FERC vs NERC: A grid control showdown over cyber security

WWW.INTELLIGENTUTILITY.COM /// JULY/AUGUST 2011
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When Congress passed the Energy Policy Act of 2005, it was
a statute that had actually been negotiated in about 2003. So
the provisions in that statute were dealing with the world as
we knew it in 2003.
There was concern that not enough capital was going
into transmission relative to generation. Also, the concern
was that we needed
enough transmission
to ensure that
these new competitive
generators could
get to market, and we
were seeing “congestion”—or,
in other
words, not enough
transmission.
But by 2006, when
the commission implemented
its order,
we were starting to
get more build-out
of transmission. So
the debate was, “Do
we need incentives
now for building out
transmission?” And
some commissioners
thought, “Yes,” and some commissioners said, “It should be
tailored to different kinds of projects.”
As we’ve seen this incentive program implemented from
2006 till now, the industry has changed even more. The new
public policy issue is transmission for getting to new renewables,
to reach renewables and bring them to market.
INTELLIGENT UTILITY How should the commission consider
changes in cost estimates?
KELLY The question is: When a utility says it’s going to cost
$800 million to do this transmission project, should the
commission use that cost estimate?
If the commission then awards “construction work-inprogress”—allowing
the utility to start recovering investment
costs while construction proceeds—should the commission
hold the utility to the cost estimate as a cap, as an
alternative way of containing costs?
The argument on the other side is: If that’s the approach
the commission takes, everybody’s going to say, “It’s only
an estimate—you never know how much it’s really going
to cost.” So if that’s the commission’s policy, you’re going to
send a signal that people should highball the cost estimates.
INTELLIGENT UTILITY What other factors should the
commission consider in implementing the law?
REGULATORY INTEL
KELLY We have to ask: What’s the commission’s goal
going to be?
Should the commission look at a project and say, “How
risky is this? How hard is it to get permits? How difficult
is it to build? Should we give incentives to help overcome
particular barriers and difficulties associated with the
particular project? Or do we look at what the project is going
to accomplish from a public policy perspective?”
In other words, is this—from a public policy perspective—
the kind of project we want to incentivize or maybe even
reward? Say, reaching renewables, or bringing in Canadian
hydro, or building a tie-line to Canada, or a project that has
the potential to interconnect the three grids.
Or a third possible way the commission could approach
this is the way it approaches the building of natural gas
pipelines, which is to say, “It’s all important—the build-out
of pipelines is an infrastructure we want to encourage.” So
the commission could say, “At this stage in the evolution of
our grid, we just need more transmission, and we want to
encourage it. So we’re going to give incentives to every
transmission project.”
INTELLIGENT UTILITY How do you view future electricity
transmission—in 2015, or 2020?
KELLY It has to do with, “Where are we headed?” We
usually build transmission because we need more transmission.
But if we don’t
need more generation
or need to move genera- “ The new public policy
tion from one place to
issue is transmission
another, we don’t need
more transmission.
for getting to new
Having said that,
however, there are states
renewables, to reach
that are pursuing renewable
portfolio stan-
renewables and bring
dards: Texas, California,
Colorado, New England
them to market.
to an extent, New York
”
to an extent are pursuing
bringing new generation on line. And we are also seeing
the potential for replacement of existing generation with
new generation. So we will need transmission.
INTELLIGENT UTILITY Is there one point you’d like to
make that we haven’t discussed?
KELLY The one point I’d like to make is that achieving
a consensus on what we are trying to accomplish with
transmission is, first, the key to a good transmission policy
and, second, the most difficult thing to achieve.
Phil Johnson is a freelance writer and speechwriter.