Power grab: FERC, fairness and the future of transmission

In mid-December, FERC approved a tariff for the Midwest Independent Transmission System Operator (MISO), which is charged with the delivery of electricity in 13 states and Manitoba. FERC’s order forces Michigan to pay roughly 20 percent of the estimated $16 billion for the cost of new transmission— $640 million annually for more than two decades—even if consumers receive none of the electricity delivered by these new power lines.
 
Basically, Michigan consumers would subsidize other states’ initiatives to develop renewable energy projects that would otherwise not be viable. This is nothing more than the federal government picking winners and losers – specifically, long-distance renewable developments over local clean energy projects.
 
Serious efforts are well underway across the country to develop and generate more “green” energy. These endeavors, however, require moving away from large centralized generation facilities located near population centers to smaller facilities located near the energy sources. Because renewable resources, such as wind, are often quite remote from population centers and cities, the cost to transmit the power can be high and deciding how these costs are going to be paid can be challenging.
 
Given the complexities of this issue it is easy to see the appeal to FERC of spreading these costs as widely as possible across entire regions. Despite rhetoric to the contrary, FERC has sent clear signals that socializing costs is its preferred approach. However, the validity of such a socialized cost allocation depends on the benefits from this new transmission being similarly distributed. FERC has ignored the fact that considerable variance exists between the costs assessed to the states and the benefits received. 
 
Here’s the question FERC is refusing to answer:  At what point does this differential become so great that the consumer benefits are no longer commensurate with the costs imposed? Under MISO’s socialized cost allocation method approved by FERC, the ratio of costs to benefits is so great that ratepayers in the state will be subjected to rate increases that do not meet the “just and reasonable” standard required under the Federal Power Act. Given the importance of clean energy development to Michigan’s future, it is patently unfair to force Michigan to be a donor state, paying its competitors to develop transmission and renewables. It is wrong for a federal agency such as FERC to impose a tariff that promotes a national policy not approved by Congress that impedes Michigan, or any other state, from reaching its economic goals.
 
A broad Michigan coalition that includes the attorney general, the auto industry, other large industrial customers and major utilities has warned members of the state’s congressional delegation that FERC’s regulation could devastate the state’s economy by increasing electricity costs, limiting the growth of green jobs and reducing tax receipts from clean energy developments. 
 
Unfortunately, other states may soon share Michigan’s predicament. FERC will address these same cost-allocation issues in a broad transmission rulemaking expected early in 2011. Ratepayers, business organizations, state utility commissioners and utilities are worried that FERC’s MISO ruling could set an unfortunate precedent that punishes consumers around the country by abandoning the requirement that only those benefiting from transmission should pay for it. If FERC won’t fulfill its obligations to electricity consumers, Congress and the courts must assert their authority and re-establish the ground rules for electricity transmission.
  
Steven A. Transeth, a former member of the Michigan Public Service Commission, is the founder and president of Transeth & Associates, PLLC, which represents the MISO Northeast Transmission Customer Coalition.