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Commissioner Neil Chatterjee Remarks
June 21, 2018
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S&P Global Platts 2018 Transmission Planning and Development Conference

“Good afternoon everyone and thank you for that warm welcome.

“It’s a pleasure to be with you today. I want to thank Zolaikha for the kind introduction as well as the S&P Global Platts team for the opportunity to join in this important dialogue.

“Before I get into the substance of my speech, I have to give the usual disclaimers.

“The views I express here are my own opinions and don’t necessarily reflect the opinion of my fellow Commissioners or FERC Staff. And of course, FERC’s ex parte rules prevent me from discussing any contested proceedings currently before the Commission.

“Now that those formalities are completed, I want to turn to the subject I came to speak about today: transmission...

“When I joined the Commission in August of last year, the entire energy world seemed focused on just about every issue but FERC’s decision-making related to transmission infrastructure development.

“The policy issues animating most of the discussions on Capitol Hill, my former stomping grounds, and in the press were largely focused on electric generation and not electric transmission infrastructure.

“Specifically, the debate centered on two key areas.

“One, whether coal and nuclear plants would survive big changes in the nation’s energy generation mix. And two, whether and how state subsidies benefitting particular generation resources could fit within wholesale markets.

“Of course, the dominant narrative to this day still centers largely on those issues. And that’s for good reason. It’s not hard to understand why policymakers and the press are primarily focused on how the decisions made by industry, states and FERC today relating to generation resources will shape the grid of the future.

“Those decisions are important without a doubt.

“But, there’s a key piece to that conversation that’s missing.

“I’m talking about the subject we’re here to discuss today: transmission. More specifically, how the electric transmission infrastructure we build today will play a critical role in defining the grid of tomorrow.

“After nearly a year of collaborating with my colleagues at the Commission, of working with FERC’s expert staff and meeting with stakeholders across the industry, I have a much greater appreciation for the significance of our nation’s electric transmission infrastructure.

“It’s more than just the lines connecting generation resources and load.

“It’s a marvelous creation in its own right.

“And it’s a component of our energy infrastructure that I feel we should focus on more closely.

“The National Academy of Engineering has called it the “world’s largest machine,” part of our, quote, “greatest engineering achievement of the 20th century.”

“The nation’s electric transmission infrastructure stretches more than 600,000 miles, bringing with it a replacement value in the hundreds of billions, if not trillions, of dollars.

“The metrics are impressive. But the underlying point is even greater.

“Here’s what I mean.

“Transmission infrastructure is often as much a driver of the shape of the grid as generation resource decisions because access to transmission capacity helps determine which generation projects are practical.

“Put another way, focusing strictly on generation resource decisions neglects an important factor that’s shaping the grid. And it also distracts from the hard work needed to ensure a regulatory environment that incents transmission infrastructure, aligning it with the future needs of the grid.

“In my view, that hard work is more important now than ever before.

“Here’s why.

“First and most importantly: our transmission infrastructure is antiquated and getting older every day. Much of the system was built more than 40 years ago and is based on 1950s-era technology.

“In fact, until an uptick in spending over the last decade, transmission upgrade investments had lagged behind that of other elements for decades.

“So clearly we’re playing catch-up just to maintain yesterday’s standards.

“Second, the expectations for our transmission system are growing and will continue to do so in the years to come. The design of yesterday’s grid struck a balance principally between cost and system reliability.

“Those objectives will of course remain important.

“But going forward we’ll demand much more from our transmission infrastructure.

“For example, in the Commission’s ongoing grid resilience proceeding, a number of stakeholders have weighed in on the important role transmission plays in resilience. Those comments highlight this infrastructures significance in ensuring that the bulk power system can withstand and recover from a variety of events, from climate change-induced wildfires to fast-evolving cybersecurity threats.

“Third, our current transmission system is increasingly unable to keep up with fast-moving, market-driving innovations and policies.

“It’s no secret that technological advancements happen at dizzying rates within the energy sector.

“For instance, natural gas prices have plummeted over the past decade due to innovative production techniques.

