Crashing the Utility Transmission Planning Party — Episode 219 of Local Energy Rules

Shelley Welton:

Part of what I was trying to do in mapping this federal grid planning authority as the ideal entity is to use it as a baseline, almost like thought exercise for what kinds of reforms FERC should be prioritizing if we really think that governance is a problem. And I do think that there’s some space for FERC to step in and do some things on its own here.

John Farrell:

For almost 25 years, federal authorities have tried to get big utility companies to build more regional transmission lines to lower costs and increase opportunities for new clean power production. But like state regulators trying to protect distributed energy like rooftop solar, the feds have been swimming upstream against the utilities whose profit motive means they’ve ignored federal directions and use their power over regional grid planning to build smaller transmission projects that instead boost shareholder profits. We need to address the governance problems, as in a new proposal from the Hamilton Project, by putting grid planning into independent hands rather than letting the utility foxes manage the grid planning henhouse. Shelly Welton, Presidential Distinguished Professor of Law and Energy Policy at the University of Pennsylvania, Carey Law School and Kleinman School for Energy Policy, joined me in August, 2024 to discuss the opportunity to get a better regional grid by having independent federal planning. I’m John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance. And this is Local Energy Rules, a podcast about monopoly power, energy democracy, and how communities can take charge to transform the energy system. Shelley, welcome to Local Energy Rules.

Shelley Welton:

Thanks so much for having me on.

John Farrell:

Well, I love to start out by asking my guests how did they get here? How did you get here writing about transmission governance and its impact on US climate policy? What’s your story in terms of getting into the climate policy thing and looking at the transmission system?

Shelley Welton:

Yeah, I didn’t think I was going to find this fascinating. A decade plus ago, I started my career very much saying that I do environmental law and I came at it from a backpacker’s love of the woods and one of my first jobs out of law school was working for a center at Columbia Law School called the Center for Climate Change Law. And it turned out that almost all of the projects that we got brought from not-for-profit state governments that needed help were energy law questions. I think it just was where the action was on climate change. And so it’s where I started my career and I guess really what’s happened is I’ve kind of followed what I think are the interesting questions and pressing challenges related to climate and it’s taken me into the energy space and more specifically recently into the transmission space just because I think it is a really critical issue for climate change and one that’s underappreciated and underdiagnosed as part of both a solution, which I think people do more and more understand, but also a key set of governance challenges.

John Farrell:

So for folks who don’t intensely follow what’s been going on with transmission, there’s been some editorials or commentaries in New York Times from time to time about we need more transmission, a lot of conversation among energy advocates in social media and in trade places. Could you just talk about what’s at stake with this situation with the U.S. transmission system? What will happen if we continue to fail to create new capacity and who’s paying the price for that?

Shelley Welton:

Sure. Yeah, so I mean maybe it’s helpful to start just by noting we do spend a lot of money on transmission in this country every year, around 25 billion every year, but we’re not building the right kind of transmission. We’re not building it smartly. So right now we build a lot of local lines that exist within a single utility’s territory that connects their local resources, which maximizes their returns, their revenues. It doesn’t sort of maximally build the system that we need for the grid of the future. So this is a challenge that’s becoming a lot more acute as lots more clean energy lines up and wants to get on the US grid, especially recently as a result of policies like the Inflation Reduction Act, which has just caused a real surge in people that say, Hey, we’re here. We want to build clean energy, we want to connect it to the grid, but you can’t do that if you don’t have the grid infrastructure there to facilitate it.

And so really I guess I would say there’s a few reasons why transmission is very central to addressing climate change and decarbonizing the sector. One is that with wind and solar you have to build it where the resource is best and that doesn’t tend to be next to people. So you need transmission lines to connect resources to places that have high demand. Two, everyone knows that the sun is not always shining and the wind isn’t always blowing. We’re creating systems that help us deal with that. One of the ways to deal with that is to have a really robust transmission grid so that resources can be shared among places where they’re experiencing different variabilities have different resource bases, et cetera. And then the third thing I would just highlight is that transmission is one of the lowest cost ways to solve some of the challenges of how you have a high renewable penetration grid.

