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CMS' McCormick Sounds Reliability Warning
CMS Energy's Chairman William T. McCormick Jr. cited "a significant lack of adequate transmission capacity," and no incentives to build more, as threats to the reliability of the nation's power delivery system in a deregulated environment.
According to McCormick there are two major barriers to building transmission capacity. First FERC's set rate of return is insufficient to attract investor's capital to expand transmission systems. Secondly, opposition from landowners and local governments can make it nearly impossible to build or upgrade transmission lines since utilities do not receive the same rights of eminent domain that FERC approval confers on pipelines.
The U.S. power transmission systems in existence today were not built with the intention of transmitting large amounts of power over extended distances. "In fact, utility transmission systems were built to be somewhat independent of each other to serve the local loads bringing power from the generation facilities to the local load centers. They were really only interconnected for reliability reasons."
"What we have is a patchwork of interconnected electrical systems. It is not a national transmission network, never has been, never will be, at least in the foreseeable future," explained McCormick.
Pipelines were built for long distance transportation; transmission lines were not. To develop a nationwide grid of high voltage lines there needs to be some sort of incentive. FERC should bump up the allowed rate of return two to three points to make investment an attractive proposition. "Historically FERC has had a very low rate of return for transmission investment, mainly because they see it as a low risk field. But the fact of the matter is, it does entail a substantial amount of risk. The bottom line is getting transmission built," McCormick said at a Washington media briefing this week.
The CMS executive also blamed FERC for providing a strong disincentive for long line construction with its "unwarranted focus on ownership and governance." McCormick disagrees with the commission's limit of 5% ownership interest for utilities in transcos. This, in effect, "is forcing divestment..and is bad public policy." McCormick believes utilities should be able to collectively own up to 49% of transmission entities.
McCormick supplied a wish list for restructuring legislation, but added that he rated the chances Congress would pass a restructuring bill this year as slim to none.
A "sleeper issue" that poses the threat of severe electric reliability problems is the 2003 deadline set by the Environmental Protection Agency for the implementation of clean air rules, McCormick said. Compliance will require retrofitting of coal-fired plants that provide about 56% of the nation's electricity. The new technology necessary to achieve compliance is largely untested and has not been installed by any utilities so far. In addition, the retrofit will cost several hundred billion dollars and impose a downtime burden on an already stressed system.
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