This is the second in a two-part series on how the Federal Energy Regulatory Commission could change its approach to key federal energy policies under the Biden administration. The first installment looked at the challenge of finding a bipartisan solution to the clean energy limitations imposed on states by capacity market structures for Eastern U.S. grid operators imposed by FERC’s Republican majority. This second installment will examine a domain with a greater likelihood of bipartisan support but numerous technical and jurisdictional challenges: transmission policy.
Cost-effectively decarbonizing the U.S. electric grid means building a lot more transmission capacity, from interregional high-voltage corridors to carry far-off wind and solar resources to population centers, to transmission networks to enable the country’s massive offshore wind power potential.
But U.S. transmission build-out has lagged behind this need, energy experts agree. High-profile independent transmission developments have faltered under the complexities of building massive capital projects across multiple jurisdictions, each capable of halting decade-long development processes through legal or regulatory challenges.
Similar divisions have bogged down the vast majority of new transmission development that relies on regulations to enlist multiple utilities and states in agreeing to share the costs and benefits of shared projects. The few exceptions to this rule, such as the transmission build-out enabled by Texas grid operator ERCOT’s CREZ policy and Midwest grid operator MISO’s MVP policy effort, underscore how much time and effort are required to align transmission build-outs within the footprint of a single independent system operator (ISO) or regional transmission organization (RTO), let alone projects that cross these regional boundaries.
As the federal agency responsible for interstate transmission policy, the Federal Energy Regulatory Commission could play a vital role in unblocking these bottlenecks, according to former FERC commissioners and energy stakeholders. And unlike many key clean energy policies, these transmission policy efforts could cross partisan boundaries by driving economic development for wind and solar-rich states under Republican control as well as for clean energy interests supported by Democrats.
This offers the incoming Biden administration a valuable opportunity to direct FERC’s transmission policy developments in ways that can support its clean energy and decarbonization ambitions. Here’s an overview of what’s on the table.
The scope and limits of FERC’s existing authority
FERC’s authority over the ISOs and RTOs that manage power grids serving about two-thirds of the country stretches back to the mid-1990s and Order 888, which created the open access transmission tariff structure that requires utilities to share their networks and assigns guaranteed rates of return for projects that expand cost-effective service.
Order 679 in 2006 gave FERC authority to impose transmission pricing reforms and incentives, and Order 1000 in 2011 creates a new process for coordinated transmission planning and cost-sharing between states, grid operators and utilities.
But these orders and authorities haven’t spurred the transmission build-out that most experts say is needed to decarbonize the country’s electricity system. While the reasons for this are complicated, the fundamental problems are a combination of lower-than-required rates of return for important projects and regulatory disconnects that allow utilities, states and other stakeholders to stymie their completion.
FERC took up the issue of incentive policy and rates of return this year. But the resulting notice of proposed rulemaking (NOPR) formulated by its two-Republican majority fell short of what many analysts say was needed to change the status quo.
First, the NOPR fails to offer incentives or higher rates of return for projects that unlock clean energy development, Ari Peskoe, director of the Electricity Law Initiative at Harvard University, wrote in a November FERC policy briefing. That’s something a Democratic-led FERC could take up if it chose to do so, he wrote.
Richard Glick, currently FERC’s sole Democratic commissioner, noted his frustration with this outcome in a November interview with pro-transmission-expansion group the American Council on Renewable Energy. “I think we need to figure out whether we incentivize those projects,” either through greater return-on-equity (ROE) allowances or incentives for clean energy projects, he said.
Larry Gasteiger, executive director of the Wires Coalition, agrees, contending in a June statement that FERC must “quickly focus on establishing a base ROE methodology that will provide regulatory certainty, spur much-needed transmission investment and produce just and reasonable results.”
Joseph Kelliher, FERC chairman from 2005 to 2009, said in an October meeting of Wires that FERC’s action on transmission may be subject to legal challenges due to its complexity and lack of clarity.
The NOPR’s “incentive policy is a mess — I’ll use that legal term,” he joked. But that creates an opportunity for FERC to take another crack at a more comprehensive and clear policy.
Expanding return on equity and solving the "triple-hurdle" problem
The first step could be to boost base return on equity for such projects, Kelliher said. In the past decade, FERC allowed California grid operator CAISO’s cost-recovery mechanisms to enable $2.1 billion in transmission development to connect faraway wind projects. More recently it has allowed boosted ROE for other key projects in the state such as its Path 15 expansion.
