Dive Brief:

• A shared-savings approach to transmission incentives creates a "slippery slope" concern that it could lead to customers paying more for batteries, electric vehicle infrastructure and other distributed resources that help the grid operate more efficiently, according to Greg Poulos, executive director of Consumer Advocates of the PJM States.
• At a Federal Energy Regulatory Commission technical conference on Thursday, stakeholders discussed a proposal to encourage the deployment of grid-enhancing technologies (GETs) from Working for Advanced Transmission Technologies (WATT Coalition) and Advanced Energy Economy (AEE).
• Supporters of GETs incentives say they tend to be low-cost investments, which may disincentivize utilities from considering them relative to higher-priced, traditional transmission projects. "We're at the juncture where we need to kick-start a new way of thinking and transition us to a more performance-based approach," Judy Chang, undersecretary of energy in the Massachusetts Executive Office of Energy and Environmental Affairs, said at the technical conference.

Dive Insight:

Transmission reform is widely considered a key to accelerating renewable energy penetration and achieving President Joe Biden's goal of bringing the U.S. power grid to 100% clean electricity by 2035. But developing new high-voltage power lines is a process that can take years and cost billions, and it's complicated by questions of cost allocation and siting.

FERC in July began a new proceeding to reform transmission policy, and last week's technical conference considered a proposal for new technologies to flexibly and cheaply boost grid capacity and efficiency.

"While the commission is interested in urging the use of transmission technologies in order to better utilize the system, the commission also has a responsibility to appropriately balance consumer and applicant interests," said FERC's Dan Kheloussi, an analyst in the commission's Office of Energy Policy and Innovation, who moderated the event.

Kheloussi kicked off a panel on cost protections by asking stakeholders to discuss how customers "could be worse off or harmed from a shared savings approach, which may warrant additional ratepayer protections."

The shared-savings approach the WATT Coalition and AEE have advocated, would cap GETs project costs at $25 million, and if a system operator-authorized deployment's benefits exceed its costs, then the transmission owner could earn a 25% share of the savings.

The proposal has support from the American Council on Renewable Energy, American Clean Power Association, the Solar Energy Industries Association, the Renewable Energy Buyers Alliance and the Natural Resources Defense Council.

"It's important to remember that we're talking about investments that are very low dollar compared to the rest of the transmission rate base," AEE General Counsel and Managing Director Jeff Dennis said at the technical conference. "That's already really narrowing the window where we think ratepayers could be worse off," he said, responding to Kheloussi's prompt.

The WATT Coalition says its proposal contains consumer protections for GETs incentives, including requiring a benefit-cost ratio of at least 4-to-1. Projects might include dynamic line rating technology, which monitors a transmission line's actual capacity and can decrease local congestion, or topology optimization software, which automatically reconfigures power flow around congestion.

The 4-1 ratio can "serve as a safeguard," said Connecticut Department of Energy and Environmental Protection Commissioner Katie Dykes.

"There is tremendous benefit associated with deployment of GETs, so it is absolutely critical we advance proposals to break down barriers and ensure investment is going towards implementing technology that provides consumer benefits," Dykes said. 

The 4-1 ratio "presumably ensures projects provide some substantial benefits," and the benchmark "could be adjusted over time," said Dykes. She also cautioned about parts of the proposal which may not help customers.

The WATT Coalition proposal measures benefits in production cost savings, and that "doesn't necessarily mean ratepayer savings," said Dykes. "Marginal savings will provide little or no benefit to ratepayers because marginal [generating] units still receive payments based on the marginal unit bid."

The proposal also contains "ex ante incentives," which utilities would earn before they prove the benefits of a project have accrued. "Without a clawback, that can shift the entirety of the risk of savings not materializing onto ratepayers," said Dykes. "There should be at least some downside risk to developers if there is going to be significant upside."

PJM customer advocate Poulos said GETs are a good thing for consumers but questioned whether additional incentives are necessary. The group has concerns with oversight and accountability of the shared-savings proposal, and the potential for unnecessarily raising costs. Poulos recommended that an independent agency oversee any shared-savings program.

"There are certainly a lot of risks with this proposal to ratepayers — and there are lots of benefits. ... I think this is a great example of a situation where the cost-of-service approach really struggles," he said. "It is a situation where technology benefits for customers are pitted against what the benefits are for the utility investors."

And there is some concern regarding the potential for double payments, "or paying a premium for transmission owners to stay up to date with technology," he added.

"While we're talking here about GETs, won't that next step be your batteries or electric vehicles or even DERs? I think we get into a slippery slope where staying up to date ... means customers have to pay extra for that," Poulos said.