A U.S. proposal that may improve prospects for a $5 billion undersea wind-power grid backed by Google Inc. is sparking a fight between utilities and companies developing renewable energy.
The regulation drafted by the Federal Energy Regulatory Commission is aimed at spreading costs for transporting alternative power. Utilities such as Southern Co. say that may be a bad deal for their customers. The head of the regulatory agency says it would help make wind and solar energy competitive with coal and natural gas.
“Ultimately we have to get transmission built to move those clean-energy resources to the people,” FERC Chairman Jon Wellinghoff said in a phone interview. Energy from the wind and sun must be transported from the waters of the Atlantic Ocean, the plains of the Dakotas and the deserts of the Southwest to cities and suburbs where the power is needed, he said.
FERC determines whether transmission pricing plans submitted by regional grid operators and utilities are “just and reasonable.” Its proposed rule would mandate that the plans “account for transmission needs driven by public-policy requirements” -- including standards calling for the use of more renewable energy -- alongside cost and reliability.
Atlantic Grid Development, the Google-backed company that this month proposed to build a grid connecting offshore wind turbines, and Iberdrola SA, a Spanish developer of wind power, are among supporters of the proposal.
Utilities led by Southern of Atlanta and Public Service Enterprise Group of Newark, New Jersey, say the rule may force their customers to pay for long, expensive power lines when better local options are available.
FERC’s rule may lead to “socializing” transmission costs, said Sue Sheridan, president and general counsel for the utility-sponsored Coalition for Fair Transmission Pricing in Washington.
“We stand for the cheapest renewable resources,” she said in an interview.
More than 200 companies, interest groups and policy makers responded to FERC’s proposal. The agency will issue a final rule next year, Wellinghoff said.
The Energy Department has estimated that 20 percent of the electricity consumed in the Eastern Interconnection, a power grid running from the foot of the Rocky Mountains in the west to the Atlantic coast in the east, may come from wind by 2024 if $65 billion to $93 billion of new power lines were built.
President Barack Obama has called for legislation requiring that 25 percent of U.S. power come from renewable-energy sources by 2025, a proposal that remains stalled in Congress along with efforts to cap carbon emissions linked to global warming. Twenty-nine states and the District of Columbia already have their own renewable-energy standards, according to the Database of State Incentives for Renewables and Efficiency funded by the U.S. Energy Department.
The offshore grid Google is developing with Trans-Elect Development Co., Good Energies Inc., and Tokyo-based Marubeni Corp. in the Atlantic Ocean from Virginia to New Jersey would deliver power to the PJM Interconnection, a market that includes 13 eastern states and the District of Columbia.
“If you can take the transmission costs and allocate them to a broader group of beneficiaries it reduces the costs and promotes the offshore-wind industry,” said Elias Farrah, an attorney in Washington with Dewey & LeBoeuf and counsel to the venture backed by Mountain View, California-based Google.
Such a project may improve reliability, enable customers in the Northeast to buy cheaper power from the South and encourage development of cleaner offshore wind generation, Wellinghoff said.
Putting in ‘Backbone’
“By putting in this backbone, you basically help to bolster support for the system,” he said.
Utilities that oppose FERC’s proposal want to keep competing power generators away from their local markets by blocking transmission development, according to Rob Gramlich, senior vice president for public policy at the American Wind Energy Association, a Washington-based trade group whose members include Iberdrola.
Unless costs are spread over a wider area than some grid planners now require, green resources will remain untapped, Melissa Seymour, U.S. director of regional markets and regulation for Iberdrola of Bilbao, Spain, said in a phone interview.
The conflicts are already playing out in central states. The Midwest’s grid operator originally ascribed the costs of a 240-mile (386-kilometer) power line from Brookings County, South Dakota, to Minneapolis and St. Paul, Minnesota, to only part of the grid it oversees.
That plan would have raised the price of energy from Iberdrola’s proposed wind farms by 25 percent above market prices, making it unlikely the company would find customers to pay for the power, according to Seymour. “We couldn’t fund it,” she said.
Planners have since submitted a proposal to FERC to spread costs over the 13-state market run by the Midwest agency, known as the Midwest Independent Transmission System Operator. The plan is under review.
Michigan accounts for 20 percent of the Midwestern market so its consumers would pay a fifth of the $16 billion in transmission projects planned in the region under the revised plan even though they would get little benefit from the projects, Steven Transeth, a former state utility regulator, said in a phone interview.
While Michigan has a renewable-energy mandate, only power generated within state borders counts toward the requirement.
“For Michigan, it’s going to make it harder for us to attract businesses and keep the ones we have,” Transeth said. “We need to keep energy affordable.”
© Copyright 2014 Bloomberg News. All rights reserved.