New Transmission Interconnection Procedures Needed for Independent Transmission Facilities

In response to government policies encouraging non-utility companies to produce power, these independent power producers have built generation facilities but traditionally have not built transmission systems to actually transmit the power. As a result, the independent power producers needed to interconnect their generation facilities with the existing transmission systems of the utility companies to provide transmission service for their projects.

The Federal Energy Regulatory Commission (the "FERC") identified a need to provide independent power producers with open access to the transmission system. FERC promulgated regulations to standardize the procedures and agreements by which small and large generators were allowed to interconnect with the existing transmission system.

In recent times, the trend in which non-utility companies built only generation resources has shifted to non-utility companies building only transmission facilities not associated with particular generating facilities. The impetus for the shift in this trend has been a shortage of transmission facilities needed to serve a growing fleet of generators, many of which are renewable resources.

The emergence of independent transmission projects highlights the lack of separate transmission interconnection procedures apart from generation interconnection procedures in various regions across the country. An analysis of one of these new projects, the current state of transmission interconnection procedures, and the challenges posed by the current procedures underscores the need to bring about reforms to transmission interconnection on a national scale.

Emergence of Independent Transmission Facilities

One of the nation's first independent transmission facilities that is currently being developed is the Green Power Express project. The project is projected to consist of transmission lines and related facilities stretching through North Dakota, South Dakota, Minnesota, Iowa, Wisconsin, Illinois and Indiana that will interconnect with wind generation facilities in these regions and provide transmission for approximately 12,000 MW of wind-generated power to load centers located far from the wind farms themselves.

The project is being developed by a partnership whose ultimate parent company is ITC Holdings Corp., an independent electricity transmission company ("ITC"). ITC's independence is signaled by the fact that it is not a utility company and does not own generation resources. ITC has invested approximately $1 billion in electric transmission system upgrades over the past five years.

ITC has stated that its Green Power Express project will meet President Obama's goal "to get wind power from North Dakota to population centers" and that it has garnered industry support from market participants including NextEra Energy (formerly FPLE), Iberdrola Renewables, Generation Energy Inc., Montgomery and Denali Power Partners, National Wind, Crownbutte Wind Power, and Acciona Energy North America Corporation.

In order to interconnect the Green Power Express transmission facilities with other transmission facilities in each of these regions, sponsors of the project must contend with the current state of transmission interconnection procedures.

Current Regulatory Environment for Transmission Interconnection Requests

Unlike standardized procedures and agreements for generation interconnection requests, neither FERC nor the regional transmission system operators (independent system operators ("ISO") or regional transmission organizations ("RTO")) have instituted similar procedures or agreements to govern pure transmission interconnection requests.

The lack of standardized procedures results in an ad hoc system for evaluating transmission interconnection requests by ISOs and RTOs, and by transmission owners in regions that are not organized under a single ISO or RTO. Unlike generation interconnection requests, no interconnection queue exists to denote the order in which transmission interconnection requests are processed. Although backlogged in most ISO and RTO regions, a queue position does provide an interconnection applicant with assurance that its request will be studied and in which order it will be studied.

Moreover, no specific set of mandatory studies or procedures (or predetermined costs for complying with such studies or procedures) have been set forth for such requests. Finally, no standard agreement governing the rights and obligations of the relevant parties (usually the owner of the independent transmission facilities seeking the interconnection, the incumbent transmission owner of the existing facilities, and the regional transmission entity) has been developed by regulatory authorities to provide a contractual basis for such requests.

Challenges Posed by Ad Hoc Procedures

Although independent transmission projects could provide a key source of new transmission infrastructure to deliver generation resources to major load centers, the ad hoc nature of the transmission interconnection request process poses two fundamental challenges to sponsors of such projects.

First, sponsors face an initial hurdle of having to submit a non-traditional request to the applicable ISO or RTO to interconnect its transmission facilities with the targeted transmission facilities of a transmission owner in the region. Since standard procedures and agreements do not exist for these types of requests, sponsors face a difficult task of either adapting already-existing procedures and agreements for generation interconnection requests for their purpose or working with the ISO or RTO to craft a unique request for pure transmission interconnection.

Second, sponsors face an even tougher hurdle of convincing the incumbent transmission owner to permit them to interconnect their independent transmission facilities with those owned by the transmission owner developed and maintained to serve the owner's customers. Some incumbent transmission owners may have certain disincentives to permit independent transmission facilities to be interconnected with their own facilities because the new facilities (i) are not needed to serve their existing customers, (ii) may be used to transmit power outside of the transmission owner's geographic region, (iii) may require additional transmission system upgrades to facilitate the actual interconnection of one transmission system to the other, and (iv) may require additional and costly system impact studies to assess the impact of the interconnection on the entire transmission system in the region.

In regions managed by an ISO or RTO, such regional entity may serve as a more neutral party to permit pure transmission interconnection requests to receive fair consideration. In regions without the presence of such an entity, transmission interconnection requests may require additional lobbying efforts or the assistance of state or federal energy regulatory bodies to ensure that these requests receive due consideration.

Each of these challenges results in less certainty in both the treatment of transmission interconnection requests and the outcome of such requests. Since acquiring the right to interconnect the independent transmission system with the existing system in the region and securing a legally binding agreement setting forth such right are both necessary for the viability of the project, uncertainty at the early stage of this process with respect to these crucial issues may likely result in increased challenges to the sponsors in obtaining necessary financing, construction commitments, and other early-stage logistics for the project.

Recommended Reforms to Standardize Procedures and Agreements

Greater regulatory and contractual certainty with respect to the process by which transmission interconnection requests are submitted and evaluated are essential to provide strong incentives to encourage the development of independent transmission facilities across the nation.

The best method by which to obtain regulatory and contractual certainty would be for FERC to ultimately promulgate standardized transmission interconnection procedures and agreements to govern pure transmission interconnection requests. The history of the standardization of generation interconnection requests has shown that such regulatory standards were required to permit independent generation entities with non-discriminatory access to the transmission system. Likewise, regulatory standards for transmission interconnection requests are warranted to permit independent transmission entities with non-discriminatory access to the transmission system as well.

In the initial stages, FERC could hold technical conferences to consider market participant's input on the formulation of such procedures and agreements based on their experiences or priorities with respect to these issues. Once the proposed regulations have been vetted through the comment period and final regulations promulgated, FERC should require compliance by all of the regional RTOs, ISOs, and transmission owners with the final regulations.

By providing a solid regulatory, contractual and legal framework for transmission interconnection requests, the nation may move one step closer to its goals of increasing its reliance on renewable resources and maintaining a robust transmission system capable of handling increased demand for generation and transmission in the future.