Transmission week: how to start building more big power lines

Welcome back to Transmission Week here at Volts!


In my previous post, I explained why the US needs lots of new
high-voltage power lines. They will help stitch together
America’s balkanized grids, connect remote renewable energy to
urban load centers, prepare the country for the coming wave of
electrification, and relieve grid congestion. And oh yeah — we
won’t be able to decarbonize the country without them.


Nonetheless, they are not getting built! It’s a problem.


Today, we’re going to walk step by step through the process and
show why they’re not getting built. At each stage, we’ll look at
what Congress can do — and what Biden can do without Congress’
help — to get the process moving. This is some wonky stuff, but
I’ve tried to keep it as simple as possible.


Before we start …


Transmission-related acronyms


This post will involve numerous acronyms, so to make things
easier, I’ve put together a little acronym guide here at the
beginning for you to check as needed. If you’re already an
electricity system wonk, you can skip this.


* DOE: The Department of Energy. The federal
agency responsible for, among many other things, energy research.


* FERC: The Federal Energy Regulatory
Commission. The federal agency that regulates interstate
transmission of, and bulk sale of, electricity and natural gas.


* IOU: Investor-owned utility. Privately owned
companies acting as public utilities. Excepting some federally
owned and municipal utilities, most utilities in the US are IOUs.


* ISO: Independent System Operator. For our
purposes here, you can think of these as the same as RTOs (see
below). This is why you constantly hear people in this field
using the unwieldy phrase “RTOs and ISOs.”


* NIETC: A National Interest Electric
Transmission Corridor, designated by DOE as an area in particular
need of new transmission to ease costs or congestion.


* NREL: The National Renewable Energy
Laboratory, a DOE-run research lab.


* PMA: Power Marketing Administration. Federal
agencies that operate electric systems and sell the electrical
output of federally owned hydroelectric dams in 33 states. They
are: Bonneville Power Administration (BPA), Western Area Power
Administration (WAPA), Southeastern Power Administration (SEPA),
and Southwestern Power Administration (SWPA).


* RTO: Regional Transmission Organization.
Non-governmental organizations (which nonetheless have
government-like powers) that oversee transmission planning and
wholesale energy markets in areas of the country that have been
“restructured,” i.e., where generation, transmission, and
distribution are owned by separate utilities. RTO membership is
composed of the utilities in a particular region.


Here are the US RTOs and ISOs: CAISO, ERCOT, SPP, MISO, PJM,
NYISO, and ISO-NE.


All right, let’s get to it!


There’s still not much inter-regional (much less national)
transmission planning


For most of the history of the US electricity system, up to the
1990s, almost all utilities were “vertically integrated,” meaning
they owned the whole electricity value chain in a given
territory, from generators to transmission and distribution. They
built large central-station power plants close by to population
centers and then ran transmission lines out to them. There was
neither much need nor much appetite for building longer regional
or inter-regional lines.


Over all that time, states developed a persistently parochial
lens and tight control over transmission planning.


Two things have changed in recent decades.


One, renewable energy expanded rapidly and got really cheap,
which is why solar and wind are the fastest growing sources of
new electricity capacity. However, as we saw in the previous
post, the most intense sun and wind in the US are distant from
population centers. This suggests the need for a wider scope of
planning.


Two, a wave of reforms in the 1990s and 2000s led to
“restructuring” in regions containing around half the nation’s
electricity ratepayers. Vertically integrated utilities were
broken up: generation owners were separated from transmission
owners and both were separated from distribution-system operators
(i.e., the local utility that sends you a power bill).
Transmission planning in these restructured regions was given
over to RTOs and ISOs.


This suggests there ought to be capacity for a wider scope of
planning.


Indeed, FERC has acknowledged the need for larger-scale, regional
and inter-regional transmission planning for decades, and
attempted to make it happen through orders 888 (1996), 2000
(1999), 890 (2007), and 1000 (2011).


