Pull the plug on transmission subsidies

Michigan consumers may be the first to experience FERC- approved sticker shock -- a $500 million a year surtax on their utility bills. In December, FERC issued an order that socializes the cost of certain new transmission lines across 13 Midwestern states. Michigan could be forced to pay 20 percent of at least $16 billion for new wind farms in other states that will provide virtually no benefits to Michigan consumers. CMS Energy in Michigan has estimated its customer rates would increase $200 million annually because of the FERC order. Electricity costs for Michigan automakers could jump $25 million a year.

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Michigan’s elected officials have asked FERC for a reprieve or sought help in Congress. The FERC order "has the potential to significantly increase Michigan’s transmission costs and hinder our state’s ability to remain competitive with its neighbors for jobs and investments," five members of Michigan’s congressional delegation wrote in a recent letter to FERC. 

FERC is also considering expanding this Midwest model to the rest of the country in a proposed rulemaking on transmission planning and cost allocation that could be finalized in July. FERC’s proposal would allow regions to adopt a very broad definition of how "benefits" are defined -- and thus how costs are allocated -- with the possible result being an unduly expensive transformation of the nation’s electricity grid, disadvantaging potentially cheaper alternatives. FERC said such changes are necessary to reflect new public policy requirements that encourage renewable energy.

But if FERC finalizes its proposal, the result will be an unfair and inefficient advantage for distant renewable resources over those available locally. Consumers in many states could be forced to pay billions of dollars to subsidize too-big-to-fail transmission projects that connect remote wind and solar projects to big-city markets.  

In competitive wholesale markets, generators compete for sales to other utilities (or in some cases, directly to customers) based on total delivered costs of electricity, including generation and transmission costs. Defining benefits broadly and spreading costs widely will work against free competition in these markets, as those making the decisions of which generation resources to purchase will not face the true costs of those decisions. Transmission costs will be subsidized by others, and the total costs of providing electricity will increase.

The market should determine what generation and transmission should be built. Instead, under its proposed rules, FERC would pick winners and losers, favoring remote renewable projects that require a transmission build out costing hundreds of billions of dollars over cheaper and possibly greener energy projects built closer to home.

Here’s an irony: Some of the nation’s strongest supporters of clean energy are among the harshest critics of cost allocation proposals that favor remote transmission over home-grown efforts. "It is inappropriate to assess the cost of a transmission build-out to customers that cannot make use of the facilities, or who elect not to because they can access more cost effective options that do not rely on large, new transmission investments to meet environmental objectives," the governors of five Western states with some of the nation’s most stringent renewable energy requirements stated in a 2009 letter to congressional leaders. 

Doubts about the fairness of FERC’s proposed approach have prompted legitimate concerns on Capitol Hill and appropriate calls for Congress to consider this important energy policy issue. A bipartisan group of law makers headed by Sens. Bob Corker (R-Tenn.) and Ron Wyden (D-Ore.) have introduced legislation that would amend the Federal Power Act by prohibiting FERC from finding any electricity rate "just and reasonable" unless the cost allocation among consumers is "reasonably proportionate to measureable economic or reliability benefits."

FERC’s "proposed rule so broadly defines benefits that the principles by which electric transmission costs have traditionally been allocated may be nullified," Sen. Corker stated in a recent letter to Senate Energy and Environment Committee Chairman Jeff Bingaman (D-N.M.)

During these difficult economic times, consumers simply can’t be asked to bear the burden of paying hard-earned dollars for new transmission that provides little to no benefit. Almost 80 percent of consumers in a recent poll said they were concerned or very concerned about the potential for rising utility bills. FERC action on cost allocation for new transmission should ensure the lowest reasonable cost to consumers, not the largest possible subsidies to clean energy developers and transmission companies.

Bruce Edelston is the executive director of the Coalition for Fair Transmission Policy, a diverse group of electric utilities across the country, and president of the Energy Policy Group, LLC, an economics and public policy consulting firm serving the energy industries.