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Clean Energy on FERC’s Agenda as Agency Eyes Utility Grid Powers

Dec. 23, 2021, 11:00 AM

If this year in Washington is remembered for the passage of historic infrastructure legislation, the next 12 months is likely to dictate whether federal energy regulators will fast-track those dollars into projects that support the Biden administration’s climate agenda and clean energy goals.

The Federal Energy Regulatory Commission and lawmakers are weighing whether to roll back the grid-planning power of electric utilities and incumbent transmission owners that have long wielded influence in those decisions. Companies clamoring to make grid improvements want more competition to accelerate the connection of renewable energy generators.

That debate is a central point of contention before FERC as it tees up a proposed rule in 2022 to overhaul planning for electric transmission projects. The commission, which gained a 3-2 Democratic majority this month, haven’t handled transmission issues since 2011.

The debate also comes as some in Congress are pressing the commission to spur projects that reduce emissions and lower consumer costs.

“The Biden administration is looking at: How do we get this stuff built in the next two years?” said Devin Hartman, director of energy and environmental policy for the R Street Institute, a pro-market Washington think tank, and a former FERC electricity markets analyst.

Federal agencies, local governments and developers will realize that projects are dependent on regulatory changes, said Hartman, who supports greater competition for grid improvements.

“The agency that’s going to matter most out of the gates for this is FERC,” he said.

Money into Projects

The road to the U.S. energy future runs through FERC headquarters in Washington, D.C., where commissioners grapple with wholesale electric markets, proposed interstate natural gas projects, and other matters with an eye toward keeping energy reliable and affordable.

The commission’s transmission efforts, launched in July, are playing out as the Biden administration plans how to dole out cash: Congress approved $65 billion for grid infrastructure within a $1 trillion infrastructure bill signed into law in November.

The $2 trillion Build Back Better Act, still pending in Congress, contains incentives for a clean energy to combat climate change.

The transmission proceeding targets a crucial component of that rollout. Transmission lines deliver power from where it’s generated to the places it is used, while balancing out mismatches between wind, solar and other renewable generation and fluctuations in demand.

Spreading Out Costs

State officials are tasked with siting transmission lines, which often span hundreds of miles, while the commission oversees regional planning and allocates costs of projects.

Long-haul transmission projects, spanning hundreds of miles, can take many years to go through the state siting process and gain local approvals—often falling short.

FERC Chair Richard Glick has pledged to work closer with states to smooth out transmission bottlenecks. In November, the commission and the National Association of Regulatory Utility Commissioners launched a transmission task force.

Glick is aiming for a rule—or a series of related rules—to drop sometime next year, he told reporters Dec. 16.

Legal precedent requires FERC to target the responsibility of paying a project’s costs to those who benefit most from it, said Suedeen Kelly, a partner at Jenner and Block who served on the commission from 2003 to 2009.

The commission likely will try to identify more benefits so it can distribute costs more widely and lower them for everyone, Kelly said. Bigger transmission projects could emerge if the commission “spreads out the obligation to build network upgrades for interconnecting generation more broadly to the transmission owners,” Kelly said.

Who Pays and Profits?

Any move to spread costs and promote competition face staunch opposition from electric utilities and transmission owners who want to maintain their standing and fund grid upgrades themselves.

Transmission is an attractive investment opportunity—developers can earn a 11% guaranteed return on investment, as set by the commission, that gets passed on to rate-payers.

The commission will need to push back on the power of utilities that “are threatened by significant change in how the system works or don’t know how they’re going to capitalize on it,” said John Norris, a former FERC commissioner who’s now a partner at Iowa-based consulting firm SPPG.

The debate can be politically charged. Private investors argue they can unlock transmission upgrades at lower costs for consumers, while utilities hold sway in regional grid organizations like PJM Interconnection, in which membership is voluntary and big companies can threaten to leave.

FERC needs to lead on this issue, or else “we’re back to thinking small, and thinking small has really empowered incumbents’ interests from limiting any change that’s not to their advantage,” Norris said.

The Edison Electric Institute, a trade organization representing investor-owned utilities, urged the commission to reinstate utilities’ exclusive right to upgrade transmission lines located within their service territory.

The commission’s 2011 repeal of this exclusive right on federal but not local projects “resulted in uncertainty, increased costs and increased delays,” the group wrote in comments.

States and consumer groups shot back that greater competition would lower costs for everyone, and urged FERC to expand its 2011 decision to cover local projects.

“We should stop the ‘one-foot-in-one-foot-out’ paradigm we have today, and instead jump into transmission competition headfirst,” Kent Chandler, chairman of the Kentucky Public Service Commission, wrote to commissioners.

Expanding FERC Power

Congressional Democrats are looking to expand the commission’s authority over transmission as a way to funnel infrastructure and climate to the right projects, said Rep. Sean Casten (D-Ill.), who spearheaded a “Hot FERC Summer” campaign this year, riffing on a song title from Megan Thee Stallion.

FERC is the forum to “remove those barriers to the private sector to leverage as much of that capital as possible,” Casten said.

Casten, a former energy executive, has introduced bills that would spur transmission planning among regions (H.R. 2678, S. 1015), require the commission to account for climate impacts when reviewing energy prices (H.R. 4556), and speed its appeals process (H.R. 4746). The climate-impacts bill had seven Democratic cosponsors as of mid-December, while the others had just one apiece.

The infrastructure bill granted the commission “backstop” siting authority on transmission projects that fail to obtain state approvals. But Congress should change in the Federal Power Act to centralize electric grid upgrade decisions at the commission, Casten said.

“We need to give FERC the same authority over transmission that they have over natural gas,” Casten said.

To contact the reporter on this story: Daniel Moore at dmoore1@bloombergindustry.com

To contact the editors responsible for this story: Rebecca Baker at rbaker@bloombergindustry.com; Chuck McCutcheon at cmccutcheon@bloombergindustry.com

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