseline capacity might exit the market, when, and how much will be available to meet demand in the future. These issues also complicate the issue of price formation. Of course, the outcome of this debate will also have a major impact on transmission, as the current system was built to serve load based on the location of these plants.
Another area of focus on the panel was resilience. Panelists noted that one of the challenges with having a conversation about resilience is that it means different things to different people. Does resilience mean the ability to recover from low probability, high-impact events, or does it refer to the development of a long-term stable system? Panelists agree that the starting point is to clearly define resilience so the current state can be better evaluated. In addition, Mr. Dwayne noted that information sharing is critical to resilience, stating that any vulnerabilities government agencies are aware of need to be communicated to those doing the system planning so the issues can be addressed.
In summary, although transmission infrastructure investment is strong at present, there are a number of issues to watch that could potentially have significant impacts on the transmission system. Among these are potential changes to state and federal policies impacting the transmission development process, resolution of the current debate regarding resource adequacy and price formation in deregulated markets, and the discussion around transmission system resilience. For additional conference findings, please contact us.
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