By Michael Kuser, Christen Smith and Rich Heidorn Jr.

Transmission owners this week defended PJM’s, ISO-NE’s and SPP’s designations of “immediate-need” reliability projects while state officials complained the grid operators are frustrating FERC Order 1000’s intent to open transmission construction to competition.

More than a dozen stakeholders and groups filed comments on the RTOs’ responses to FERC’s Oct. 17 orders opening investigations under Federal Power Act Section 206 into their use of Order 1000’s immediate-need exemption. The exemption allows the RTOs to assign projects to incumbent TOs. FERC said it was “concerned that the responding RTOs may be implementing the exemption in a manner that is inconsistent with or more expansive than what the commission directed, and therefore may be unjust and unreasonable.” (See FERC to Probe Order 1000 Competition Exemptions.)

The TOs agreed with ISO-NE (EL19-90), PJM (EL19-91) and SPP (EL19-92), which insisted in their Dec. 27 filings that they were following Order 1000 and that no changes to their transmission planning practices were warranted.

Exception ‘Swallowed’ the Rule

But state officials disagreed, with several New England state agencies saying, “the exception has swallowed the rule.”

“The three-year, immediate-need deadline is a fiction that has not been respected in theory or in practice in New England,” the Connecticut and Massachusetts attorneys general, Connecticut’s Department of Energy and Environmental Protection and Office of Consumer Counsel, and the Maine Office of Public Advocate said in a joint comment.

FERC should order ISO-NE to amend its Tariff and revise or eliminate the time-sensitive-needs exemption to encourage competition, they said.

The New Jersey Board of Public Utilities argued that PJM applies the exemptions too broadly, resulting in “increased transmission rates from projects not subject to competitive pressures.”

Ending the Federal ROFR

Order 1000 required RTOs to eliminate from their tariffs a federal right of first refusal for incumbent transmission developers for facilities selected for cost allocation in a regional transmission plan.

In allowing PJM, ISO-NE and SPP to create the exemptions, FERC set out five criteria, including that a project is needed in three years or less to solve reliability criteria violations. It also required the RTOs to post information about the exemptions to ensure transparency. (CAISO, MISO and NYISO did not seek such exemptions.)

The commission said “it is unclear how each responding RTO determines whether an immediate-need reliability project is needed in three years or less,” noting that PJM designated 19 immediate-need reliability projects between 2017 and 2018 with need-by dates prior to or in the year they were designated. In other cases, FERC found, the projects were projected to be in service after the need-by date.

The commission also faulted the RTOs for a lack of transparency, saying it was difficult to locate where they identify and post explanations of reliability violations and system conditions with time-sensitive needs.

It suggested potential changes, such as shortening the three-year rule for projects deemed immediate-need, approving exemptions based on the in-service date versus the need-by date, increasing transparency into how the RTO determines a competitive process is unfeasible and requiring more frequent project re-evaluations.

SPP: Small Share of Projects Exempted

FERC noted that SPP designated an immediate-need reliability project in December 2018 that is needed by June 1, 2020 but has an expected in-service date of June 30, 2023.

SPP said the five projects it designated as short-term reliability projects (STRPs) represented only 3.5% of 144 total reliability upgrades between 2015 and 2018.

Of the five, one was canceled, and two others designated in July 2016 and December 2018 have not yet been energized. Two projects designated in June 2015 were completed in June and November 2018.

The RTO said the process for designating STRPs “is working as intended” and that changes contemplated by FERC “would have very little impact on increasing the number of projects subject to competition and could increase reliability risks incurred due to delays in construction caused by implementing the competitive bidding process.”

American Electric Power defended both SPP and PJM in its filings, saying immediate-need reliability projects “are a necessary component of reliability” that allow RTOs to adapt to “retirement of conventional generation, the rapid addition of variable resources and the addition of block load, such as data centers and shale gas facilities.”

PJM Late to ID Needs?

In its critique of PJM, FERC had questioned the RTO’s approval of the Flint Run 500/138-kV substation upgrade as an immediate need, saying the size of the project — intended to serve load growth in the Marcellus Shale region in West Virginia — “raises questions about why PJM did not identify this need earlier.”

PJM’s 137-page response clarified that the number of immediate-need projects approved between 2015 and 2018 totaled 63, slightly more than a quarter of the 241 transmission proposals exempted from competition in that time frame.

The RTO said it arrived at the smaller number after sorting out projects that claimed other competitive exemptions, including the lower voltage threshold, thermal reliability violations solved with substation upgrades and Form 715 projects. It also argued that the relative size of the population it serves contributes to the number of immediate-need projects in its Regional Transmission Expansion Plan (RTEP) as compared to SPP and ISO-NE.

