Transmission Trends Transmission Trends: Current Policy and Regulatory Issues and What They Mean for Renewables Remarks of James Hoecker Husch Blackwell Sanders LLP Hoecker Energy Law & Policy PLLC Former Chairman, Federal Energy Regulatory Commission EMERGING TRENDS IN RENEWABLE ENERGY en X co RANCHO MIRAGE, CALIFORNIA FEBRUARY

 Aging and deteriorating infrastructure  More dispersed resources of generation  Wholesale competition among generators  Complex bulk power markets  Arrival of the digital economy  Electricity consumption doubled  Shifts of public policy (e.g., RPS, efficiency, demand response) Challenges to The Transmission System 2

Challenges to New Transmission Construction  “Not in my backyard” or “not in my term of office”  Conflicts between local, state and regional interests  Inconsistent state and local regulation  Uncoordinated environmental reviews  Federal land authorization, esp. in the West  Lack of timing coordination among siting entities  Varying GHG restrictions and RPS’s  Difficulty right-sizing for short and long-term needs  Uncoordinated siting of lines and generators  Timing of “need” determinations 3

Will We Build More Transmission?  NERC: Transmission additions will triple to 3100 miles/year Project proposals abound: 90 planned projects each greater than $100 million (totaling $120 Billion)  Prospects for a clean energy economy—RPS, climate legislation, smart grid; renewable energy projects mean jobs and will drive major transmission expansions and upgrades; 20-30% wind penetration in the East = > $100 Billion for transmission (NREL)  Other drivers: reliability, cyber security, replacements, new technologies, load growth  PROBLEM: approval processes are out of sync with the realities of multi-state, multi-system, multi-purpose transmission 4 4

 Siting – Location, Location...and Need States consider “need” for facilities when siting them  Cost allocation – Who Pays? Who Benefits? States are influenced by the rate impacts on citizens when considering need; FERC defers to states and stakeholders  Planning – Which Projects Are Needed? Stakeholders & regional planners determine whether projects satisfy reliability, economic, environmental, or public policy needs Q. Who Decides If A Line Is Needed? A. Everybody 5

State vs. Federal Siting– A Struggle  Section 216, Federal Power Act (Sec. 1221, EPAct 2005)  National Interest Electric Transmission Corridor  Limited FERC backstop authority within NIETCs  FERC’s Aggressive Interpretation of Its Authority  Regional State Compacts  New Siting Approaches?  Pre-emptive federal backstop  Natural gas pipeline model; federal siting for high priority lines  Interstate siting compacts  Adoption of federal, state and local “best practices” for  Valuing their viewshed Land conservation  Multi-agency permitting Protecting Property values 6

“ The result of the Fourth Circuit decision is nullification of the comprehensive scheme erected by Congress with respect to U.S. transmission policy. The goal of Congress was to strengthen the interstate grid to support competitive markets, assure reliability, and promote development of renewable energy capacity. Congress recognized that development of larger interstate transmission projects is necessary to accomplish those policy goals, and also appreciated that state and local siting is poorly suited for development of such projects…. [T]he Fourth Circuit has interpreted Congress’ intent as maintaining each state’s veto authority over new interstate transmission facilities no matter how vital to the national interest.” Amicus Brief By Four Former FERC Chairmen Federal Siting Fares Badly In Court Piedmont Environmental Council v. FERC (4thCircuit Court of Appeals ) 7

Transmission Cost Allocation— Unresolved  Project Causers vs. Project Beneficiaries  New renewable generator = direct causer and beneficiary  Load under RPS = beneficiary, not a cost causer  Future generation in the area = beneficiary, not a cost causer; BUT  If transmission addresses a NERC standard, the owner is a causer and a beneficiary, and local load and local generation are beneficiaries  Transmission Access vs. Transmission Use  Access-based allocation is based on installed capacity, peak demand, or T service  Usage-based allocation is based on energy injections and withdrawals  Local vs. Interregional Benefits and Use  Local transmission serves local generation and load, provides market access for generators and load seeking diverse suppliers  Interregional facilities enhance system flexibility, reliability, and economy of production  Other issues 8

 Allocation Methodologies – -- License Plate -- Beneficiary Pays -- Postage Stamp -- Direct Assignment -- Highway/Byway -- Injection/Withdrawal -- Merchant Recovery  Difficult-to-Quantify & Often Ignored Benefits Enhanced Market Competitiveness, Liquidity -- Economic value of reliability -- Insurance and risk mitigation -- Capacity benefits -- Environmental and renewable energy Who Pays? Equity vs. Efficiency 9

Transmission Planning—Key  Historically, system by system to ensure reliability for native load customers and meet the needs of incremental generation.  Increasingly, facilities are multi-state and multi-purpose, facilitate economy energy transactions, and a liquid bulk power market, and will serve a flexible low-carbon fuel mix.  Individual utilities plan; RTOs plan; ad hoc regional groups and reliability organizations plan; and even groups of governors plan. No single entity is responsible for executing on a plan. 10

 Positive Investment Trends in All Regions: quadruple the 1990s  Interconnection-wide planning efforts (ARRA-funded)  More FERC leadership in cost allocation and planning, although far from preemption  Pending transmission legislation could address planning, siting, and cost allocation to varying degrees–  S.1462 American Clean Energy Leadership Act (E&NR Comm.)  “Climate Bill” H.R American Clean Energy & Security Act (Waxman-Markey)  Speculation of a political nature Trends & Prognosis 11

James J. Hoecker, JD, Ph.D Husch Blackwell Sanders LLP Hoecker Energy Law & Policy PLLC