WASHINGTON – U.S. Senators Bob Corker, R-Tenn., Ron Wyden, D-Ore., and Richard Burr, R-N.C., have written to the Federal Energy Regulatory Commission to express their concerns with FERC’s proposed rule and recent decisions that appear to conflict with the view that electric consumers should not be burdened with the costs of new electric facilities from which they receive little or no meaningful benefit.
The full letter to the Federal Energy Regulatory Commission is included below.
February 17, 2011
The Honorable Jon Wellinghoff, Chairman
Federal Energy Regulatory Commission
888 First Street, NE
Washington, DC 20426
Dear Chairman Wellinghoff,
The purpose of this letter is to express our concerns with the Commission’s recent Notice of Proposed Rulemaking (NOPR) on Transmission Planning and Cost Allocation as well as recent decisions by the Commission that appear to conflict with our basic view that electric consumers should not be burdened with the costs of new electric facilities from which they receive little or no meaningful benefit.
As you are aware, we supported a cost allocation amendment that was included in S. 1462, the American Clean Energy Act, as reported by the Senate Committee on Energy and Natural Resources in the last Congress. That amendment would have required that the cost of certain transmission projects be allocated in a fashion “reasonably proportionate to measurable economic and reliability benefits.” We therefore appreciate the Commission’s recognition in its NOPR that transmission cost allocations must be commensurate with the benefits that are expected to accrue. This principle is critically important to prevent consumers from paying for facilities from which they receive little or no meaningful benefit. The NOPR’s recognition of this fundamental principle is laudable, and we were also encouraged to see that you reiterated your adherence to this principle in the Commissioners’ response to the December 30, 2010 Wall Street Journal editorial.
We are concerned, however, that, as a practical matter, “benefits” will be so broadly interpreted by the Commission as to nullify the principle; a concern that has been underscored by the Commission’s recent decisions in Southwest Power Pool, 131 FERC ¶ 61,252 (SPP) and in Midwest Independent Transmission System Operator, 133 FERC ¶ 61,221 (MISO). It is our understanding that these cases involve cost allocation methodologies that, at their heart, merely socialize the costs of certain, significant high voltage transmission facilities over the regional transmission organizations’ (RTO) respective footprints. We are concerned that rather than marrying cost responsibility to a meaningful receipt of benefits as suggested in the NOPR, the Commission appears to be moving in the opposite direction with these two decisions.
In the MISO case, this concern is particularly acute with regard to the socializing of transmission costs across the entirety of the MISO for projects to implement the “public policy” requirements of even a single state. While we recognize that the MISO (as well as the SPP) cost allocation methodologies were developed by the filing parties and not by the Commission (as correctly stated in the Wall Street Journal response), and while we generally agree with the principle that the Commission should provide deference to regional solutions, it remains the Commission’s responsibility to ensure that rates are just and reasonable under the Federal Power Act. These decisions, coming on the heels of the publication of a major policy proposal on this very issue, certainly cloud the view of where the Commission is headed.
The MISO and SPP decisions also cause us to be concerned with how the NOPR cost allocation mandate will apply outside of RTO and independent system operator (ISO) areas, such as the Southeast and Northwest. As you know, utilities in our home states allocate costs for new transmission facilities by agreement, as participants voluntarily pay for requested projects. Many utilities and stakeholders from our states have urged the Commission to allow cost allocation by voluntary agreement to continue. Groups in our states have also asked the Commission to specifically define “benefits” as limited to reliability improvements, congestion relief and quantifiable power supply benefits that allow load and preferred generators to access each other.
With these interests and concerns in mind, we request the Commission answer the following questions to help us understand how the Commission intends to interpret the cost allocation policies proposed in the NOPR and provide a basis for future legislative action in this area:
1. Regarding socializing of transmission costs across an area to implement a “public policy” requirement, it seems that customers in affected states not directly subject to the public policy requirement(s) that drives a transmission upgrade should not be allocated costs on the same basis as customers in a state that is directly subject to that requirement. How will FERC recognize that public policy requirements are not consistent among affected states? For example, how will FERC address the circumstance where affected states, as a matter of public policy, adopt differing standards, such as where affected states decide not to adopt a renewable portfolio standard, or adopt renewable portfolio standards with differing requirements by percentage or qualifying energy sources, or adopt alternative standards such as demand reduction in lieu of some or all of a portfolio standard, or decide to meet such standards with local resources or distributed resources that do not require transmission or comparable levels of transmission?
2. What is the Commission’s rationale for not recognizing inconsistencies in the extent to which affected states had, or had not adopted, public policy requirements within the MISO and SPP decisions and how is this consistent with the principles outlined in the NOPR of attributing costs to benefits?
3. The NOPR appears to reject the well-established “requestor pay” approaches used in the Southeast and Northwest. How do the MISO or SPP-type of cost allocation methodologies that essentially socialize many significant transmission costs, do a better job of allocating transmission costs commensurate to the actual benefits received than “requestor pay” approaches that place cost responsibility directly upon the entity requesting the service or purchasing power from the generation facilities?
4. Traditionally, cost allocation methodologies approved by the Commission either have authorized a public utility to allocate costs to its customers or involved voluntary cost- sharing arrangements between public utilities. As you are aware, S. 1462 would have provided FERC the authority to allocate costs beyond such a utility/customer relationship by authorizing the Commission to allocate transmission costs to load-serving entities within all or part of a region provided that certain fundamental swings had been made. In the NOPR, the Commission argues that it already has such authority to allocate costs on an “involuntary” basis. What is the statutory basis for the Commission’s determination that it now has the authority to move forward with this proposal on an involuntary basis?
5. The NOPR also proposes to require transmission providers to coordinate with their counterparts in neighboring transmission planning regions by filing an interregional transmission planning agreement with FERC. How is this proposal consistent with Section 202(a) of the Federal Power Act, which mandates that regional coordination is to be done on a voluntary basis, particularly since the D.C. Circuit of Appeals has already held in the Atlantic City case (295 F.3d 1) that, “Given the expressly voluntary nature of coordination under section 202(a), the Commission could not have mandated adoption of the [coordination] Agreement”?
6. The NOPR also provides that if a region is unable to develop a cost allocation methodology within a year, then FERC would establish the methodology. In your March 12, 2009 testimony to the Senate Energy and Natural Resources Committee, you testified that “At present, the Commission has greater ability to assign such [transmission] costs over broad geographic areas where there is a RTO or ISO.” Yet, in explaining the Commission’s backstop authority to establish a region’s cost allocation methodology, the NOPR does not treat non-RTO/ISO areas differently than RTO or ISO areas. Please explain the Commission’s authority in non-RTO/ISO areas.
We appreciate your consideration of these questions and look forward to your response. We recognize the complexity of some of these issues but also note their importance to providing reliable electric service to consumers in this nation at the lowest possible cost while ensuring a healthy and clean environment. Thus, we appreciate the attention that the Commission is focusing on transmission planning and cost allocation issues.
Senator Bob Corker
Senator Ron Wyden
Senator Richard Burr
Senator Jeff Bingaman, Senate Committee on Energy and Natural Resources, chairman
Senator Lisa Murkowski, Senate Committee on Energy and Natural Resources, ranking member