FERC questioned PJM’s approval of the Flint Run 500/138-kV substation project as an “immediate need” reliability project, saying the size of the project, to serve load growth in the Marcellus Shale region, “raises questions about why PJM did not identify this need earlier.” | PJM

FERC’s proposed changes, PJM said, ignore the unpredictable nature of the siting and eminent domain processes and would require RTO staff to “prognosticate” about complex government processes for which they lack expertise. Its existing practice of posting information about immediate-need projects online three days before the monthly Transmission Expansion Advisory Committee meeting gives stakeholders a chance to review and ask questions about the proposals, eliminating the need for greater transparency, PJM said. Further, mandated re-evaluations for projects that fail to meet a projected in-service date “would be highly disruptive and lead to further delays.”

“Thus, it is necessary that PJM continue to have the authority given the relevant facts and circumstances to direct transmission owners to resolve an immediate-need reliability issue when identified and that those entities designated responsibility to construct the project will have reasonable assurance of recovery if they proceed with the project as approved,” the RTO said.

TOs: No Changes Needed

In separate filings, Exelon, Old Dominion Electric Cooperative and AEP said that PJM’s response demonstrates effective implementation of the immediate-need exemption and supported no further policy changes.

“Exelon agrees with PJM that the additional conditions and restrictions on the use of the immediate-need reliability project exemption that the commission introduced in the show-cause order would either undermine the effectiveness of the immediate-need reliability project exemption or fail to meaningfully increase opportunities for nonincumbent transmission development,” Exelon wrote.

The New Jersey BPU took aim at PJM’s argument that its immediate-need projects were “artificially inflated,” noting that the subset still accounts for 13% of all baseline upgrades in the RTEP.

After the last of PJM’s competitive exemptions went into effect in 2017, more than $3 billion in transmission projects were planned “without the benefit of competition,” the BPU said. The issue hits close to home for New Jersey regulators, who have charged that more than a third of PJM’s transmission expansion has occurred within their state, increasing transmission rates 124% since 2013 for “certain customers.”

“Taken together, these facts undercut PJM’s use of other exemptions as support for the justness and reasonableness of its existing rules,” the BPU said. “To the contrary, the substantial portion of noncompetitive PJM transmission investment, particularly in New Jersey, confirms the commission’s concerns about the expanding scope of transmission exemptions.”

Because PJM has demonstrated the operational capability to maintain a reliable transmission system when construction on such projects extends beyond three years, competitive transmission developer LS Power said, the commission should eliminate the blanket immediate-need exemption and require the RTO to seek FERC approval of exemptions on a case-by-case.

LS Power said the total value of transmission additions classified as immediate-need exceeds $4.5 billion over the last six years — far beyond what the commission envisioned when it approved the “limited” exemption.

“The commission must require PJM to fully explain why this staggering amount of transmission spending in PJM is in immediate-need reliability exemption projects and why PJM’s planning process is insufficient to prevent this level of immediate-need reliability projects,” LS Power said. “Significant reform is warranted.”

American Municipal Power said PJM’s process for approving RTEP projects is flawed because incumbent TOs hold all the relevant information and don’t provide it to the RTO on a “timely basis.”

“The commission should direct PJM to improve the RTEP process to ensure that it has timely information from processes that feed into the PJM planning process to avoid immediate-need reliability projects resulting from changes in topology, facility rating methodologies or other modifications controlled by the PJM transmission owners,” AMP said.

ISO-NE’s Lack of Annual Tx Planning

FERC also was critical of ISO-NE, saying that because the RTO does not conduct an annual transmission planning process, and instead relies upon needs assessment studies, “it appears that all reliability needs in ISO-NE may be classified as immediate-need reliability projects.”

ISO-NE and New England TOs Avangrid, Eversource and National Grid stood alone in defending the RTO’s use of immediate-need exemptions, with most stakeholders urging FERC to curtail or abolish the exemption.

The RTO said it has 31 reliability projects for which the need-by date is earlier than the projected in-service date, all resulting from either its Boston 2028 or its Southeast Massachusetts/Rhode Island 2026 needs assessments.

“The solutions are addressing the time-sensitive needs described in the two assessments,” the RTO said. “ISO-NE believes that the exception is working as intended in the New England area and that no changes are necessary at this time.”

After the RTO in December issued its first competitive transmission solicitation — to address reliability concerns over the planned retirement of the Mystic Generating Station near Boston — it told the commission it “intends to conduct a ‘lessons learned’ process, during which time ISO-NE will revisit its processes to determine if overall improvements can be made.” (See ISO-NE Issues First Competitive Tx RFP.)

| © RTO Insider

The New England Power Pool urged the commission to restrict the use of such exemptions “as much as possible, consistent with ensuring that reliability needs are met in a timely way.”