I won’t get into all those orders other than to note that order
2000 created RTOs (membership in which was voluntary for
utilities) and was explicitly meant to encourage (though not
mandate) broader regional transmission planning. Part of the idea
was to create competitive regional markets for transmission,
similar to wholesale markets for generation, in which merchant
(non-utility) projects would compete on a level playing field
with IOU projects.


As Ari Peskoe of the Harvard Electricity Law Initiative writes in
a recent paper, “FERC was optimistic that [the IOUs’]
central-planning development model would be replaced by
‘well-defined transmission rights and efficient price signals’
that would facilitate market-driven expansion.”


When it didn’t quite work out that way, once again, in order
1000, “FERC employed several mechanisms to pry control over
regional transmission development from IOUs and break the
IOU-by-IOU planning model,” Peskoe writes.


The general consensus is that, despite its best efforts, FERC has
failed to bring IOUs to heel and produce truly regional
transmission planning and markets. Local IOU transmission plans
still serve as the foundation of regional planning. There is
still virtually no transmission built through competitive
bidding. In practice, IOUs still build virtually all the lines in
and between their territories and have deliberately made it
difficult for merchant projects to get sited and financed.


IOUs have engaged in a “shift away from regional projects, which
must be developed competitively, to smaller or supposedly
time-sensitive projects that IOUs build with little oversight and
without competitive pressures,” Peskoe writes, and RTOs have
implicitly or explicitly supported them in this shift.


These local IOU processes are often opaque, closed to journalists
and public interest groups, but the broad shift is clear.
Utilities in PJM, for instance, tripled spending on local
transmission projects since order 1000 was issued. In MISO,
spending on regional projects shrank from nearly $6 billion to
just $300 million from 2014 to 2019. Not a single transmission
project in NYISO has been built on the basis of regional benefits
since FERC established the process in 2008.


A Brattle Group analysis found that between 2013 and 2017, 97
percent of the transmission approved by RTOs was not subject to a
competitive process. Local transmission and reconstruction of
aging facilities still receive the bulk of investment.


One problem is, IOUs are not mandated to be part of RTOs, so they
can threaten to withdraw their assets from RTOs at any point.
That gives them undue leverage; RTOs are loathe to cross them.


And so most transmission planning remains largely parochial. RTOs
remain dominated by their members and predisposed to accept plans
driven by local benefits. There are virtually no planning
processes that take into account the changing energy mix or
public purposes like integrating renewables and reducing
greenhouse gases, and virtually no lines are being planned
between regions.


What Biden can do


Biden’s FERC will start off with a 3-2 Republican majority.
Current Democratic commissioner Richard Glick, a solid supporter
of decarbonization, has been made head of the commission, and
Democrat Allison Clements (who is also extraordinary) was sworn
in in December.


In June, an additional vacancy will open up, which Biden will be
able to fill, giving Democrats a majority, which will be
significant on a commission increasingly issuing partisan split
rulings on things like oil and gas pipelines and, er, the MOPR
(don’t ask).


With a climate hawk majority, FERC could issue a stronger order
mandating membership in RTOs and participation in regional
planning. It could instruct RTOs and states to take into account
the changing resource mix, the need for decarbonization, rising
(and shifting) demand from electrification, and the benefits of
inter-regional transmission. (MISO’s “multi-value project”
process is often cited as a model here.)


FERC could also mandate that transmission planning take a broader
view of reliability, resilience, and cost-effectiveness, to
replace the siloed way they are assessed today.


It could also work with DOE and other agencies to develop a true
national transmission plan, with an eye toward national policy
goals, from which regional organizations could take their cue.


And, as Peskoe advocates, FERC could more closely scrutinize the
local transmission planning processes now run — parochially and
with very little supervision — by IOUs. Specifically, it could
“reverse its longstanding policy of presuming that all
transmission expenses are prudent, and replace it with a
presumption that only capital expenditures committed pursuant to
an independently administered planning process are presumed
prudent.” In other words, shift the burden of proof to IOUs.


Doing so would push IOUs to put more transmission planning in
independent hands. And FERC could take additional steps to force
IOUs to regularly divulge key information necessary for
independent planning.


