Renewable energy is booming in California, but many project developers must race the clock to break ground by year’s end, or risk losing federal stimulus money under the American Recovery and Reinvestment Act (ARRA),  in the form of cash grants from the U.S. Treasury totaling up to 30 percent of total project costs.

So if you’re a California solar or wind developer, and you want to safeguard your stimulus cash, you bring in the big guns. You call in The Terminator — none other than California Governor Arnold Schwarzenegger – who wrote to Federal Energy Regulatory Commission (FERC) Chairman Jon Wellinghoff in mid-October on behalf of more than a half-dozen developers, asking FERC’s assistance in getting transmission line hookups OK’d by CAISO, the California Independent System Operator, which oversees much of California’s power grid.  The developers would need these grid interconnections to secure funding, finalize contracts, purchase materials, and otherwise get their ducks in a row for the December 31st ARRA deadline.

But then a funny thing happened. Roughtly 10 days of receiving the Governor’s letter, FERC issued two groundbreaking decisions that alter current policy and will make it far easier for wind and solar developers to secure those coveted grid hookups.

Was it Arnold’s doing? We’ll never know. But maybe now we should start calling him The Stimulator.

The story began last year (October 2009), when Southern California Edison asked FERC for special incentive transmission rates for Edison’s proposed Eldorado-Ivanpah transmission project. The utility later followed up (in August 2010) with a similar request for its Red Bluff project (combined substation and transmission line). Together the two projects would cost an estimated $1.2 billion, or thereabouts, and pave the way for development of up to 3800 megawatts of new solar generation projects in the Mojave Desert near the Nevada border, and in eastern Riverside County. Edison had asked for special financial incentives as permitted under FERC Order No. 679. That Order, reflecting new congressional policy under Sec. 1223(a) of the Energy Policy Act of 2005 (Federal Power Act sec. 219, 16 U.S.C. sec. 824s), allows FERC to award incentives for transmission projects that promote reliability or reduce the cost of delivered power by reducing transmission congestion – but only if the grid projects win approval from the appropriate transmission planning agency. In this case, that would be CAISO.

But here Edison had a big problem. CAISO had not vetted or OK’d the Edison grid projects through its formal transmission planning process. Rather, CAISO had begun to review the projects only in the context of its special procedure for Large Generator Interconnections, known as LGIP. That regime applies when a power plant developer unilaterally submits a new project for consideration in the CAISO project queue. That’s different from top-down transmission planning, where engineers begin by asking, “Where should we string new wires, to have the best chance of accomodating new gen plants that someday might want to come on line?”

Instead, under the LGIP rules, you first assume that the particular proposed gen project is a done deal.  Then you ask, ”What do we have to do to upgrade the transmission system so that we can tie in the project without risking a grid meltdown?” That’s bottom-up – the exact opposite of top-down, systematic planning. And not only that; under the LGIP framework you look first to the local franchised utility transmission owner to provide the any needed grid network upgrades. This right of first refusal, enshrined in FERC’s generator interconnection rules in FERC Order 2003, gives traditional utilities a leg up on a piece of the action, leaving private unregulated transmission developers to play second fiddle.

And so many private developers challenged Edison’s right under Order 679 to earn transmission rate incentives for an LGIP grid network upgrade, arguing that CAISO’s bottom-up review was not what FERC intended in Order 679 when it required planning process approval for grid projects seeking financial incentives under Federal Power Act sec. 219.

In fact, one those intervening in the fight (in the Red Bluff case) was none other than Desert Southwest Power LLC, a developer that is now seeking Order 679 financial incentives for its own grid project, in a petition filed in late March.

Sponsored by Caithness Energy LLC and ArcLight Capital Partners LLC as a free-standing independent grid facility (as opposed to an LGIP upgrade, solely in response to generator requests), the proposed $350-million Desert Southwest Transmission Project would include a 118-mile, 500-kV transmission line, running roughtly from Blythe, California, to Palm Springs, designed to access an anticipated 1200-1500 megawatts of newly developed renewable energy in eastern Riverside County, and bring it to “load pocket” areas in Southern California that otherwise would face transmission congestion in attempting to import renewable energy supplies.

In particular, the DSW project would employ special remote-sensing, laser wind detection technology known as the Vindicator® system, sold by Catch the Wind Ltd, incorporated in the Cayman Islands and listed (CTW) on the Toronto Venture Exchange. This technology, according to the DSW project sponsors, would allow for forward-looking detection and measurement of three-dimensional wind speed and direction data at up to 300 meters, according to technical descriptions of the system available posted on-line.

The Vindicator® system works on the principle of laser backscatter. When laser light is transmitted into the atmosphere, it is scattered by atmospheric particulates such as aerosols, pollen, dust, sand, and ash, as the project sponsors explain. The laser system then analyzes the reflected and returned energy from this backscattered light to calcultate wind speed and direction. With two GPS-encoded Vindicator® sensor systems installed back to back on every other transmission line tower and linked via fiber optics (at a cost estimated at $21.8 million), the system would provide a “highly accurate wind and temperature map across the entire length of the 118-mile transmission corridor,” the sponsors say.

With such a system, they claim, the DSW project could operate with dynamic line ratings, made possible by more accurate temperature forecasting and heat disspation calculations. (Wind tends to cool down overheated transmission wires, reducing line sag and allowing more lenient thermal opoerating parameters.) And in fact, a novel use of technology marks one of the positive factors that FERC considers in weighing the case for incentives under Order 679.

Nevertheless, the DSW project has run into a bit of a snag on its application for incentives, perhaps indicating that the FERC staff is not entirely convinced about the Vindicator® system.

