FERC should loosen incumbent transmission owners’ grip on planning, R Street panelists say

Source: By Ethan Howland, Utility Dive • Posted: Monday, January 31, 2022

“Control over transmission is in a lot of ways control over the industry,” Ari Peskoe, director of Harvard Law School’s Electricity Law Initiative, said Thursday.

Alexander Koerner/Getty Images via Getty Images

Transmission planning needs major reforms, including loosening the grip incumbent transmission owners have on the process, a panel of experts said Thursday during a roundtable hosted by the R Street Institute, a think tank.

Transmission reform — perhaps the top priority at FERC — may be the most important national energy policy issue, according to Devin Hartman, R Street director of energy and environmental policy.

“Transmission policies are really at the intersection of economic development, energy innovation and the clean energy transition, and right now there’s pervasive inadequacies in existing transmission policy,” Hartman said. “That’s causing a variety of issues, everything from billions in avoidable cost increases to leaving reliability risks exposed, stifling innovation and suppressing clean energy access.”

The surge in interest in transmission issues has made transmission “cool again,” according to FERC Commissioner Allison Clements.

“There is a national recognition, a regional recognition, a local recognition that we’re at a moment where we need significant investment in the transmission system,” Clements said.

According to Clements, tackling transmission issues isn’t a FERC-only effort.

“All parts of government and industry and stakeholders need to have buy-in that we have a credible process by which transmission gets developed, as well as a credible role for states to weigh in on what transition gets developed, all the way down to individual communities and landowners who are going to have to host a lot of this transmission investment,” Clements said.

The transmission system — the high-voltage power lines and facilities that move much electricity from where it is made to the distribution systems that deliver it to where it is used — forms the backbone of the power grid.

In the short term, transmission operators determine who produces power and how much they produce, and in the long term they guide decisions about where to build new transmission, which opens opportunities for new sources of power, according to Ari Peskoe, director of Harvard Law School’s Electricity Law Initiative.

“So really, control over transmission is in a lot of ways control over the industry,” Peskoe said.

FERC in 2011 issued its landmark Order 1000, which governs transmission planning and cost allocation. The decision included requirements that regional transmission projects be put out to bid so non-utilities would have a chance to build them.

“In multi-state RTOs, competition is basically non-existent.”

Ari Peskoe

Director of Harvard Law School’s Electricity Law Initiative

Since the order took effect, incumbent transmission owners steered their investments into areas, such as local transmission, that didn’t require competitive processes, according to Peskoe.

As a result, regional transmission spending has decreased in multi-state regional transmission organizations (RTOs) and disappeared in some regions, Peskoe said. “In multi-state RTOs, competition is basically non-existent,” he said.

At the same time, transmission costs are rising sharply in many areas, even though an expected transmission buildout hasn’t started yet, according to Cynthia Bogorad, a Spiegel & McDiarmid partner who represents the Transmission Access Policy Study Group, an association of transmission dependent utilities (TDUs).

TDUs, such as municipal utilities, should have a larger role in transmission planning and development, and should have increased opportunities to jointly own transmission facilities, Bogorad said.

Transmission lines with partial public power utility ownership will have an easier time moving through state permitting reviews, according to Bogorad.

Bogorad supported more inclusive transmission planning so TDUs and consumers can be part of the process.

Transmission planning in the Southwest Power Pool (SPP) tends to focus on near-term issues like reducing transmission congestion, according to Keith Collins, executive director of the grid operator’s market monitoring unit.

However, with more generation coming onto the grid, congestion patterns are shifting, and will likely continue to shift in ways that aren’t understood yet, Collins said during Thursday’s meeting.

“So you’re not really planning for the generation of the future, necessarily, but you’re building transmission for an alternate grid that will not likely materialize,” Collins said.

RTOs and independent system operators are responsible for transmission planning where they operate, but the plans are “significantly” influenced by transmission owners, Collins said.

“The structure that SPP has does tend to favor the transmission owners in the process.”

In SPP, for example, the grid operator’s transmission planning committee is filled mostly by incumbent transmission owners, according to Collins. This gives them the ability to influence the inputs that go into transmission modeling, which affects the outcome, he said.

“The structure that SPP has does tend to favor the transmission owners in the process,” Collins said. “What we see are instances where some of these inputs are shaped [by transmission owners] not because they are in fact reflective of the actual value, but they’re done so to influence the process.”

Collins said the committee approved overly high operations and maintenance cost assumptions for wind farms to get a desired result. That O&M input was ultimately not included in the planning process, he noted.

The tilt towards incumbent utilities doesn’t mean competition for transmission projects isn’t possible.

SPP recently held a successful solicitation for a transmission project that was won by NextEra Energy Transmission, according to Collins.

At $85.2 million, the 345-kV Wolf Creek-to-Blackberry project was 27% less expensive than the next least expensive bid and its operations and maintenance costs were 30% lower, Collins said.

It appears that NextEra had vendor relationships and economies of scale they were able to pass through into their bid, according to Collins.

In other cases where there have been competitive solicitations for transmission projects, studies have found the winning bids are 20% to 40% lower than traditionally developed projects, Hartman said.

“Competition is good,” Peskoe said. “We need innovation in this sector.”

However, the transmission rate process rewards utilities for deploying capital, not for operational excellence, according to Peskoe. “Separating capital deployment from profits has got to be part of the discussion ultimately,” he said.

Collins called for opening up transmission planning to more stakeholders.

“As more voices are in the process, we would anticipate that you get a wider range of ideas and thoughts about how the [transmission plan] gets put together,” Collins said.

Peskoe also called for expanding participation in transmission planning.

“There’s no reason to think that utilities are best equipped to plan the grid of the future,” Peskoe said. “They certainly are capable of it, but there’s no reason to think they’re the best at it. And so we need to get more voices in there that are technically capable of both thinking through what the grid should look like and actually pulling off these projects.”