“In transmission operations, separating ownership from
operational control allowed the industry to capture benefits of
both coordination and competition,” Peskoe writes. “Separating
ownership from control over planning could have similarly
significant benefits by untethering planning from maintaining any
IOU’s state-granted advantages.”


One way or another, FERC has to wrestle control over transmission
planning from IOUs and give it to independent organizations that
can assess the full range of benefits.


What Congress can do


Congress could pass legislation clarifying that it intends for
FERC to fully regionalize (and to some extent nationalize)
transmission planning by taking the steps above. The Democrats’
Climate Leadership and Environmental Action for our Nation’s
(CLEAN) Future Act, passed through the House last summer,
contained language that would instruct FERC to issue a rulemaking
to that effect.


Congress could also allocate funding to DOE to ramp up its
research on a macrogrid, including resuming NREL’s
Interconnections Seam Study. It could also fund DOE to assist
state and regional organizations in studying and implementing
inter-regional planning, and work out a transmission plan for
offshore wind in the Northeast (which is currently beset by
NIMBYs).


Basically, the federal government needs to study and develop best
practices for inter-regional planning and then require that IOUs,
RTOs, and states actually use them. Much of that legislative
legwork has already been done in the Interregional Transmission
Planning Improvement Act of 2019, introduced by Sen. Martin
Heinrich (D-N.M.); it was included in the House-passed
infrastructure bill, HR-2, but not in the year-end package that
passed both houses.


All right, that’s planning! Up next is financing, but first, we
need a cuteness break. Here’s my cute niece:


Financing transmission is unnecessarily difficult


The interconnection process — the process of connecting a new
generator to the transmission network — is currently run by RTOs
on a “participant funding” model, which means the project
developer must pay for any grid upgrades or new lines required.
This despite the fact that new lines create benefits (in
reliability, efficiency, and regulatory compliance) that are
spread state-wide, even regionally. A recent report from
Americans for a Clean Energy Grid (ACEG) compared participant
funding to “charging the next car to enter a congested highway
for the cost of building a new lane.”


The process is currently a disaster. First, there’s the
free-rider problem: no developer particularly wants to shoulder
the costs for broadly distributed benefits. Second, no renewable
energy project developer knows in advance whether their
interconnection will require grid upgrades; when it does, they
often drop out, which means the whole interconnection study and
approval process starts all over again for the next project in
the queue.


Third, it’s impossible to predict the location and size of power
demand in five years, which is how long it takes to build
transmission. And fourth, the one-at-a-time process foregoes
opportunities to plan larger scale, multi-line regional projects.


The financing barriers, coupled with the risk and uncertainty of
a long, multi-stage regulatory process, serve to deter investment
and keep costs unnecessarily high.


What Biden can do


What’s needed is for the costs of new transmission to be spread
out more evenly among the beneficiaries, beyond the members of
the particular RTO in which the line is proposed. That’s a highly
technical undertaking in practice, so FERC could begin by
soliciting solutions to this problem from RTOs and ISOs. But the
process should result in a rule that forces cost-allocation
reforms.


To speed things up, a FERC rule could also permit portfolio-based
cost allocation, which allows RTOs to group projects together
instead of running individual cost-allocation studies for each.


FERC could also apply more scrutiny and higher standards to local
transmission investments, weighing them relative to regional
projects that could provide the same benefits and more.


What Congress can do


Congress could pass legislation instructing FERC to prohibit the
participant-funding model and spread costs out more equitably.


It could also implement tax incentives for transmission
investment, along the lines of the tax credits for solar and
wind. They could be tailored to encourage long-distance,
inter-regional lines. (There are Democratic bills in both the
House and Senate that contain provisions to this effect; ACEG has
its own proposal. There’s a whole wonky post to be written about
how best to design these credits, but I will spare you.)


And there are other ways Congress could pump money into
transmission: investment grants, direct funding for
inter-regional projects, support for states involved in regional
and inter-regional planning, and money to compensate communities
affected by new transmission projects.


