Alex Lawton is director of wholesale markets at Advanced Energy United.
America has been running up a massive bill for its transmission system, costing consumers $27 billion in 2023 alone. This is five times the amount spent 20 years ago. Yet we still need to at least double the amount of transmission capability domestically. In order to make sure that doubling of capacity does not lead to runaway transmission costs, we need to stop spending so much money building the wrong kind of transmission.
To meet rising demand and unlock cheap new generation, transmission investment would ideally be informed by long-term plans and regional outlooks, resulting in transmission projects that address multiple needs. In reality, the majority of transmission investments flow from utility or local planning, avoiding regulatory scrutiny by falling through a regulatory gap that threatens energy affordability.
The regulatory gap emerged after 2011 from FERC Order No. 1000. This ruling allowed transmission owners to pass local, supplemental, asset condition and refurbishment projects (think repairs and maintenance) without meaningful review while exposing only regionally planned projects to the benefits of competition. Now, 15 years later, roughly 90% of the billions spent on transmission has been on lower-voltage reliability upgrades and 50% on local projects. Under FERC’s long-standing formula rate treatment, these projects are submitted through perfunctory approval processes, rubber-stamped, and guaranteed healthy profits.
In the last decade in particular, spending on such projects has surged, especially in ISO New England and PJM Interconnection.
While some of these projects are likely prudent, the extent to which they now dominate transmission spending clearly is not. The problem with these kinds of upgrades is they don’t anticipate the future needs of the system nor unlock new affordable generation.These projects are built ad-hoc, irrespective of regional planning, and have little-to-no check on the costs incurred, squandering precious consumer dollars. This was bad policy before, and is even more egregious during a national affordability crisis.
Making matters worse, consumers will also feel the costs of inaction on beneficial transmission expansion. Without major transmission upgrades, the cost to interconnect new resources may prove prohibitively high, slowing development of affordable new generation needed to replace aging resources and meet growing demand. This exacerbates congestion and inefficient transmission service alongside dwindling generation supply, which all apply upwards pressure on prices.
So how do we invest wisely, deliver maximum benefits, and make transmission as affordable as possible?
We need a two-pronged approach targeting inefficient spending while spurring investments that promote beneficial transmission. First, this requires instituting robust, long-term, regional-first planning processes and procurement mechanisms to build the right types of transmission. Second, we must heighten scrutiny and raise the bar for approval of local and asset condition projects to ensure only necessary and prudent projects are built.
Regional-first planning
Regional transmission organizations and state commissions have critical roles to play in both prongs and must start by incentivizing beneficial transmission development through “regional-first planning.” Regional transmission investments are the product of long-term, independent regional planning processes that utilize multi-value, scenario-based studies. This approach evaluates and compares various futures and utilizes a competitive process to identify and select the most valuable projects at the lowest cost.
If designed correctly, regional-first projects satisfy multiple objectives. They address overlapping local and regional needs in tandem, assess how certain lines that may need repair or upgrades can be right-sized to align their capability with anticipated system needs, and consider how alternative transmission technologies can offer more cost-effective solutions. Critically, planning exercises must be followed up with a functional, competitive procurement mechanism to secure market-driven, cost-effective transmission solutions. This includes subjecting local and asset condition projects to competitively bid regional procurements, especially if the local needs overlap with regional plans.
While incumbent utilities may have the upper hand in rebuilding their own lines cost-effectively, consumers would no longer need to take them at their word as the competitive process would discipline the costs passed onto them.
Near-term, states and RTOs can lead by championing all these design features in both self-initiated RTO planning processes as well as full compliance with FERC Order No. 1920.
Oversight reforms
Regional-first planning is necessary but not sufficient to mend the regulatory gap; consumers need states and RTOs to oversee and approve local and asset condition project spending.
An effective model to discipline market activity already exists — market monitors — so why not replicate them via independent transmission reviewers? ISO-NE has already taken the unprecedented step of committing to an internal reviewer office dedicated to overseeing these projects. This did not happen overnight — it took years of concerted and unified state effort to pressure utilities and ISO-NE to take action. If done right, it could offer a playbook for states in other regions to follow. To effectively safeguard consumers, it will be absolutely critical that RTOs ensure their reviewers are independent and impartial like a market monitor so that reviews on costs are insulated from their operational and reliability biases.
A strong reviewer can perform many functions, but critically, should issue recommendations on whether or not a project’s costs are reasonable, providing clear findings that bridge the technical knowledge gap and information asymmetry between utilities and stakeholders. This would give states, consumer advocates, and other stakeholders a real opportunity to challenge an imprudent project at FERC — something that they currently have in theory but not in practice. Even the threat of such challenges would likely help stem unfettered spending.
Despite jurisdictional challenges, state commissions are not powerless. They can conduct their own reviews and/or rely on the recommendation of a regional reviewer and withhold relevant approvals to block frivolous projects from proceeding. States can use their Certificate of Public Convenience and Necessity or equivalent siting and permitting authority as a gatekeeping mechanism to approve projects. While a blunt instrument, it’s a practical solution currently available which allows someone other than the utility sponsor a final say on whether costs are reasonable. States could also consider launching investigative dockets to assess the problem, explore how best to play a role, and exert authority.
To combat the electricity affordability crisis, RTO staff and state regulators must work to improve oversight of local and asset condition projects and more robust long-term regional transmission planning, and make both a priority. Neither prong alone will mend the regulatory gap; if addressed together, they can deliver smarter, more affordable transmission investment that will put downward, not upward, pressure on rising electric bills.
