FERC Order No. 1920 - Designed to rebuild the new grid but may have unintended impacts
FERC Order No. 1920’s intent is to modernize the grid for the renewable era
The transmission grid in the United States is aging and needs upgrades to maintain reliability for increased electrification of society. FERC Order No. 1920, issued by the Federal Energy Regulatory Commission, is a regulatory mandate designed to modernize and enhance the energy infrastructure's reliability, security, and efficiency. The order focuses on several key areas:
Promoting the integration of renewable energy sources
Advancing grid modernization
Ensuring cybersecurity measures
Streamlining the regulatory processes
Key summary points of the order include:
1. Integration of Renewable Energy: Facilitate the incorporation of renewable energy sources into the grid by updating interconnection standards and providing incentives for renewable projects.
2. Grid Modernization: Encourage investment in advanced grid technologies, including smart grid innovations, to improve grid resilience and operational efficiency.
3. Cybersecurity: Mandate stricter cybersecurity protocols to protect the energy infrastructure from cyber threats.
4. Regulatory Streamlining: Simplify regulatory processes to reduce bureaucratic delays and lower the administrative burden on energy companies.
The magnitude of this order will be far reaching in the energy industry, leading to trillions of dollars of new construction and an overhaul of how things are currently done.
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Pros and cons, winners and potential impacts
As with any FERC order this broad, there are pros and cons, winners, and potential impacts. Some items of note:
Pros:
1. Enhanced Grid Reliability and Resilience: The order aims to create a more reliable and secure energy infrastructure by promoting advanced grid technologies and cybersecurity measures.
2. Environmental Benefits: The facilitation of renewable energy integration supports environmental sustainability and helps reduce greenhouse gas emissions.
3. Economic Growth: Streamlined regulatory processes and incentives for renewable projects could spur economic growth and job creation within the energy sector.
4. Consumer Benefits: Improved grid efficiency and reliability can lead to more stable energy prices and fewer disruptions for consumers.
Cons:
1. Implementation Costs: The initial investment required for grid modernization and enhanced cybersecurity measures may be substantial, potentially leading to higher costs for energy providers and consumers.
2. Regulatory Compliance Burden: While the order aims to streamline processes, the new standards and requirements may still pose a significant compliance burden, particularly for smaller energy companies.
3. Transition Challenges: Integrating new technologies and renewable energy sources into the existing grid infrastructure may present technical and operational challenges.
4. Uncertain Outcomes: The long-term effectiveness of the mandated changes in achieving their intended goals remains uncertain, depending on various external factors such as technological advancements and market conditions.
FERC Order No. 1920 does not explicitly mandate that states with fewer renewable energy resources subsidize states with more. However, the order's focus on integrating renewable energy into the grid and promoting grid modernization will have indirect implications that will lead to cross-subsidization.
These "cross-subsidization" issues include:
* Transmission costs: States with higher renewable resources will need extensive transmission assets to transport energy to other states. Potential peanut butter cost allocations of projects will move costs to states that do not participate in benefits.
* Renewable Energy Credits (RECs): States with aggressive renewable portfolio standards (RPS) might purchase RECs from states with surplus renewable energy. This could lead to financial flows from states with fewer renewable resources to those with more.
* Federal Incentives and Subsidies: Federal incentives designed to promote renewable energy might disproportionately benefit states with ample renewable resources, indirectly leading to a situation where federal tax revenues from all states support renewable energy projects in specific states.
While the intent and hopefully outcome of Order No. 1920 is a more resilient grid that benefits all ratepayers, there will certainly be legal interventions on projects or overall on the order itself.
About Russ Hissom - Article Author
Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists a firm that provides power and utilities rate, expert witness, and consulting services, and online/on-demand courses on accounting, rates, FERC/RUS construction accounting, financial analysis, and business process improvement services. Russ was a partner in a national accounting and consulting firm for 20 years. He works with electric investor-owned and public power utilities, electric cooperatives, broadband providers, and gas, water, and wastewater utilities. His goal is to share industry best practices to help your business perform effectively and efficiently and meet the challenges of the changing power and utilities industry.
Find out more about Utility Accounting & Rates Specialists here, or you can reach Russ at russ.hissom@utilityeducation.com.
The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists. You should seek formal advice on this topic from your accounting or legal advisor.