Renewable Energy Buyers Remorse: How Big a Risk?

Municipal utilities have been good laboratories for experimentation because they are close to customers and generally risk averse.  Munis have been among the most assertive buyers and strongest advocates of renewable energy.  Generally free of state rate regulation, public power has been able to plan and executive strategies and deals that push the envelope of their portfolio share from renewable energy. Given lower rate structures typically than investor-owned utilities this was worked.

But are municipal utilities signing up for too much of a good thing?

Energy Central’s TransmissionHub online service reported on John DiStasio, SMUD’s general manager and CEO’s testimony before the House Energy and Commerce Subcommittee objecting to the Order 1000 planning requirements.  In his testimony DiStasio said,

“I am concerned that FERC’s rule forces transmission planning to be driven inappropriately by regulatory policy instead of economic demand, will likely result in additional and unnecessary costs for our customers, and that the transmission subsidy contemplated by the order will tilt the market playing field in favor of distant generating resources, and against more efficient resources such as local renewables and demand management resources.”

There’s the ‘Gotcha’ in all of this for public power.

FERC Order 1000 worries public power officials because it seduces public power to participate in regional planning to get the benefits of transmission access for their renewable energy purchases, but the risk is that FERC will begin, for the first time, allocating costs for transmission expansion to public power in accordance with their ‘benefit’.

Public power has always been dependent upon regional transmission for portfolio security.  As a public power executive I fought many battles at FERC and elsewhere when investor owned utilities tried to block our access to lower cost resources or move power from our power supply deals to our member cities.  By becoming even more dependent upon regional transmission to gain access to often remote renewable energy sources to satisfy the green agenda of local elected officials and customers, pubic power must stick its neck out and participate in regional planning.

Otherwise it will be forced to rely more heavily on local projects rather than larger and potentially cheaper projects elsewhere.  So far public power interests have often been aligned with the renewable energy developers who fought hard for removal of interconnection barriers for renewable projects.  But much of the easy stuff has been done and now the harder work of actually building more transmission to get the projects to market is required—and public power fears it will be forced to pay for some of that transmission cost in regulatory proceedings it cannot control.

Congress and the Courts have not made it easy to have a rational transmission policy.  FERC’s push for regional transmission organizations separated direct utility control over transmission dispatch and access but still leaves the grid fragmented.  Congress passed the Energy Policy Act of 2005 directing US DOE to do transmission congestion studies every two years and report to Congress.  But in 2010 the Ninth circuit Court of Appeals struck down US DOEs congestion studies and designated national interest electric transmission corridors for failure to following environmental procedures.  US DOE will start over with a new report due to Congress in September 2012.

The recent attempt to delegate that congestion study and NIETC duty to FERC failed when many objected.  So FERC issued Order 1000 to encourage regional planning cooperation—-good luck with that!  While we need more regional planning the interests of Federal and state regulators are at odds over who will lead in the regulatory dance.

Much of our clean energy goals for the future rides on solving the transmission problems that prevent big remote renewable energy projects to get their energy to market, the ability to move power east and west across grid lines, the need to relieve highly congested areas, the need for more transmission capacity to live into our smart grid enabled future, and the need to adapt the grid structure from its design for baseload generation to its new role as the facilitator of a distributed energy business model future.

As a former public power executive myself (Austin Energy, MMWEC, EBMUD) I know firsthand the problems of lack of transmission access.  But if public power wants broad equitable access to new transmission it must be willing to bear its share of the costs  as the days of free rides for renewable energy must come to an end with grid parity in order for it to be sustainable.  FERC Order 1000 should not have come as a surprise to public power.  Regional planning makes sense only if everyone is treated the same.  If one group can opt out of paying the cost of new transmission then everyone will opt out.

Be Careful What You Wish For

SMUD is a useful example of this dilemma but it is hardly alone.  Today about 24% of SMUD’s portfolio is renewable but that will grow to 37% by 2020—well more than California’s 33% RPS standard for investor-owned utilities.  Add to that SMUD’s smart grid program with 615,000 new smart meters deployed looking for benefits to make the cost worth the investment. SMUD costs are likely to go up—way up whether or not it participates in regional transmission planning because of the higher cost of its portfolio compared to the lower marginal costs of alternatives such as natural gas fired power generation.

Instead of declaring victory at California’s already high 33% RPS target SMUD wants to go to 37% by 2020.  Ratepayers may be cheering today but they won’t likely be so happy in 2020 when their SMUD bill arrives.

One of the biggest risks to smart grid is the failure to address the transmission capacity needs required to deliver the promises of the clean energy future.  Higher rates and few perceived benefits will almost certainly lead to buyers remorse and set back the goal of clean energy.  But don’t worry, natural gas fired generation will be there to pick up the slack with easy to permit and build, low capital costs, able to be located near load centers, reliable and low fuels costs with fewer emissions than coal.