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
"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
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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