The Department of Transportation issues what are called
Transportation Infrastructure Finance and Innovation Act (TIFIA)
loans, targeted at surface transportation infrastructure projects
that are of regional or national significance. A similar loan
program could be set up for transmission projects.


Finally, Congress could reinvigorate America’s Power Marketing
Administrations (PMAs), which operate in 33 states (primarily to
market and sell power from government-owned hydroelectric dams).
As part of their operations, PMAs build and operate transmission.
Congress could give them some money and a kick in the ass to get
moving on more regional transmission.


OK, that’s financing. Onward to permitting and siting!


Permitting and siting are valleys of death for transmission


The Center on Global Energy Policy (CGEP) at Columbia University
and the Institute for Policy Integrity (IPI) recently put out a
report (forthwith, the “CGEP report”) on what Biden can do to
boost transmission without help from Congress. It serves as a
good backgrounder on the barriers to siting transmission
projects.


The key background condition is that the 1935 Federal Power Act
gave FERC authority over transmission rates and facilities, but
not over transmission siting. That authority remained, and
remains, with states.


Consequently, a power line that runs through more than one state
must be approved by each state’s public utility commission to act
as a utility in that state. And it must secure a certificate of
public convenience and necessity (CPCN) from each state siting
authority. Notably, the report says, “state law often directs
state commissions to consider only the interests of in-state
residents and businesses” — in other words, the states that
approve these projects are often prohibited from considering
their broader benefits.


It is a difficult and unpredictable process, fraught with veto
points. CGEP elaborates:


Several factors make long-distance transmission projects fragile
to opposition—and there is always opposition. Their long length
means that these projects inevitably encounter numerous
stakeholders, potentially including federal, state, tribal, and
local government agencies from which they must seek
authorization, as well as private property owners from whom they
must acquire property rights. And like all linear projects, they
are subject to holdups, meaning that a single stakeholder can
prevent assembly of a complete right-of-way.


Each state (in some cases, each county or even each landowner)
has veto power over the project. Each is thinking about the
benefits to itself and has no incentive to consider broader
regional or national benefits. Endless lawsuits and delays drive
up the cost of capital and drive away even the most determined
financiers. It’s a virtually impassable set of barriers to
long-distance transmission.


It is worth noting again that total state control over
transmission permitting and siting stands in stark contrast to
the way natural gas lines are permitted and sited in the US. The
Natural Gas Act grants the federal government exclusive authority
to permit and site interstate natural gas pipelines and the power
to use eminent domain to acquire rights-of-way.


That streamlined federal approval process — especially the
profligate way in which FERC has applied it under a Republican
majority — has been a boon to natural gas pipeline developers.
“FERC coordinates the process as a whole, has seldom rejected a
pipeline proposal, and has generally managed to overcome state
efforts to prevent pipeline development,” CGEP writes.


The situation is woefully inverted for interstate and
inter-regional transmission projects, which can be blocked by any
and every local interest and have no backstop federal authority.


What Biden can do


In section 216 of the Energy Policy Act of 2005, Congress granted
FERC limited authority to site transmission projects within
“National Interest Electric Transmission Corridors” (NIETCs)
designated by DOE. If (and only if) a state has unfairly refused
to permit a project within one of these corridors, FERC can step
in and provide backstop permitting and siting authority,
including eminent domain.


DOE’s initial effort to designate these corridors identified huge
swathes of land, which freaked out local lawmakers and
landowners. And the first attempts to exercise FERC’s siting
authority were shot down by federal courts, leading many
observers to speculate that the authority will never be used —
and indeed, since then, it has remained notional. No new NIETCs
have been designated or lines built on their basis.


The CGEP report argues that the authority still exists and that
the specific rulings in the two court cases are not an
insuperable barrier to action. Trump’s DOE issued a preliminary
ruling in September saying that no new NIETCs are needed, but it
relied on the Trump administration’s characteristically shoddy
reasoning. Above all, it ignored future electricity demand.


