Thursday, January 06, 2011

Why you should pay attention to the Midwest ISO plans

Ever hear of Midwest Independent Transmission System Operator (Midwest ISO)? Me neither - at least, not until a few days ago - but they're likely to have a huge impact on Midwest utility bills, including ours and those paid by people just across the state line in Michigan.

According to their website, Midwest ISO is "an essential link in the safe, cost-effective delivery of electric power across much of North America. The Midwest ISO is committed to reliability, the nondiscriminatory operation of the bulk power transmission system, and to working with all stakeholders to create cost-effective and innovative solutions for our changing industry." Tells you a lot, huh?

The Midwest ISO brags that it "was approved as the nation's first regional transmission organization (RTO) in 2001." They say they're "an independent, nonprofit organization that supports the reliable delivery of electricity in 13 U.S. states and the Canadian province of Manitoba."

As one of their press releases described:

The Midwest ISO ensures reliable operation of, and equal access to power lines in 13 U.S. states and the Canadian province of Manitoba. The Midwest ISO manages one of the world's largest energy markets, clearing nearly $23 billion in energy transactions annually. ... The non-profit 501(C)(4) organization is governed by an independent Board of Directors, and is headquartered in Carmel, Indiana, with operations centers in Carmel and St. Paul, Minnesota. Membership in the organization is voluntary.

This map shows their 'regional reliability' area and this link lists their members, which includes the City of Cleveland, Consumers Energy Company, DTE Energy and FirstEnergy (which includes Toledo Edison).

So now that you know what Midwest ISO is, why is it relevant? Well, because they've recently received approval from the Federal Energy Regulatory Commission (FERC) to share the millions of dollars of cost to connect wind power to the transmission grid across all their member areas. In effect, they're going to allocate the transmission costs across their entire member area, even if a particular area isn't receiving any benefit from the particular source of energy.

As the Wall Street Journal explained (subscription may be required to read entire article):

"You'd think poor Michigan has enough economic troubles without the Federal Energy Regulatory Commission placing a $300 million to $500 million annual surtax on the state's electric utility bills. But on December 16 FERC Chairman Jon Wellinghoff announced new rules that would essentially socialize the cost of transmission lines across 13 states in the Midwest.

That region-wide pricing scheme, according to a study commissioned by utility companies, will force Michigan to pay about 20% of as much as $20 billion in new high-voltage transmission lines—though Michigan businesses and homeowners will get little benefit. Thanks to FERC's new tariff, nearly everything in Michigan—from cars and trucks to Frosted Flakes—will be more expensive to make. Indiana will also absorb new costs, as will industrial users and utility rate payers in Illinois, Minnesota and Wisconsin.

This is another discriminatory subsidy for wind energy that will raise electricity prices on everyone, notably on those who don't rely on wind for electric power. FERC's grand vision is to build hundreds of miles of transmission lines across the Midwest, linked to windmills in Iowa and the Dakotas. Mr. Wellinghoff says this new ruling "is the next step in the evolution of its transmission and cost allocation process."

In fact, this is the first step in a FERC scheme to socialize transmission costs nationwide."

While the article doesn't mention Ohio, we are included as well.

The WSJ details other problems with the FERC ruling, including that it breaks with the tradition and law of users paying for the cost of the electricity they use, and that it establishes "by regulatory fiat a national energy policy that Congress has refused to endorse."

The article continues:

The wind industry has essentially conceded that without the ability to socialize the cost of multibillion dollar transmission lines, its projects can't compete with coal, natural gas and nuclear power.

The FERC pricing scheme is politically insidious, and arguably unconstitutional, because it enables states with renewable standards to export the costs of those policies to other states without these laws. Why should a factory in Pontiac, Michigan subsidize the wind energy costs of a plant in Elgin, Illinois? Michigan has a renewable energy standard, but it is already complying through instate renewables.

The governors of at least 15 Western and Northeastern states have sent a letter to Congress objecting to the socializing of costs, complaining that the pricing plans would make electricity more expensive. But Mr. Wellinghoff rebuffed Michigan's plea to exclude the state from the cost-sharing plan.

Good questions to ask, but apparently the FERC doesn't care about what you or I think of additional costs for electricity we don't use.

Beginning on page 23 of this document, you can read for yourself some of the concerns about the plan approved by the FERC, including a too-broad definition, the allocation of costs to consumers who see no benefit, the lack of requirements for the need for new transmission lines, the potential for wasteful capital investment to the detriment of cost to the consumer, how projects qualify for meeting 'public policy' mandates, and a lack of definition for "regional public policy benefits."

Fortunately, Fred Upton (R), incomeing chairman of the House Energy and Commerce Committee, is from Michigan. It's bad policy to let politicians push for energy sources that cost more than consumers are willing to pay. I hope Rep. Upton look at what this means to consumers rather than to policy makers and let the market - rather than the government - decide.


Kadim said...

To be fair, my understanding is that FERC only approved the venture (since, in particular, they have no basis to reject it.)

The idea comes from the members of Midwest ISO...that is, the electric companies themselves. I don't know if they are supporting the idea because of renewable energy requirements, or because of some other reasons that I can't figure out.

The rest of Ohio, by the way, is served by PJM Interconnection.

Maggie Thurber said...

Kadim - FERC could have rejected the plan because it spreads costs to people who won't necessarily be receiving power from the new wind farms they are connecting to the power grid. That is what they've done in the past and what court rulings have said is 'fair and equitable' distribution of costs.

And from my understanding, the only reason they're doing this is so they can comply with state mandates to get small percentages of their power from alternative sources. Of course, most of the state legislatures that passed those mandates, including Ohio, didn't think about the extreme costs to actually connect the alternative sources into the power grid.

And because they're an intermittent source, it causes all kinds of engineering headaches, I'm told.

Kadim said...

Well then if the reason for the cost sharing is to meet some (perhaps not thought out state renewable requirement) then the FERC just decided to defer to the states and the operators.

I was given the impression that, at least in Ohio, the renewable requirement was part of a series of compromises between the state and the electric companies. A strange and probably non-sensical combination of gives and takes that few in the legislature understood.

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