“A decade ago, wind and solar generation were marginal contributors to the energy mix. Now they drive energy market pricing in large portions of the day in CAISO and other regions of the country.

“And, just over the horizon, electric storage is shaping up to be the next disruptive technology in the markets.

“It’s important to note, too, that policymakers on the state and federal level have become enthusiastic champions of energy innovation, as they push a diverse set of policy values, everything from de-carbonization to reduced consumer costs. Their increasing interest and willingness to intervene in energy markets will continue to influence the contours of our future transmission system.

“Fundamentally, the challenge for FERC and other regulators is how we can create a regulatory environment that will incent investments in the transmission system needed for the next century….

“So just what should the transmission system of the future look like?

“Here’s my take.

“We need a transmission system that will provide a high degree of reliability in a conventional sense…

“One that will ensure resilience in the face of current and future challenges, whether natural disasters or bad actors...

“And one that will be flexible enough to accommodate the fast pace of change in our generation mix, technological innovations and ever-evolving policy priorities.

“We need a transmission system that will accomplish all this while also ensuring that rates remain just and reasonable.

“This piece is a growing area of concern for many, and in part, has contributed to stakeholders taking a more active role in FERC proceedings.

“To all those who worry about higher transmission charges impacting their monthly bills, let me say this.

“I am confident that FERC will meet the challenge of keeping transmission rates just and reasonable.

“But in order to do so, we’ll have to carefully manage these three objectives:

  • Doubling down on the power of competition to unleash benefits to consumers;

  • Maintaining a regulatory culture that breaks down barriers and promotes innovation within wholesale markets, and;

  • Ensuring a regulatory environment that encourages much-needed investment in transmission infrastructure.

“I’d like to dive a little deeper into each of these points, beginning with why, in my view, we must double down on leveraging competition to achieve more efficient outcomes for consumers.

“At a minimum, competition for transmission imposes cost discipline for utilities, which means lower rates for consumers. It also incents innovation in technology, business models and construction techniques that would otherwise be lacking with guaranteed transmission development rights.

“The Commission took an important step forward by introducing competition into the process with Order 1000.

“But, I don’t think it’s lost on anyone in this room that its implementation remains a work in progress.

“As indicated by FERC Staff’s 2017 Transmission Metrics Report, participation of competitive transmission in RTO/ISO solicitations has been uneven.

“For example, in some, such as CAISO, competitive transmission projects have made up a large portion of submitted proposals since Order 1000’s issuance.

“In others — notably SPP and MISO — competitive project proposal have consistently been a distinct minority.

“And the picture seems all the more challenging when considering that relatively few of the competitive transmission proposals submitted nationwide have actually been selected.

“I know many in the audience this afternoon submitted comments speaking to these frustrations in our June 2016 Tech Conference on Order 1000.

“I take your concerns about whether and how the implementation of Order 1000 is living up to its goals and promoting competitive transmission development, very seriously.

“I assure you the Commission is actively reviewing those comments.

“Some have suggested that the appropriate response to this frustration is to abandon competition altogether.

“Let me be clear. I disagree wholeheartedly.

“I believe in the power of competition and the benefits that it can provide for consumers.

“And while I understand the sentiment of those who are frustrated with Order 1000, I think the right response to the difficulties we face is not to throw out the policy altogether.

“Instead, we should roll up our sleeves and figure out how to more effectively bring competition to bear in transmission development.

“Now, I also understand the Commission has a full plate of policy issues before us these days after being without a quorum for the majority of last year.

“But I assure you of this. I remain committed to working with my colleagues in continuing the dialogue on what, if any, steps we can take to better deliver on Order 1000’s promise.

“Moving on to the second objective…

“We should continue to foster a regulatory culture that breaks down barriers and promotes innovation within wholesale markets.

“Already in my few months since joining the Commission, I’ve had the privilege of working with my fellow Commissioners and FERC staff on a number of initiatives ensuring our regulations don’t hinder innovation.

“The Commission’s April Tech Conference on the integration of Distributed Energy Resources, or DERs, is a good example of those efforts.

“Similarly, earlier this year we issued Orders 841 and 845 calling on RTOs and ISOs to take tailored actions to integrate energy storage into their markets and streamline their interconnection processes.

