Bruce Edelston President, Energy Policy Group and Executive Director, Coalition for Fair Transmission Policy Restructuring Today Webinar August 8, 2012 Best Approach to Implementing Order 1000 in ISO/RTOs

CFTP The Coalition was formed in January of 2010 to address emerging concerns on the direction of transmission policy:  Efforts to broadly socialize the costs of new transmission projects intended to develop remote renewable energy resources, without regards to the beneficiaries of such development.  Efforts to give FERC new authority to develop top- down, interconnection-wide plans and/or over-ride local and regional transmission planning efforts.

Membership Membership composed of geographically diverse electric utilities operating in both organized and traditional vertically-integrated markets. Members include CMS Energy, ConEdison, DTE Energy, Duke/Progress Energy, Public Service Enterprise Group, SCANA Corporation, and Southern Company

CFTP Principles Transmission Planning  Any effort to improve transmission planning must build on existing regional processes, and be inclusive of all stakeholders.  Transmission planning must be initiated at the local and regional level based on the needs of the customers who bear the burden and benefits of the decisions driven by the planning processes.

CFTP Principles Cost Allocation  Costs for new transmission investments required to meet reliability standards must be allocated to the area(s) where the investments are required to meet the standards.  Costs for new transmission investments not otherwise required to meet reliability standards must be allocated to the parties in a manner that clearly aligns cost responsibility with cost causation.

CFTP Principles Cost Allocation  Costs for new transmission investments required to meet reliability standards must be allocated to the area(s) where the investments are required to meet the standards.  Costs for new transmission investments not otherwise required to meet reliability standards must be allocated to the parties in a manner that clearly aligns cost responsibility with cost causation.

FERC Order 1000 Costs must be allocated roughly commensurate with benefits, but the NOPR does not define benefits Cost allocation and planning processes are left up to individual regions to develop and file with the Commission based on regional “consensus”, which is also not defined Order 1000-A introduced new concept – “a proposed transmission facility in a regional plan for purposes of cost allocation”

FERC Order 1000 (cont.) Requires all utilities (or RTOs/ISOs) to file regional transmission plans and to develop inter-regional planning agreements with neighboring utilities Regional transmission planning must take into account state and federal public policy requirements Requires all utilities to file cost allocation methodologies and to develop cost allocation agreements with neighboring utilities)

CFTP Questions – Implementation Can regions develop planning processes that don’t conflict or ultimately pre-empt state prerogatives? Will “Top down” planning processes - where regional entity makes decisions, replace “Bottom- up” processes – where local needs are first determined by local utilities and their regulators? What will happen if regional and state objectives conflict, or state objectives or requirements conflict among each other?

CFTP Questions (cont.) While “beneficiary pays” is the right principle, how “benefits” get defined truly matters Should only economic and reliability benefits that can reasonably be projected in planning and other modeling studies should be considered? Or are generalized “social benefits,” or far-off and speculative benefits a rational or sufficient basis for cost allocation? Will cost socialization prevail, and what is the impact on a utility’s/state’s responsibilities to its own customers?

CFTP Questions (cont.) How are local versus regional facilities defined? What role will municipal and cooperative (non-public) utilities play, given the potential for them to be allocated costs that they haven’t agreed to or budgeted for (vs. reciprocity considerations)? Not clear how FERC can or will implement its notion of allocating costs to entities that don’t have a contractual or customer relationship with transmission developer Particularly in non-RTO areas, will another planning process create a bureaucratic nightmare

The Road Ahead FERC Order 1000’s lack of clarity provides the opportunity to get it right, or the opportunity to get it terribly wrong – with potentially harmful results for consumers Need to keep the objectives of transmission planning and cost allocation in the forefront – ensure reliability and efficient markets for generation while providing electricity to end-use customers at the lowest reasonable cost

The Road Ahead (cont) Getting it wrong could mean:  Local renewable generation is disadvantaged relative to remote resources because someone else is paying for transmission for the remote resources  Customers pay for transmission for which benefits are speculative at best  Locational marginal pricing does not provide the right price signals for buyers and sellers because congestion costs are subsidized  Stranded transmission investment could result as there is no incentive to ensure that transmission investment is truly needed

The Road Ahead (cont) Some recent decisions in specific cases give us concern regarding what the Commission means by Order 1000 and how it may be implemented

What’s the problem? Utilities have recognized the need to modernize and expand the nation’s electric grid—and have responded accordingly In 2013 and 2014, annual investment in transmission will double from the $7 billion spent on transmission in 2012, a major accomplishment during an economic slum Investment will then double again in 2015 to $31 billion, according to Transmission Hub

What’s the Problem? Source: Transmission Hub

What’s the Problem? A paradigm shift for transmission ?  Decentralization vs. long-distance transmission − Distributed generation from solar PV panels and other sources can limit the need for expensive long-distance new transmission and reduce congestion − Off-shore wind may provide an economic alternative to the combination of Midwestern-sourced wind and hundreds of miles of new transmission − No need for the giant extension cord that plugs green power from remote generation into load hundreds of miles away  Abundant, affordable, clean and domestically-produced natural gas has replaced coal as the utility industry’s fuel of choice, a market development never envisioned by FERC when it formulated a transmission plan focused on renewable energy  Neither the cap and trade policy nor a national renewable energy standard have been adopted, undercutting FERC’s public policy rationale for a massive transmission build out

Further Information Coalition for Fair Transmission Policy