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What FERC did, and didn’t, do to jumpstart transmission

What FERC did, and didn’t, do to jumpstart transmission
(Image by Sabine Zierer from Pixabay )

Episode 77 of the Factor This! podcast features Tory Lauterbach, a partner in the energy and climate practice at Foley Hoag LLP, who breaks down what FERC did, and didn’t, do to boost transmission. Subscribe wherever you get your podcasts.

Let’s begin by addressing the headline: what the Federal Energy Regulatory Commission did last week to jumpstart transmission development in the U.S. was a lot. But first, some context.

Additional transmission capacity is critical to meeting the needs of the energy transition. Solar and wind projects often occupy land in remote areas, but lacking transmission infrastructure forces developers to wait years and spend millions to interconnect, while inadequate regional connections can often lead to stranded clean electrons. Oncoming data centers and an economy-wide push toward electrification, meanwhile, have created an unprecedented thirst for power, power that a growing number of states want to come from low-to-no emission resources.

Under moderate to high load growth scenarios, the U.S. may need to more than double its transmission capacity by 2035, and potentially triple it by 2050, according to the National Renewable Energy Laboratory. That translates to 47,000 gigawatt-miles of new transmission in 10 years. For perspective, the U.S. added just 138 miles of 345 kV+ transmission in 2021 and only averaged 645 miles per year from 2016 to 2020.

Why did the U.S. stop expanding its transmission grid at a time when fresh capacity is so desperately needed? For one, new transmission lines typically take a decade or more to bring online. They’re also expensive— the payback on traditional upgrades is 13-15 years, according to the Department of Energy. But the biggest sticking points concern regional and interregional projects that cross state lines, which lead states with misaligned policy goals to squabble over permitting and, maybe more importantly, who should pay the bill.

FERC attempted to take a major bite out of these challenges with new rules issued last week, which Chair Willie Phillips described as a “watershed” moment for the energy transition. But experts say plenty of work was left off the table, and state utility commissioners are already snapping back against a perceived reduction in the role of states.

“There are a few controversial points of this order. Right? But this order is a big deal,” Tory Lauterbach, a partner in the energy and climate practice at the law firm Foley Hoag, said on the Factor This! podcast from Renewable Energy World. “There’s a lot the renewable sector can get excited about, a lot that transmission developers can get excited about, and within the transmission developer world, there’s a lot that’s good in here for the utilities, as well.”

Watch the full episode on YouTube

What FERC did

Through two separate orders, 1920 and 1977, FERC, which regulates transmission and wholesale energy markets, set a course for proactive, long-term planning and cost-sharing, and provided a new backstop for some permitting squabbles.

Under Order 1920, transmission providers must plan ahead at least 20 years. They must conduct this planning at least every five years and incorporate laws and regulations, integrated resource plans, fuel costs, policy goals, and corporate commitments. Transmission providers would be required to measure and use at least seven economic and reliability benefits for the evaluation and selection of long-term regional transmission facilities.

On cost allocation, the draft final rule requires transmission providers to file one or more ex-ante methods to allocate the cost of long-term regional transmission facilities for those that are selected. They must also hold a six-month engagement period with state entities regarding cost allocation methods and/or a state agreement process.

Order 1977, the backstop siting rule, passed unanimously. While easily overshadowed by Order 1920, the move clarifies that FERC has the authority to issue permits to construct or modify electric transmission facilities in a national interest corridor if a state has denied a siting application. It also updates and clarifies environmental information required for existing applicant resource reports and includes three new resource reports regarding proposed project impacts on air quality and noise on environmental justice communities and on tribal resources.

What FERC didn’t do

There are several key areas FERC didn’t address with these transmission orders. Some came at the objection of stakeholders, while others will be tackled in subsequent proceedings. Congress will have to step in, too, especially on broader permitting reform.

On Order 1977, the backstop siting rule, FERC did not accept a proposal to eliminate the existing 1-year delay between relevant state siting applications and the commencement of the commission’s pre-filing process. The rule would have allowed state siting proceedings and the commission’s pre-filing process to proceed simultaneously.

Most of the outstanding challenges concern transmission planning, which was addressed in Order 1920. There were some rulings on inter-regional transmission planning, which is even more challenging, but where inter-regional planning is concerned, “the bulk of the order is informational,” Lauterbach said. There’s a requirement to share information, but little else.

The draft final rule requires transmission providers to consider grid-enhancing technologies as part of the planning process but didn’t go as far as mandating their use. Similarly, the agency encouraged, but did not require, transmission planners to include a state agreement process, in which one or more relevant state entities may voluntarily agree to a cost allocation method for long-term regional transmission facilities.

“The fact that the state agreement process is permissive and not mandatory is something that I think people are going to be talking about,” Lauterbach said. “It also goes out until six months after facilities are selected in the regional transmission process. It’s an ex-post opportunity for states to say we’ll step in.”

While transmission providers are required to adopt tariff provisions that provide a federal right of first refusal for an incumbent transmission provider to develop any transmission facility that replaces an existing facility that meets a size threshold and is “right-sized” to help address regional transmission needs, the rule declined to adopt the broader proposal of a conditional federal right of first refusal that would have been available to incumbent transmission providers who agree to facility joint ownership. The rule also declined the proposal to limit the availability of the construction work-in-progress (CWIP) incentive. Any action on the CWIP incentive is more appropriately considered in a separate proceeding, FERC said.

What comes next?

While legal challenges and rehearing requests are likely, the process of implementing FERC’s order will continue.

The rules take effect 60 days after publication in the Federal Register.  Compliance filings with respect to most of the requirements in Order 1920 are due within 10 months of the effective date, while filings to comply with the interregional transmission coordination requirements are due within 12 months of the effective date.