The comment period on that ruling is still open; Biden’s DOE
could revise the study to take in a broader interpretation of
grid needs and constraints. It could quickly designate some
NIETCs, to get the ball rolling, but it could be more deft about
it by working with FERC to target designations narrowly, to
support specific projects, reducing duplicative study and
analysis and freaking out fewer landowners. It could even
delegate to FERC the authority to designate NIETCs, as
recommended by the House Select Committee on the Climate Crisis
and others.


And FERC could clarify its interpretation of its own backstop
siting authority and when it plans to use it. Specifically, it
could clarify that transmission projects that connect renewables
to loads meet the criteria to receive a federal permit — and that
it will take a dim view of other state-imposed obstacles.


Separately, section 1222 of the Energy Policy Act authorizes
federal-private partnerships on transmission projects. In theory,
writes CGEP, federal involvement “both frees the transmission
project from the requirements of state siting and public utility
laws and provides a basis for the exercise of federal eminent
domain authority.”


This is another case where there have been very few attempts to
use the authority. Biden’s DOE could deploy it by reinvigorating
the PMAs, which could use section 1222 authority to build
transmission anywhere it’s needed within their territories.


What Congress can do


All of this would be easier if Congress would pass legislation
specifying the measures above: that DOE can delegate its
authority over NIETCs to FERC, that access to renewables and
future electrification should be criteria for designating NIETCs,
that DOE and FERC should work together to create a single,
streamlined federal permitting process, and that FERC has real
backstop authority to site transmission within NIETCs.


Ideally, the federal exercise of eminent domain won’t be
necessary. Congress could put money toward incentives for tribes,
local governments, and states to revamp their permitting
processes, perhaps accompanied by economic development grants, to
ease the process.


“You really don't want to have to use the backstop siting
authority,” says Fatima Ahmad, senior counsel with the House
Select Committee on the Climate Crisis. “You want to start by
allowing the developer to develop good relationships with the
community before they pitch the designation of the corridor, then
you want to have some kind of economic incentives for the
communities, and then the federal government can use its
convening authority to bring the states together to work
something out. So [eminent domain] really is a last resort.”


In that same vein, Congress could put some money toward states
and regional planners that are working to streamline siting.
Money always helps move things along.


Drawing some conclusions


All right! This has been a long, wonky journey, friends, and I
appreciate and respect those of you who made it this far. Let’s
try to sum things up.


The basic problem with transmission is that we need a lot more of
it in the US if we want to electrify and decarbonize, but it
remains prohibitively difficult and expensive to build. Mostly
that’s because the process is dominated, at every stage, by
narrow, parochial concerns. IOUs are looking inward, RTOs are
looking inward, states are looking inward. The intense localism
of the process produces dozens of opportunities for NIMBY
opposition and few tools to overcome them.


Politically speaking, it would be vastly easier to solve these
problems with some clear legislation from Congress. As discussed
here on Volts many times, a big climate bill is almost certainly
not going to pass as long as the filibuster is in place. But that
leaves open the possibility that some of this policy could sneak
its way either into a budget reconciliation bill or one of the
must-pass end-of-year funding bills.


There’s some precedent for these kinds of reforms getting
bipartisan support — a few were tucked away in the energy bill
that was tucked away in the spending bill that just passed
Congress a few weeks ago — so there’s some hope.


But in the meantime, as I keep saying, Biden should use the
powers of the executive branch aggressively. He should push the
agencies to ease financing barriers, designate more corridors,
permit more projects, and throw a little weight around on siting.


These reforms are somewhat obscure and technical, but there is
nothing obscure about the jobs new transmission would create or
the enormous economic, social, and environmental benefits it
would generate. It’s right in Biden’s wheelhouse — he should go
for it.


Coming up next in Transmission Week(s)


Remember how I said there would be four posts in Transmission
Week? Turns out that was a lie. There are going to be five, and
there might be two Transmission Weeks. ¯\_(ツ)_/¯


In my next post — shorter, easier, and more fun than this one, I
promise! — I’ll have a look at two clever ideas for how to build
a national transmission grid without the siting hassles. I don’t
want to get all clickbaity on you, but … it will involve both
trains and lasers.


See you then!


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