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United States

Open access crucial to many plans

Deregulation of the wholesale US electricity market by the Federal Energy Regulatory Commission will provide transmission access to any party requesting it which could open up new markets for electricity generated at remote sites. Location of the wind resource at great distances from where electricity is needed is frequently a barrier to development, and uncertainty over transmission paths is holding up some of the largest potential wind farms in the US. The FERC legisation could help. Environmentalists, though, have warned air pollution will increase if open transmission access is not complemented with new environmental standards. Full recovery of stranded costs could erect some barriers to wind development by delaying real competition.

Wind lobbyists are extending a cautious welcome to the proposals for deregulation of the wholesale US electricity market by the Federal Energy Regulatory Commission (FERC). The commission's Order 888 requires any utility transmission owner to provide transmission access to any party -- including a wind developer -- who requests it. The request from any potential electricity seller has to be accommodated, even if the utility must build new transmission capacity.

The idea of open transmission access is particularly desirable from a wind developer's point of view because it could open up new markets for electricity generated at remote sites. Without the FERC's transmission policy, a potential 10,000 MW of wind would most probably never be developed at the premier wind site in the nation, located on Native American lands in Montana (see previous story). Indeed, the location of the wind resource at a great distance from where electricity is needed is frequently a barrier to development. Uncertainty over transmission paths to urban centres and other customers is holding up some of the largest potential wind farms in the US, particularly in the West. Yet wind developers have unique needs due to the nature of seasonal and daily wind patterns and corresponding cyclic generation of electricity.

"Defining the terms and conditions under which access is to be made available will determine the extent to which renewable energy resources are hindered or facilitated in the emerging competitive market," comments Randy Swisher, AWEA executive director. "To avoid discrimination against renewables, it must be ensured that policies relating to transmission pricing and system operation do not impede wind energy because of its characteristics such as intermittence and distance from load centres."

Hap Boyd, manager of regulatory affairs for Zond Systems, observes that wind developers may have to purchase firm transmission capacity, but then auction off capacity during seasons when electrical production is low, or even on a daily basis. He says there is too much uncertainty at the moment to determine whether the FERC ruling would or would not boost wind in the US in the near future, though he acknowledges open transmission could only help wind development in the long run.

Meantime there are fears the FERC ruling could encourage reliance on old, dirty fossil facilities, thereby limiting near term opportunities for additional new wind capacity. Environmentalists have warned air pollution will increase if open transmission access is not complemented with new environmental standards. Backing this warning are various reports, including an analysis presented by the Center for Clean Air Policy, in Washington DC, which estimates that emissions of nitrogen oxides could increase by as much as 44,000 tons per year due to increased use of cheap coal at power plants located in the Midwest.

On the bright side, FERC acknowledges a role for state regulators to shape resource portfolios for electricity generation, an ironic position given that FERC killed California's Biennial Resource Plan Update, which would have added over 1000 MW of nameplate wind capacity in California. Swisher comments that the FERC order "makes it imperative for Congress to act on federal restructuring legislation to adopt market oriented renewables requirements, such as the renewables portfolio standard."

In-built delay to competition

The FERC order also provides for the full recovery of "stranded costs," investments which FERC defines as expenses "prudently" incurred to serve customers and which would go unrecovered if these customers chose an alternative supplier. The ruling only applies to wholesale stranded costs, but has been viewed as a backstop to state regulatory decisions on retail stranded costs if public utility commissioners do not award utilities full cost recovery.

This provision, too, could erect some barriers to wind development by delaying real competition among new suppliers during the transition to an open market by imposing costly fees to collect funds for past utility investments. Green pricing options, one of the techniques currently being viewed as a means to allow wind and other renewable developers to reach consumers, could be made less attractive by FERC's proposed stranded cost "exit fees." These would add costs to a premium green product already being marketed at premium prices.

Jan Smutny-Jones, executive director of the Independent Energy Producers Association, describes the FERC order as "an important first step -- but only an incremental one. There is still a lot of work to do both at FERC for implementation of the order, as well as all of the state filings regarding the FERC order." Smutny-Jones notes that state interpretations of the FERC ruling were critical "because that is where the rubber hits the road."

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