The Federal Energy Regulatory Commission’s just-issued regional transmission planning and cost allocation rule will likely benefit consumers and bolster states’ roles in deciding how best to build out the grid and pay for it, according to experts on the agency.
“What they did on planning will be truly smart policy,” former FERC Chairman Neil Chatterjee said. “I would have definitely voted for it had I still been at FERC.”
FERC on Monday issued Order 1920, which requires transmission providers to conduct long-term, scenario-based transmission planning. They must use certain factors, such as expected demand growth and resource mixes, to develop transmission plans that look ahead at least 20 years. They must also use at least seven benefit metrics to help determine which transmission solutions would best meet their needs.
With its factors and benefit metrics, the rule effectively requires transmission providers to plan the “right amount” and “right type” of transmission, according to Rob Gramlich, president of Grid Strategies, a transmission-focused consulting firm.
“It will lead to more transmission because I think there is a lot of really good and important transmission that is waiting to be planned because nobody started to plan for it or use the best available data for such plans,” Gramlich said Wednesday during a webinar hosted by Americans for a Clean Energy Grid, a group that advocates for expanding the U.S. grid.
However, a dissent by FERC Commissioner Mark Christie provides an outline for likely litigation seeking to overturn the rule, according to Christina Hayes, ACEG executive director.
Christie contends the rule will hurt consumers and offers states a lesser role than the one he said was envisioned in FERC’s initial proposal. He also said the rule is intended to benefit renewable energy developers and companies that want to buy clean energy at the expense of consumers.
Expanded role for states
The National Association of Regulatory Utility Commissioners said Tuesday it was “disappointed by the significantly diminished state role envisioned by the FERC order with respect to transmission planning and cost allocation.”
But compared to current practice, the rule gives state utility regulators an “unprecedented role” in transmission planning and determining how they want to share transmission costs, Hayes said during the webinar.
The rule puts states in “the driver’s seat” for deciding key issues like cost allocation compared to being just a stakeholder in current transmission planning processes, according to Hayes.
The rule requires transmission providers to make “good faith” efforts to consult with and seek support from “relevant state entities” in their transmission planning region’s footprint when developing the evaluation process and selection criteria for transmission projects.
It also allows states to negotiate cost allocation formulas in a six-month period before, as well as up to six months after, transmission providers select regional transmission facilities for their plans.
The rule requires transmission providers to develop at least one default cost allocation methodology that would be used if states cannot agree to a cost allocation approach.
The rule’s cost allocation provisions that will be used to decide who pays for transmission projects drew the fiercest criticism from Christie, according to Chatterjee, a senior advisor with Hogan Lovells and former aide to Sen. Mitch McConnell, R-Ky.
“I've watched for two decades now as Congress has punted to FERC and FERC has punted back to Congress on these complex, wonky, technical issues and somebody had to be bold and rip the Band-Aid off,” Chatterjee said.
The default cost allocation framework may force states to negotiate a preferred cost allocation methodology, according to Chatterjee. “If you just leave it completely up to the states, they'll negotiate in circles forever and never come to an agreement,” he said.
Christie’s dissent, and a joint concurrence from FERC Chairman Willie Phillips and Commissioner Allison Clements that responded to it, probably made the order “stronger and more legally durable,” he said.
In considering whether the rule steps outside the commission’s authority as Christie contends, Gramlich said it is “a straight down the middle of FERC traditional activity type of rule.”
Will consumers benefit?
The rule “turbo charges the type of transmission that has served customers well,” said Devin Hartman, director of energy and environmental policy at the R Street Institute, a free market-oriented think tank. “On balance, it's going to be a huge winner for consumers.”
“Good economic regional planning benefits consumers plain and simple, and we weren't doing it,” Hartman said. “We were planning a lot of these systems for near term expectations.”
Transmission costs are at historically high levels, and 90% of those costs are on local and reliability projects that haven’t been evaluated for their economic merits, according to Hartman.
“The projects that use cost-benefit analysis, and especially when they're put out for competitive bid, consumers tend to love that and the economic numbers that come back on those projects are really favorable,” Hartman said, noting he is still digesting the roughly 1,300-page rule. “This rule remedies the deficiencies that are undermining economical transmission expansion.”
Hartman disagreed with Christie’s criticism of requiring grid planners to consider states’ clean energy policies when developing their transmission plans.
“If you take state public policies as a given, the least-cost way to plan transmission is to account for that,” he said. “If you pretend that they don't exist, then you're going to develop some suboptimal infrastructure and total costs system-wide actually go up.”
If a state’s policies lead to uneconomic transmission, those extra costs can be assigned to that state through the cost allocation process, according to Hartman.
Further, if a state doesn’t benefit from a transmission project, it doesn’t pay for it, according to Gramlich. “The law of the land is clear,” he said.
A new factor: Load growth
In a recent change, it appears that load growth has reemerged as a factor affecting grid planners, according to Hartman. “The rule really couldn't come at a better time to say there's a pure economic and reliability argument to do regional planning better,” he said.
A surge in expectations for load growth — partly driven by data centers and electrification — is adding urgency to building out the grid, according to Larry Gasteiger, executive director of WIRES, a trade group focused on transmission issues.
Concerns from some state regulators and consumer groups about overbuilding the grid are increasingly becoming “speculative,” Gasteiger said. “The bigger threat is that we're going to continue to underbuild going forward,” he said. “So yes, it's going to cost money … That's why we need to look at all-of-the-above solutions to the grid needs.”
Gasteiger said it was a positive development that FERC decided to continue allowing transmission owners to collect “construction work in progress” payments from ratepayers to recover their project-related expenses as they build them instead of waiting for a rate case after the facility is brought online.
Eliminating CWIP, as FERC initially proposed, would “work in the wrong direction,” he said.
Although FERC scotched a WIRES-supported proposal to give a conditional right-of-first refusal for projects that are jointly built by public power and investor-owned utilities, the agency is “moving forward” by saying it was still open to the concept, Gasteiger said.
Overall, FERC’s rule is “moving in the right direction,” he said. However, it is increasingly clear there isn’t a “silver bullet” for accelerating transmission development at the level that will be needed over the next 20 to 30 years and measures beyond the agency’s new rule will be needed, according to Gasteiger.
“Instead, what we're looking at is a piecemeal, patchwork, incremental approach towards improving issues around things like planning, permitting and paying for transmission,” he said. “We have a long way to go and the clock is ticking louder all the time.”