These examples serve as models for broader FERC efforts, he said. “The policy rationale would be deploying our lower-cost renewables, but not just that — also resiliency, protecting our grid against cyberattack” and other issues with bipartisan support. “There’s a good chance that could be upheld by the courts.”
FERC Order 1000 could also be put to greater use to promote projects that fall in between the territories of different ISOs and RTOs, Norman Bay, FERC chairman from 2015 to 2017 and head of the energy regulatory group at law firm Willkie Farr & Gallagher, said in an interview.
“Under Order 1000, FERC promoted interregional planning and cost allocation, but it did not require it,” he said. FERC “could be much more mandatory if it wished.”
One key step could be to “remove the so-called ‘triple hurdle’ to building interregional projects,” projects that cross the boundaries of two or more ISOs, he said. Today such projects must win approval under each ISO’s planning regime, as well the Order 1000-compliant process set up between them. “It creates this gating process that makes it very, very difficult to plan interregional projects.”
Recent joint efforts between grid operators MISO and Southwest Power Pool are aimed at solving this problem. But “any efforts that can create more alignment [and] more of a clear vision will remove a lot of the hurdles we see in the transmission planning process,” Antoine Lucas, SPP’s vice president of engineering, said during Wires’ October meeting.
A new approach to offshore wind
FERC’s guidance will be even more critical in solving these kinds of problems for the transmission networks required to meet Eastern U.S. states’ offshore wind ambitions. Multiple studies indicate that one-off approaches to linking separate offshore wind projects to land will cost much more than a collaborative “networked” approach that shares transmission capacity and costs among multiple projects, states and grid operators.
“If we started out and proactively planned to that future, it would be a lot cheaper for the consumer,” Rob Gramlich, executive director of the Americans for a Clean Energy Grid group, president of Grid Strategies and a former senior adviser for FERC Chairman Pat Wood III, said during Wires’ October meeting. “We can’t afford to continue to do transmission piecemeal.”
Eastern states are planning 30 gigawatts of offshore wind over the coming decade and a half, which could require about $100 billion in investment, including between $15 billion and $20 billion in transmission costs. “I’d like to see those states get together and say, 'Here’s what we’d like our RTOs and ISOs to do,'” he said.
New Jersey took one such step in November, asking mid-Atlantic grid operator PJM to include its offshore wind plans as part of its regional transmission planning process. Under the plan, PJM will use its “State Agreement Approach,” its way of complying with FERC Order 1000’s mandate, to enlist multiple states’ energy policies in how it plans and allocates cost-sharing for new transmission.
But participants in an October technical conference on offshore wind transmission agreed that FERC will likely need to play a more active role in creating models that can be applied across all of the Eastern U.S. states within the territories of PJM, ISO New England and New York ISO. “A Democratic-led FERC should take advantage of the opportunity and issue the first-ever rules aimed at facilitating offshore wind deployment," Harvard's Peskoe wrote.
Going beyond Order 1000
The voluntary nature of Order 1000’s guidance may still allow states or utilities to balk at cooperating with the plans that emerge from these kinds of processes, however, Gramlich noted. He suggested that FERC start work on adding more teeth to that mandate, beginning with “an ambitious transmission planning and cost allocation NOPR” next year.
SPP’s Lucas agreed: Order 1000 “made some progress on the cost allocation issue of interregional projects, but I don’t think it’s a complete solution or one that creates a very clear path for certainty.”
That’s particularly true when it comes to siting new transmission corridors, with landowners able to challenge power lines crossing their property at federal, state and local government levels. “It seems to be an issue that creates a tremendous amount of friction, especially when you’re talking about state authority versus federal authority,” he said.
Former FERC chairman Bay noted that FERC could cut through some of this red tape by tapping a provision of the Federal Power Act created by 2005’s Energy Policy Act. The provision allows the U.S. Energy Department to designate National Interest Electric Transmission Corridors with federal permits that enable project developers to use eminent domain authority.
“In the past, the DOE considered delegating that authority to FERC but ultimately declined to do so,” Bay said. But the DOE could take that step in the future without congressional approval, he noted.
DOE’s use of this power has faced legal challenges since it was created. But Bay argued in a fall 2020 brief of the Energy Bar Association that, given the overlap between energy and environmental policy, FERC has a critical role in facilitating the U.S, response to climate change, including supporting electrification and building out the grid.
