FERC chairman takes issue with WSJ editorial

Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission, has a response to Monday’s Wall Street Journal editorial about a proposal for electric transmission lines, calling the edtiorial directly, and my blog on it by extention, "entirely inaccurate and irresponsible."

Also, I relied on a faulty memory to say Wellinghoff was a member of the Nevada Public Utilities Commission. He was the state’s first consumer advocate.

Since electrons are cheap, here in it’s entirety is Wellinghoff’s response that he is sending to the WSJ:

Draft Response to Wall Street Journal’s 11/8/2010 Editorial on Transmission NOPR

The Journal’s November 8, 2010 editorial addressing a Federal Energy Regulatory Commission (FERC) proposed transmission rule too quickly dismisses the benefits that electricity consumers can expect from investment in needed transmission facilities and the resultant enhanced competition in wholesale power markets that will follow from such investments. Further, the editorial is rife with factual errors, misstating and mischaracterizing major substantive provisions of the FERC proposal.
First, the editorial states that under FERC’s proposed rule, a “long-standing user-pays policy would be replaced with a policy of everyone pays.”  That is simply incorrect.

FERC’s proposal makes clear that only those who benefit from transmission facilities will be allocated the costs of such transmission investments.  FERC’s proposal also clearly states that it would not impose a one-size-fits-all approach to allocating the costs of new transmission facilities but instead allows the regions to determine how costs can be best shared for new transmission infrastructure development.

A central tenet of FERC’s proposal is that there must be a closer link between cost allocation and the regional transmission planning processes in which the beneficiaries of new transmission facilities are identified.  FERC’s proposal leaves to each transmission planning region the task of identifying the types of benefits associated with new transmission facilities that it would consider for purposes of cost allocation.  Such benefits could include maintaining the reliability of the electric grid, reducing congestion on the electric grid- leading to production cost savings, and enabling state and federal public policies that may drive transmission needs. 

Second, the editorial criticizes FERC for “steer[ing] away from pricing that would ‘calculate the precise monetary benefits expected to accrue from a new transmission facility.’”  The Journal may believe that it is appropriate to require precise calculations.  That position, however, is at odds not only with FERC’s proposal, but also with an August 2009 decision issued by the U.S. Court of Appeals for the Seventh Circuit and with comments made in December 2009 by Senator Bob Corker of Tennessee. 

In the Seventh Circuit decision, Judge Richard Posner wrote: “We do not suggest that [FERC] has to calculate benefits to the last penny, or for that matter to the last million or ten million or perhaps hundred million dollars.”  Similarly, at a December 2009 hearing of the U.S. Senate Committee on Energy and Natural Resources, Senator Corker stated that legislative language he sponsored did not require FERC to be “precise” in allocating the costs of new transmission facilities.  Instead, Senator Corker said that his language was “very much in keeping with the Seventh Circuit ruling.” In fact most informed  stakeholders experienced with the difficulties in allocating costs for new transmission projects recognize that requiring "precise" allocation of costs and benefits in the rapidly shifting wholesale electric market is a fools game that delivers transmission infrastructure opponents the ammunition necessary to derail any project in legal  proceedings indefinitely.

Rather than requiring calculation of precise monetary benefits, the Seventh Circuit decision presented a “roughly commensurate” standard.  FERC’s proposal draws on that language in proposing that costs of transmission facilities must be allocated in a manner that is roughly commensurate with the estimated benefits.  In addition, FERC’s proposal states that absent voluntary agreement, the costs of transmission facilities may not be allocated to those outside of the transmission planning region or regions in which the facilities would be located.

Third, the editorial quotes Chairman Wellinghoff as stating: “This is a country where transmission lines have traditionally been built by the incumbents who serve that area; the question is whether we should continue that policy in the future.”  The editorial incorrectly suggests that this statement relates to cost allocation for new transmission facilities. 

In fact, Chairman Wellinghoff’s statement refers to another part of FERC’s proposal.  In some regions of the country, an incumbent utility has a federally-approved right to build transmission facilities that are identified in a regional transmission planning process, even if another participant in the transmission planning process originally developed the proposal or suggested a competitively superior one.  Without impinging on state or local laws or regulations, FERC is proposing to ensure that tariffs and agreements under FERC’s jurisdiction provide a level playing field for incumbent utilities and other qualified competitive participants interested in building transmission facilities that are selected in a regional transmission planning process. This proposal, rather than furthering any "socialization" of the transmission development process does quite the opposite and open the process up to competition, innovation, and new investment.

Such new investment in transmission will help consumers control energy costs.  It has been said that electricity transmission is “the ultimate enabler” of consumer benefits.  By expanding the deliverability of our nation’s energy resources, transmission enhances competition in wholesale power markets and gives us options as a nation, providing measurable economic benefits to consumers.

More than 180 entities ranging from utilities to consumer groups have commented on the FERC proposal, and a second round of comments will conclude this Friday.  FERC will take all of these views into account as we develop rules that will remove barriers to the efficient and effective development of needed competitive transmission facilities. 



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