So there’s a lot of talk about some very expensive technologies out there like advanced nuclear and carbon capture and storage. Well, transmission does a lot of the kind of balancing that these resources do, but at a much lower cost and in a way that’s a much more rational cost-effective way to create the decarbonized future that so many of us are seeking. I think one illustration of how important transmission is to the clean energy transition comes out of some modeling done by Princeton’s repeat lab, which found that up to 80% of the emissions reductions benefits that they’re forecasting are going to happen as a result of the Inflation Reduction Act could be lost if we don’t build transmission faster and better than we are right now. So you can see it’s really a linchpin of the clean energy transition and climate change is also wreaking havoc on the grid at the same time that it’s causing the need to transform the grid.

So transmission is also really important for reliability in terms of being able to power areas that are experiencing extreme heat, extreme cold, with resources from other places and that both saves blackouts and saves potentially hundreds, thousands of lives. The other thing you asked was who pays the price? I mean I think it’s important maybe just to start from the baseline that we as rate payers on the electricity grid are paying for transmission, so it filters down into each and every one of our bills. It’s one of the fastest growing parts of electricity bills right now. And I always like to make the point that electricity rate base as a way to recover costs for the system is a deeply regressive system, which means that you’re paying a higher percentage of your income towards electricity if you make less money than if you make a lot of money as compared to say the federal income tax where it’s a progressive system. So this clearly falls on low income rate payers the hardest, and to the extent that transmission is the stall in the clean energy transition, keeping us from transitioning coal plants out faster, moving from natural gas, then those communities that are hosting that infrastructure, which is often environmental justice communities, are paying more than the rest of us in terms of health and wellbeing.

John Farrell:

One of the things I found really interesting in your paper about getting transmission capacity, and you kind of alluded to this before about the we’re investing 25 billion in transmission, but it’s not necessarily serving these broader purposes. In your proposal around grid governance, you quote a study by Catherine Hausman about transmission congestion in the Midwest. Could you just share that example and how it explains this sort of counterintuitive issue where you would think big transmission owning utilities who make money building infrastructure would like power lines, but in this case it really wasn’t in their financial self-interest?

Shelley Welton:

Sure, I hope I do the study justice. So Hausman did this 2024 study with the National Bureau of Economic Research and she did what I think is a pretty ingenious job taking this intuition that a lot of U.S. law scholars have had but haven’t really been able to prove, this intuition that utilities have financial reasons not to want to cooperate in building transmission. And she really put some numbers and some names to this challenge. So I’m not a modeler, I’m going to explain this in the basic terms that I understand it. What she basically did is model a few big systems in the U.S., a few regional electricity grids. So she was specifically looking at MISO, which is basically the Midwest part of the country, and the Southwest Power Pool, which is next to it. And she ran some simulations of what happens to electricity supply and then the resultant prices in electricity markets when you have new transmission and when you don’t have new transmission.

So when you’re transmission constrained, is the phrase, you can’t send power everywhere that you would like to if you had the kind of grid that allowed electrons to flow freely. And what she found is that several big utilities, particularly some big utilities in the southern part of this Midwest region, benefit from these transmission constraints because if transmission weren’t constrained, lots of cheap wind power that’s being built mostly in the upper Midwest would be able to flow down the system and serve their customers and that would displace some of their local generation, mostly fossil fuel generation. And it would lower market prices more generally, right? It would compete with their home generation resources. And so not having transmission means they get paid more on the generation side. So basically a world with less transmission costs more for rate payers, but it’s great for generators that are in transmission constrained regions. And I pulled the numbers here. She found that the four firms that stand to lose the most collectively would have lost 1.6 billion in operating profits in 2022 alone if the system had not been transmission constrained and wind had been able to flow into the region.

John Farrell:

Which, put another way, is a 1.6 billion that their customers are basically paying extra in a single year for power that would otherwise be cheaper if there was more transmission.

Shelley Welton:

That is totally right. So I mean this is a state of affairs that’s great for these incumbent generators, terrible for the public.

John Farrell:

And part of this too is obviously relates to the fact that you have in many places, especially in the Midwest, vertically integrated investor owned utilities that are both responsible for transmission and they own generation. So they have this conflict of interest then because they operate these different parts of the grid and profit in different ways from operating those different parts.