Could Congress pass a law?
All of these options for FERC could be taken without congressional action. But new legislation could bolster FERC’s authority on key issues, Gramlich said during October’s Wires meeting.
“I think it would help with the conservative courts for FERC to have some legislative provisions to point to from Congress saying they need to act,” he said. “FERC could say, 'It’s been 10 years since Order 1000, and it’s time to fix some things.'”
The Interregional Transmission Planning Improvement Act, a bill proposed last year by New Mexico’s Senator Martin Heinrich (D) and Representative Deb Haaland (D) — a potential nominee for Interior Secretary under the Biden administration — calls for FERC to take just this kind of action to strengthen its transmission planning authority under Order 1000. New Mexico is trying to boost its share of wind and solar power, but transmission projects in the state have faced years-long opposition from landowners that threaten to derail them.
Legislation to boost investment and lower costs of new transmission would also be welcome, Gramlich said. That could include tax credits for regional projects or investments that provide relief from the economic impacts of the COVID-19 pandemic, or more likely, from a national infrastructure investment package.
A massive energy bill that was proposed in the Senate last year but faltered in the face of last-minute opposition to certain provisions could be a starting point for incentivizing new transmission, U.S. Senator Joe Manchin (D-West Virginia) said during October’s Wires meeting. But the $24 billion in investment called for in the bill is largely focused on research and development into renewable energy, advanced nuclear power, energy storage, carbon capture and sequestration, and grid cybersecurity, leaving an unclear role for transmission investment.
Gramlich suggested an infrastructure bill could focus more on transmission, but added that it’s unclear just how that would happen in the context of federal funding since transmission has “always been funded a different way.” At the same time, “there are all these projects, regional and interregional, that keep failing the benefits-cost test,” which could be bolstered by some form of federal involvement.
More aggressive congressional action on creating a federal clean energy standard could certainly bolster FERC’s role in guiding regional transmission plans to enable it, he added. But passing this Biden administration plan appears highly unlikely with the U.S. Senate likely to remain either in control of a Republican majority or split 50-50 between Republicans and Democrats, depending on the results of January’s Senate runoff elections in Georgia.
Building new technologies into the transmission system
While transmission advocates put plans before FERC and lobby Congress, “there’s a pending rulemaking right now before the commission that I think should be one of the first orders of business,” Jon Wellinghoff, FERC chairman from 2009 to 2013 and CEO of Grid Policy, said in a November interview.
That’s an effort to update Order 679’s transmission incentives to include “incentives for improving the efficiency of the transmission system in our country — the GETs incentive,” he said. GETs stands for "grid-enhancing technologies," including topology optimization, power flow controls, dynamic line ratings and energy storage to boost transmission capacity.
These technologies could make existing transmission networks more efficient, reduce congestion on heavily used sections of the grid, and otherwise unblock barriers to adding more renewable energy capacity. Finding ways to encourage their deployment has been a key issue for companies that provide them, as well as 13 U.S. senators, including Bernie Sanders, Dianne Feinstein, Martin Heinrich and Sheldon Whitehouse, who asked FERC in August to include them in future policymaking.
Incentives are needed to deploy these technologies because the return-on-equity model for compensating transmission owners and operators fails to encourage them to run their systems more efficiently, Wellinghoff said.
“Right now, we have renewable energy developers who are clogged in the system, awaiting interconnections because of the inefficiency of the transmission we have,” he said. “If we start providing developers with incentives to improve that efficiency, we’ll see interconnections will happen much more quickly, more smoothly and at much lower cost.”
Another way FERC could unblock transmission interconnections would be to guide ISOs and RTOs on how to manage “hybrid” renewable-battery projects, Commissioner Glick said in his November interview with American Council on Renewable Energy President Greg Wetstone. As a novel form of grid resource, storage-backed solar and wind projects present challenges to existing regulations, from whether adding batteries to an existing project requires them to resubmit interconnection requests and lose their place in line, to how to measure the impacts they’ll have on the grids they’re connecting to.
FERC held a technical conference in July to discuss solutions to interconnecting projects that are making up an increasing portion of the utility-scale renewables projects being developed today. “I think we need to remove some of the barriers to these technologies, and that’s one area where I think we need to do a lot more,” Glick said.