“I’m confident that allowing for innovation will serve the Commission’s efforts well in the years ahead. It’s critical that we keep an open-minded perspective on how our regulations can apply within a fast-evolving grid.

“This is particularly true in the transmission sector.

“Already, there’s a growing interest among many stakeholders to expand the definition of “transmission” beyond the traditional wires-and-poles paradigm, accommodating alternative solutions consisting of different combinations of demand response, DERs and storage.

“How the Commission treats filings associated with those first-of-kind projects could prove an important factor in investors’ assessments of whether similar non-traditional projects are bankable or not — and more broadly signal whether FERC is open to innovation in the transmission sector. I know that previous Commissions and FERC staff put a great deal of work into creating a culture that integrates rather than stifles innovation.

“I want to reaffirm my pledge now that I will do my part to maintain that ethos as we work with stakeholders to build out the transmission system for the next 100 years.

“And finally, on the third objective…

“We must ensure that our regulations encourage project developers to take on the significant risks associated with investing in the transmission infrastructure for the next century.

“Make no mistake about it, the Commission appreciates the enormous risks that come with building out our transmission infrastructure.

“Interstate transmission projects can be billion-dollar, bet-the-company ventures in the best of circumstances.

“We’re also aware that today’s investment risks are in some respects greater than they were a generation ago. The Internet and social media have empowered opponents of specific transmission projects through greater coordination and legal sophistication.

“The magnitude of those risks reveals why it’s imperative that the Commission seeks to ensure that investors’ returns are sufficiently attractive so that they will continue to pursue these projects.

“I’ve heard from numerous stakeholders — and not just members of the investment community and project developers — who’ve expressed that the Commission needs to devote more resources to those efforts.

“Their arguments are compelling.

“And I believe we can and should address two specific areas of concern in the near future:

  • First, after more than a year, the Commission has yet to respond to the DC Circuit’s April 2017 decision in Emera Maine to vacate and remand FERC’s methodology for determining return on equity for transmission-related projects. This is an issue that many stakeholders have been outspoken on, cautioning that the uncertainty surrounding the path forward here chills investment in transmission infrastructure.

  • And second, others have voiced concern that the Commission’s Incentives Policy set forth in Order 679 needs to be reviewed to ensure that it remains current with the times. Those stakeholders note that the Policy was crafted in a pre-Order 1000 world, and since Order 679 was issued in 2006, its implementation has been affected by legal challenges. Uncertainty regarding the Commission’s approach to transmission project ROEs in light of Emera Maine has underscored the importance of the investment incentives laid out in Order 679, which develop the compensation package necessary for convincing capital to support transmission investment.

“All things considered, I’m under no illusions as to the impact of any Commission action to address those or other concerns regarding investor returns on investment.

“Potentially hundreds of billions of dollars in transmission investments turn on the Commission’s action — or inaction, as it may be — in response to those stakeholder concerns.

“And it’s important to remember that it’s more than just the investment community and project developers that will be affected by the Commission’s decisions here.

“Industrial outfits, mom-and-pop storefronts and hardworking families will all ultimately foot the bill.

“But, I don’t believe the magnitude of the issue is a reason to shy away from it. In fact, it just further underscores the need to tackle it head on.

“I’m confident that the Commission and its world-class staff are up to the challenge of striking an appropriate — a just and reasonable — balance between the investor and consumer interests.

“For that reason, it’s a personal priority for me that the Commission expeditiously consider how it will address the concerns regarding adequacy of returns on transmission infrastructure investment.

“So, in closing, I know the tasks I’ve set out for both the Commission and stakeholders today are not going to be easy, nor will they happen overnight….

“But, these are important decisions.

“If the first hundred years of the electric age are any guide, the decisions we make today on transmission regulation and investment will define what the electric grid looks like for our grandchildren and great-grandchildren.

“We owe it to them to devote the time, effort and resources needed to get it right.

“I look forward to continuing this critical dialogue and appreciate the attention each of you has given to this important topic as well as the opportunity to speak to it today.

“Thank you.”


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