Wellinghoff Weighs In

Federal Energy Regulatory Commission (FERC) chairman Jon Wellinghoff spelled out three key concerns going forward for his agency as he met with energy industry reporters after the Labor Day break, in a small gathering on September 5, at the National Press Club in Washington, D.C.

• Cyber Security? Present oversight is “inadequate,” he complained.
• Order 1000? “We’re going to get some pushback.”
• Need for transmission? It might be less than some think, he suggested, what with rooftop solar now doable at “$2 per Watt,” as Wellinghoff cited the latest installed cost quoted to him by industry experts.

On the other hand, the chairman suggested that no major FERC-initiated policy action was likely any time soon on any number of other topics, including: 1) market design for regional capacity auctions; 2) allegations of profiteering by oil pipelines; 3) mandatory power purchases at avoided-cost rates under the 1978 PURPA law; or 4) a rulemaking to emerge from the series of regional conferences that FERC has held around the country this past summer to examine issued in electric and gas coordination -- no common problem among diverse regions, thus no need for a common solution.

Wellinghoff hinted that a shortage of transmission capacity might be due to FERC’s relatively weak authority over the business of getting new transmission built.

Nor does Wellinghoff expect anything to come out of Congress anytime soon that might bear on DOE’s court-mandated rethinking of national transmission corridors, or FERC’s admittedly limited backstop authority in getting new wires sited and permitted -- compared to natural gas pipelines. And you can see that difference, he said, between pipelines versus transmission lines in prices posted around the country.

With pipelines, Wellinghoff noted, where FERC has extensive authority over siting and permitting authority, the wholesale gas commodity prices are “nearly identical” across the country. Yet, at the same time, wholesale power prices can vary “by a factor of five, within a 100-mile radius,” he added, hinting at a shortage of transmission capacity, which Wellinghoff suggested might be due to FERC’s relatively weak authority over the business of getting new transmission built.

Going forward, Wellinghoff sees two main policy goals as vital for his commission. First, he wants to improve operational efficiencies for wholesale power markets, including refinement of market rules and also improvements in software and data collection. In this area, Wellinghoff says consumers were already seeing substantial benefits -- through lower rates -- in areas covered by centralized regional power markets, but conceded that low natural gas prices were partly responsible.

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Second, he wants to ensure that markets make it easy for new resources to come online -- on both the supply side and demand side -- and on that score, he cited specifically the commission’s recent VERS rule for variable energy resources (Order 764, Dkt. RM10-11, June 22, 2012, 139 FERC ¶61,246). And the chairman emphasized that by “demand side,” he means to include not only demand response (a favored sector for Wellinghoff), but also distributed generation (DG), such as distribution-level solar energy, including the booming interest in rooftop photoelectric (PV) installations.

With enough solar installation on the customer side of the meter, the need for new long-haul transmission would recede.

In fact, Wellinghoff went so far as to suggest that the emergence of cheap rooftop solar PV might end up as the deciding factor for the biggest money question of all -- that being how much new electric transmission the country will need to integrate all the renewable energy needed to meet current and perhaps future laws mandating renewable energy portfolio standards.

On one side, as he noted, major and costly new grid projects are being planned to help deliver to market all the potential central-station wind power available from the Great Plains, from the Dakotas southward to Texas. On the other hand, however, he acknowledged that DG, and especially rooftop solar, is now a major player, with PV panel costs falling fast, and that with enough solar installation on the customer side of the meter, the need for new long-haul transmission would recede.

“We need to build only the transmission that we need,” the chairman said.

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No Design in Mind
With the deadline looming in October for electric industry players to comply with FERC Order 1000, Wellinghoff quite reasonably has his eye focused on regional transmission planning. In particular, the chairman noted how a federally sanctioned right of first refusal (ROFR, which Order 1000 purports largely to eliminate), could have far-ranging effects, impacting technological innovation, for example.

“One area where we’re going to get some pushback is rights of first refusal, as some areas, he noted, “have different ideas on that.”

FERC rules should reward industry innovation, and that Order 1000 was designed in part to do just that.

As an example, Wellinghoff cited FERC’s recent order (Docket EL12-69, July 19, 2012, 140 FERC ¶61,054) in which Primary Power had invested $5 million developing a way to use static VAR compensators to alleviate grid congestion, but then “got nothing for it,” as PJM eventually had selected two incumbent utilities as better situated to build the project. And in the run-up to Order 1000, many in the industry continued to insist that for new grid projects, incumbent utilities should retain a ROFR -- the option to exercise for themselves the right to build the project. Wellinghoff acknowledged that a ban on federal ROFRs wouldn’t necessarily have saved Primary Power in the particular case, but made the point anyway that FERC rules should reward industry innovation, and that Order 1000 was designed in part to do just that.

Regional capacity markets also have proved controversial, as the chairman acknowledged, but warned the industry not to expect the commission to enter the fray via any new rulemaking effort. “The commission is interested in the issue,” said Wellinghoff, “but does not have an ideal rule in mind.”

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Interestingly, Wellinghoff conceded that a number of leading economists had advised him against capacity markets, favoring instead an energy-only market design, where prices are allowed to rise high enough to recover all expenses through the energy commodity price. But he added: “I believe this … Texas is realizing that it needs to do something to go beyond its current energy-only market, but does not know what.” The chairman concluded: “We don’t have inside FERC at this time any idealized design of what a capacity market should look like. If we did, we’d issue a rule.”

‘If I Got a Warning’
During the hour, one reporter asked Wellinghoff about what to expect under FERC’s recently issued Order 760 (Dkt. RM11-17, Apr. 19, 2012, 139 FERC ¶61,053), which provides for enhanced surveillance of wholesale power markets through ongoing electronic delivery of market data from grid operators (ISOs and RTOs) to the FERC Office of Data Analysis.

“Is it fair to assume that the ODA will go back retrospectively, to look for any unusual pricing events that occurred in the past, to uncover any inappropriate market activity?” Wellinghoff replied quickly and in no uncertain terms: “Yes. Data Analysis is very willing to dig into past data -- and dig in depth.”

By contrast, however, the chairman was much less confident about what his agency -- or any other federal agency, for that matter -- might be ready or able to do about cyber security. “No one has adequate authority in this area,” Wellinghoff said. He seemed prepared literally to beg Congress to act and empower some federal agency -- whether it be FERC, DOE, DHS, or whatever -- to take the lead. “If I got warning of a cyber threat today, there would be little I could do tomorrow. I have no enforcement authority, and no way to communicate concerns to the energy industry.”

Wellinghoff added: “We do get reports on a periodic basis about threats out there -- threats that are very concerning to me.”