Breaking New Ground on Grid Rules

Source: By MATTHEW L. WALD, New York Times • Posted: Wednesday, January 16, 2013

Among the “firsts” being tried by the Atlantic Wind Connection, the venture seeking to build an electric transmission line from southern Virginia to northern New Jersey, is negotiating the regulatory system. The problem is that the cable, which would be buried under the seabed, is what grid officials call a “multidriver project,” or a project that is undertaken for more than one reason — something that those officials have little experience with.

To be built, the project must win the approval of the regional grid association, the PJM Interconnection. (The letters used to stand for Pennsylvania-Jersey-Maryland, but the organization now extends into all or part of Virginia, West Virginia, Delaware, Ohio and Illinois.) And PJM has three different systems for approving lines and apportioning their costs.

The Atlantic Wind Connection project fits into at least two of these categories. The regulatory complications help explain why so little transmission capability is built these days in this country, even when there is growing agreement that the United States should be moving toward low-carbon energy sources like wind power. Often wind turbine technology operates best in places lacking transmission capability.

PJM has the authority to approve a line and add the cost to the bills of all the customers in its territory, or just to some, depending on the line’s function. Other regional transmission organizations, like the New York Independent System Operator or ISO New England, which covers that six-state area, have similar provisions.

If the line is judged to be important for the reliability, then a socialization principle is applied and everybody pays a little bit. The developer would borrow money to build the line and be paid back through revenue over the years, using a rate of return on its investment approved by the Federal Energy Regulatory Commission. The rates tend to be generous by comparison with typical investment returns today because the commission wants to encourage construction of new transmission.

A second reason for building the line is that if electricity is expensive at one end of the line are high and far cheaper at the other, the new connection would help lower the price of electricity. Steven R. Herling, vice president for planning at PJM, said that if that was the assumption, his organization would run a computer simulation of anticipated prices in both areas, taking into account planned new generation and retirements of power plants. Then it would run a second simulation with the new line in place.

The calculation includes how much prices will fall in the expensive area and how much they will rise in the area from which power will be taken. The difference is judged to be the benefit to the economy, and the ratio of benefit to cost must be at least 1 to 1.25. That, too, could be billed to all participants.

The third reason to build the new line is to support a state policy related to encouraging renewable energy. New Jersey has a cluster of such policies; one requires that 22.5 percent of the state’s electricity be generated from renewable sources by 2021, and the bulk of that is expected to come from wind, some of it possibly from outside New Jersey.

Another policy sets aside part of that total for solar power. A third calls for at least 1,100 megawatts of wind power generation within the state (or offshore), as opposed to imported from places that are better suited to wind power than most of New Jersey, like Pennsylvania ridge tops.

The developers are claiming a reliability benefit for the Atlantic Wind Connection, but it is far from clear that the line would qualify. Still, it appears to meet an economic need, with prices in southern New Jersey generally far lower than those in northern New Jersey, plus a policy goal.

The catch, Mr. Herling said, is that grid operators like PJM “really don’t have a track record” for approving projects undertaken for more than one reason, although procedures for doing so are now on file at the Federal Energy Regulatory Commission. “The line is not realistically going to make it as simply a transmission corridor in the water,” he said.

“As the means of satisfying significant amounts of renewable requirements, it may very well be a very strong project.,’

he said. But that, he and others point out, depends partly on those offshore wind farms finally getting built.