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New Wisconsin Electric System Reliability Legislation

Spring 1998

Recently, the Wisconsin legislature passed new energy legislation known as the Wisconsin Electric System Reliability Legislation ("Reliability Legislation") designed to reduce the risk of electrical supply shortfalls for Wisconsin residents in the future. This legislation was introduced at the request of Governor Tommy Thompson and sets forth the Governor's Reliability Plan. The Reliability Legislation contains many important provisions which streamline the approval process for new generation and transmission facilities, establish a new system for regional management of transmission systems, and create the framework for approving new electrical generation capacity within the State of Wisconsin. This article describes some of these new provisions in the Reliability Legislation.

Process for Approving Generation and Transmission Facilities. Under current law, an applicant proposing to construct a large electrical generation or transmission facility must obtain a Certificate of Public Convenience and Necessity. This Public Service Commission certificate is normally referred to as a CPCN. The Reliability Legislation modifies the CPCN requirements and makes it apply to fewer facilities. Under the Reliability Legislation, the CPCN applies to the construction of any generating facility with the capacity of at least 100 megawatts. It also shortens the time line within which the PSC must act on CPCN applications. In addition, the legislation requires that various environmental information be supplied to the DNR at least 60 days before applying for the CPCN with the PSC. The new procedure also includes a new substantive requirement which imposes upon the PSC an obligation to conclude that a proposed facility will not have a material adverse effect on competition in the wholesale electric service market as a condition for approval.

There is a new "drop dead" approval aspect to the Reliability Legislation. Under the new CPCN approval process, a CPCN is automatically approved if the PSC does not act on a completed application within 180 days of filing. A 120-day "drop-dead" approval limit is imposed on DNR for any environmental permits required for constructing such facilities. Finally, the CPCN requirements no longer apply to transmission line projects designed to operate at less than 230 kilovolts if the new transmission line will be sited entirely within an existing transmission line right-of-way.

Regional Transmission Systems. The Reliability Legislation requires each transmission utility ("TU") to transfer control over its transmission facilities to either an independent system operator ("ISO") or divest its interest in such transmission facilities to an independent transmission owner ("ITO").

An ISO is an entity that obtains the necessary federal approval to operate transmission facilities within the State of Wisconsin. An ITO is an owner of transmission facilities that does not have any interest in electrical generation facilities or selling electrical generation capacity within the Midwest. In addition, an ITO must not be affiliated with any other entity owning electrical generating facilities or selling electrical generation capacity in the Midwest.

In the event the TU does not voluntarily transfer or divest its transmission facilities as required by the legislation by June 30, 2000, the PSC may order the TU to apply to the federal agency to transfer control of its transmission facilities to an ISO. If no ISO has received federal regulatory approval in the region, the TU must divest its transmission facilities to an ITO.

Finally, the Reliability Legislation requires the PSC, by June 30, 2000, to order each TU to identify a separate account for the cost of retail transmission service. In addition, the TU must procure all retail transmission service from an ISO or an ITO by June 30, 2000.

New Electrical Power Generation Facilities. The Reliability Legislation requires each public utility located in the eastern part of the State of Wisconsin that has requested proposals for soliciting bids for construction of new electrical generation capacity to select and enter into contracts for the construction of new capacity by July 31, 1998 or a later date approved by the PSC. In addition, these utilities must apply for the PSC pre-construction approvals required for such projects on or before August 31, 1998. There is also a new expedited process for reviewing these applications and obtaining the required permits from the PSC and DNR.

The Reliability Legislation creates a new category of generation facilities called "wholesale merchant plants." A wholesale merchant plant is a facility that produces electricity for sale in the wholesale electrical market. A wholesale merchant plant does not provide any service to retail customers, and subject to a narrow exception, cannot be owned or operated by a public utility or an affiliate of a public utility unless the affiliate obtains PSC approval for ownership. In order to qualify for an affiliated interest ownership of a wholesale merchant plant, the affiliate of the public utility must meet certain new requirements to insure that such affiliated ownership will not have a substantial anti-competitive effect on electricity markets for any classes of customers.

The Reliability Legislation also provides a partial exemption from this CPCN requirement for wholesale merchant plants. In particular, such facilities no longer need to establish that there is a market need for power to be produced by such generation facilities. The new criteria for CPCN approval focuses on whether the merchant plant will have a material adverse impact on competition in relevant wholesale service markets.

Conclusion. There are a number of other important provisions included in the Governor's new reliability legislation. The legislation is an important first step in providing additional security for avoiding reliability disruptions in the near future for residents in the State of Wisconsin. Anyone interested in receiving more information on the provisions of this bill should contact Arthur J. Harrington, John L. Clancy, or Donald F. Kiesling, Jr.

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If you have a media request or need an attorney with particular knowledge for comment, please contact Susan Steberl, Director of Marketing, at 414.287.9556 or ssteberl@gklaw.com.

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