NEPOOL said it continues to support the immediate-need exemption for transmission facilities that are needed within three years of the identification of a reliability need. However, it “should be the exception and not the rule,” the organization said.

The New England state agencies said the “fiction” of the three-year immediate-need deadline is demonstrated by the data. Of 30 completed and ongoing immediate-need projects, they said, 24 (80%) were not completed within three years; 15 (50%) are expected to take at least five years; and 20 (67%) had need-by-dates predating the assessment study that identified the need. Another four had need-by-dates in the same year as the need was identified.

The New England States Committee on Electricity (NESCOE) said it is concerned that ISO-NE’s practices could cause all reliability needs to be met outside of the competitive process.

“Given the unique circumstances and system conditions giving rise to the identified need, the Boston [request for proposals] does not appear to signal a fundamental shift away from ISO-NE’s use of the exemption,” NESCOE said.

The limited competition in New England raises obvious questions about whether consumers are paying more than necessary for transmission, it said, noting that revenue requirements are forecast to increase from $2.1 billion in 2018 to $2.7 billion in 2023, a jump of more than 25%.

“Even before these increases take effect, an ISO-NE analysis shows that most residential retail electric customers in New England paid transmission costs representing 11 to 18% of their total retail rates,” NESCOE said. “If needs were classified as time-sensitive years ago but ISO-NE has not yet selected projects to meet those needs, it raises questions regarding whether the appropriate criteria is being used to assess the time-sensitivity of those needs.”

The Connecticut Public Utilities Regulatory Authority said, “Any competition is superior to no competition,” and that the RTO “appears to prefer not using the competitive process to address transmission needs and to being unable to identify any transmission need that is more than three years away.”

The PURA suggested limiting the percentage of transmission need projects that can have a noncompetitive solution, based on either the number of projects or on the dollar expense.

The agency “believes that 25% is the appropriate limit to place on the amount of dollars that can be spent on noncompetitive solutions. This percentage level ensures that the majority of dollars spent on transmission need solutions benefit from competitive forces, yet should be amply sufficient to handle those few occasions when reliability concerns arise and cannot be mitigated.”

To Proceed or not to Proceed

The immediate-need exemption has given incumbent TOs in New England exclusive rights to construct nearly all new transmission in the region, and they are at the same time “failing almost universally to complete or, in some cases, even commence projects on or before the need-by date,” Massachusetts Municipal Wholesale Electric Co. and New Hampshire Electric Cooperative said.

The immediate-need exemption is “out of step with its intended purpose and should be eliminated,” they said, suggesting a more streamlined competitive solicitation process.

ISO-NE asserts that in-service dates are based on realistic appraisals by the affected TOs of how long it is likely to take for the preferred solution. “But that does not advance the ball; it merely describes the problem,” the public systems said. “If the TO cannot build the project within the [RTO’s] need-by timeframe, then the project should be put out for bid.”

The public systems proposed a competitive solicitation process they said could be completed in less than half the time of the RTO’s method, “or just 279 days, compared to the 630-day time frame ISO-NE has established for the Boston 2028 RFP.”

Avangrid tried to parry the thrust of the commission, asserting that “a litigated proceeding based on a misunderstanding of need-by dates versus in-service dates does not signal to the industry that the commission intends on maintaining the reasonable balance struck between eliminating barriers to new entry and ensuring participating transmission owners are able to address immediate reliability needs on the New England transmission system without unnecessary delay.”

The company suggested giving up “a one-sided view of post-Order No. 1000 transmission planning measures” in favor of a technical conference as “the most transparent and balanced manner to manage this discussion.”

Eversource Energy said, “The benefits of adjusting the three-year exemption … to increase competition are minimal.”

ISO-NE independently determines what reliability needs to put out for competitive solicitation, and stakeholders can challenge its use of the three-year exemption, the company said.

There would be “little benefit to creating more process” for the kinds of projects that are needed within three years, which typically involve upgrades to TOs’ existing assets or on their rights of way, which FERC explicitly reserved for the public utility transmission provider, Eversource said.

“Near-term reliability should not be compromised for such little, if any, benefit. There is ample evidence for the record of the significant time needed to conduct competitive solicitations,” Eversource said.

National Grid reported nine of 13 immediate-need projects identified through the SEMA-RI report as “progressing satisfactorily against their key milestones,” with the remaining four “less advanced due to factors outside of National Grid’s control.”