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Balancing state and federal interests to strengthen the grid and benefit customers

by on October 8, 2013

Note: This article was written by Lisa Barton, AEP executive vice president – Transmission, and first appeared in IHS Energy Daily’s 40th anniversary issue on Sept. 26, 2013. © IHS Used by permission.

With recent stories suggesting we’ll each have a microturbine in our backyard or solar on our rooftop, some may question whether we need to invest in the electric grid. The reality is, we do.

                               Lisa Barton

Half of our country’s transmission infrastructure was built more than 50 years ago. But the demands we place on the grid have increased significantly since then, and the system must continue to evolve.

Billions of dollars in transmission investments are needed to interconnect renewable resources, enable retirements of older generation facilities, enhance reliability, and improve the grid’s efficiency to allow delivery of lower-cost generation to broader markets. There is no doubt we need to upgrade and modernize existing infrastructure and build new facilities to create a more reliable, robust grid that will support our nation’s future energy needs — even with distributed generation in the mix.

If we’re going to make these necessary investments, we should seize the opportunity to improve upon the past. Transmission’s role is to connect generation to load. When generation was both consumed and generated locally, it was easier to determine the right solution. The transmission planning and development model that worked well in the past created a system that ensured local reliability, but didn’t necessarily consider regional benefits such as reliability and economic factors, or public policy drivers such as renewable portfolio standards. Localized transmission solutions and project development work well in many instances, for low-voltage projects. But to ensure broader needs are considered and realized, high-voltage regional and interregional projects need a different construct.

Just as the flow of traffic doesn’t stop when you drive across state lines, the flow of power doesn’t stop at state borders. Taking a localized approach to large transmission project development, as we’ve done in the past, is akin to each state planning its highway system without any consideration or coordination with surrounding states. It would not be an efficient way to move freight or vehicles, and it is not the most efficient way to move electricity. A broader approach is necessary.

Benefits of a changing paradigm

Through Order 1000, the Federal Energy Regulatory Commission is redefining the way we plan regional transmission and allocate costs. Under the new approach, transmission developers will compete to build regional transmission projects. The regional transmission organizations — with input from states and other stakeholders — are charged with leading a fair and transparent process to analyze, evaluate and select both the appropriate solution as well as the developer. Ultimately, the goal of this new paradigm is to foster more innovative solutions, lower project costs and reduce overall costs to consumers.

Right now, PJM is conducting one of the nation’s first competitive transmission processes under Order 1000 to address a transmission stability issue in the East. Developers submitted 26 potential solutions with various costs that now are being reviewed to identify the best possible transmission solution. The process seeks not only to determine the lowest cost from qualified developers, but also to engage parties to determine the best solution. It’s easy to see how this new framework can help ensure development of the right solution to address a need.

Transparency in the process and open-mindedness at the state level are key to the ultimate success of the new regional planning approach. Open, transparent processes will encourage new ideas, allowing lower-cost solutions to be identified and developed and ensuring that the dollars spent on needed transmission projects are used in the most efficient, cost-effective way. By mitigating congestion in the system, regional transmission investments will support a more robust wholesale market and reduce ratepayers’ cost of delivered power. In addition, the regional model allows costs to be more widely allocated, again lowering overall costs for each customer.

States have an evolving and critical role to play

States will have a broader sphere of influence under the new regional approach to transmission planning. States can now reach beyond their borders to help drive regional and interregional planning decisions that meet their transmission needs and benefit customers. States can also leverage this new process to help reach their public policy goals, such as renewable portfolio standards.

States will continue their oversight of transmission siting issues and environmental permitting. Through involvement by regional transmission organizations, states will be important stakeholders in making sure the best regional solutions are both identified and advanced.

Transmission is the backbone of our nation’s electric system, and it represents our best opportunity to improve reliability and give customers more access to lower cost and renewable generation sources. The transmission system will operate more effectively and efficiently, and we will all pay less for it, if we can harness the potential that the new regional transmission development approach presents.

If we embrace this new approach to transmission planning, cost allocation and development, rather than creating barriers to progress, it can provide substantial benefits for customers, improve the reliability of the grid, and give states a greater opportunity to participate in the identification of transmission solutions.

Our success depends upon state and federal regulators finding common ground and working together to plan and grow the transmission system for the well-being of the nation. The economic and environmental benefits are too great for anything less.

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