In July, the FERC staff wrote to the DSW project sponsors, asking for more detail on remote laser wind sensor technology, as applied to dynamic transmisison line ratings. In particular, the staff letter asked the sponsors to please describe:

• How Desert Southwest will apply Vindicator® technology for more efficient line loading and dynamic line ratings.
• Has Desert Southwest met with CAISO to participate in any joint design activities addressing the integration of remote laser wind sensor technolgy?
• Please explain how the Vindicator® technology will improve CAISO’s forecasting and schedule.
• Please explain how these efficiences relate to dynamic line ratings and increased transmission capacity on the CAISO grid.
• Please specify the amount of additional transmisison capacity that the Vindicator® technology.

Desert Southwest has since provided answers for the FERC staff, in separate responses filed September 10 and September 24, claiming that “in the future” the Vindicator® system’s effective range conceivably could be “readily increased” to a distance or 1000 or even 2000 meters. Yet the sponsors acknowledge also that they have not yet opened formal discusssions with CAISO to discuss the inegration of remote laser wind sensor technology on the DSW project, or how CAISO then would calculate dynamic line ratings, or use the wind and temperature data either to improve statewide weather forecasting, or to improve peak and off-peak scheduling of solar and wind generation.

In fact, at this writing, FERC has not yet acted on DSW’s request for financial incentives for its proposed transmission line.

By contrast, consider the happy fate of the Edison projects.

In a pair of nearly identical decisions handed down on October 29, FERC granted generous financial incentives for the twin projects proposed by Southern California Edison, even though it found that Edison had failed to meet the requirements for special financial incentives under Federal Power Act sec. 219 and Order 679.

FERC in essence agreed with the many protesting private transmission developers — that a bottom-up LGIP review of grid needs does not suffice as a top-down, regular transmisson planning process — finding that Edison was ineligible for incentives under the Order 679 program.

Yet the commission awarded the requested incentives anyway — treating them as justified to both help California develop renewable energy and meet its very strict renewable portfolio standard of 33 percent by year 2020 (see California Executive Order S-21-09), but also to make sure that Edison would not lose stimulus funding under the ARRA:

“We find that certain of the incentives that SoCal Edison requests for the projects are justified in light of a combination of policy reasons, including the exigencies of the deadlines imposed by the American Recovery and Reinvestment Act.”

FERC Commissioner Philip Moeller even added his own concurring opinion in the October 29th Eldorado-Ivanpah decision, justifying the award ”because the project faces significant risks and challenges in meeting California policy goals and time constraints imposed by the American Recovery and Reinvestment Act.” (Moeller also referenced those comments in the same-day order for the Red Bluff project.)

Ten days later, on November 8, Chairman Wellinghoff got around to penning an answer to the letter from Schwarzenegger: “The Commission understands the urgency and importance of thse projects … [and] also recognizes the importance to these project developers to qualify for grant money under the “ARRA.”

FERC’s action stands out even more when you considered how these grid connections are financed.

In general, when developers propose a wind or solar project and then ask for a grid hookup, it is the developer who must finance any grid network upgrades required to accomodate the project. By contrast, when a utility or ITC (independent transmission company) seeks to build new line approved through top-down transmission planning, it is utility or ITC that must finance the project.

Thus, by allowing Edison to answer various requests for line generation interconnections with a counterproposal or its own to sponsor, finance and build a new line, and then to earn transmission rate incentives to boot, FERC has created a mutual and sefl-sustaining backscratching regime. Utilities now can win sweetheart deals for building those grid hookups, while at the same time ensuring that wind and solar project developers get their piece of the stimulus pie, coupled with a generous trickle-down of regulated, rate-base-derived and incentive-driven revenues to the utility.

And all this when private transmission could end up on the short end, since utilities get first crack at providing grid hookups to new projects under FERC’s LGIP rules.

Small wonder, then, that repected industry experts such attorneys Robert McDiarmid and Lisa Dowden (Spiegel & McDiarmid) have been suggesting lately that FERC needs to rethink its Order 679 policy governing transmission rate incentives.

As McDiarmid and Dowden pointed out in comments filed on behalf of the Northern California Power Agency, in a case pending at FERC that will review a revised regional transmission planning process at CAISO, McDiarmid notes that back when Congress authorized transmission incentives in the 2005 EPACT law (through Federal Power Act sec. 219), Congress was trying to jump start transmisison line development which, at that time, was pretty much moribund.

But since then, as they note, at least in California, a controversy has been raging between utilities and private transmisison line developers over whether utilities should enjoy a right of first refusal (ROFR) to get first crack at building needed grid upgrades. This dispute stands as proof, say McDiarmid and Dowden, that:

“[T]he business of gulding and owning transmission facilities in California has become highly profitable … [requiring] modification of the FERC’s rate incentive policies on a forward-looking basis to protect the consumers who will be underwriting California’s substantial transmission building effort.”

[Readers wanting  to learn more should take a look at my recent column, "First Refusals, Least Regrets," published in the December issue of Public Utilities Fortnightly, on transmission planning, ROFRs, and new proposals from California and FERC to make planning more friendly to renewable energy. --BWR]

But regardless what you think of FERC policy, the clock is still ticking — not only for stimulus money under the ARRA, but also for states like California, with ambitious plans for greening up the electric power industry.

As Arnold himself had written in his initial letter:  “In California, we have over 20 large-scale solar and wind energy plants ready to break ground this year — projects that would generate more than 9,000 megawatts of clean power and create over 12,000 jobs.”

“We must not let projects fail,” he added, “because of the slow pace of our bureaucracies.”