Shelley Welton:

Right? So the examples she’s giving, it’s situations where the utility owns generation and they are losing on their generation with more transmission in place. It’s maybe worth clarifying that I think the problem, although Houseman didn’t look at this challenge, Ari Pescoe has documented, and I think he’s quite right, that there’s also a challenge with plain old transmission owning utilities. So they’re not suffering from this generation competition problem, but if you are a utility that builds and owns transmission, the way to get maximum return is to build and own transmission in your own service territory where you’re just straight rate recovering that from your own rate payers. It’s much more complicated once you’re trying to build big regional lines or especially inner regional lines where you may not get to build it, your rate payers may still have to pay for it. So you’re not rate basing it, but it’s going into bills and it’s creating pressure on state regulators not to let you build things instead. And it’s just really complicated to figure out how to share the cost of those lines, how to site them. So the quickest, easiest way for a transmission utility to earn a buck is to build transmission in their service territory.

John Farrell:

So we get now to the sort of part that I find fascinating, which is all of these utilities are operating in a system that is ostensibly heavily regulated and overseen by either the federal or the state government based on the different sort components of this. But the federal government exercises the oversight of interstate transmission, which is kind of what we’re talking about here when we talk about the potential benefits of expanding transmission capacity and it’s through the Federal Energy Regulatory Commission. So could you talk about why is that ineffective and also whether or not some of the recent FERC orders like order 1920 and others about transmission planning if they’re going to be sufficient to addressing the sort of ineffective system of transmission planning and building that we have right now?

Shelley Welton:

Sure. Here’s where things I think get a little wonky. So hopefully everyone’s going to find transmission governance as interesting as you and I do.

John Farrell:

If they weren’t prepared for it, I don’t know, they’re reading something wrong in the episode summary. So I think the people who are still with us are ready for it.

Shelley Welton:

Alright, let’s do it. I think maybe the word ineffective is too harsh, but I guess my diagnosis is that I think FERC has been less effective than they could be in this space. So I would say it’s a world of incremental progress but not nearly enough progress. So the argument that I make is that basically FERC has been too light touch in the way that it regulates transmission utilities. So legally these are all what are called public utilities and they’re supposed to have special obligations to the public in exchange for getting their monopoly service territories where they don’t face any competition. And the way that FERC has tried to regulate transmission planning, transmission expansion, is I would describe as basically asking these utilities to play nice with each other. So back in around the year 2000, it asked utilities to get together and form what are called regional transmission organizations or basically what I’ve described other places as membership clubs where they warm a group in a region and then turnover control of the transmission system to a not-for-profit operator even though the utilities still own their individual lines.

So FERC asked transmission utilities to do this, some did, some didn’t. They didn’t do anything to the ones that didn’t. And then about 10 years later in 2011 they put out another order called order 1000 and it basically said it looks like getting together into membership clubs didn’t do the trick in terms of planning the transmission grid rationally and so we’re going to impose some requirements on the kinds of planning you have to do. And they actually said all regions have to do this, not just ones that had formed these regional transmission organizations. So they said every region you have to get together, you have to make a plan, you have to consider loss and benefits of lines and then build what you will. It turns out that this didn’t really work either, right? Most regions sort of checked the box of the minimal requirements that FERC put in place and they went on building their local lines.

It turns out that actually fewer regional lines have been built since order 1000 than before order 1000. And so you asked about the most recent efforts, and it was a big splash in the small world of transmission governance. That FERC put out an order in May of this year, which it called order 1920, which basically I would describe as an effort to really double down on this model but with more teeth. And I’ll say, I think these reforms are good, they’re even very good as compared to the draft rule they put out. So I think things are getting better, but it doesn’t fundamentally change the framework I was talking about. So basically FERC has said, no, we really mean it. You really have to come up with a good regional plan. You need to do some scenario forecasts of what the grid might look like.

We’re going to tell you you need to consider a list of benefits that come from building this kind of transmission and we want to see that in the plan and you need to come up with some real methods of how you’re going to allocate costs of lines. So I think that this is going to produce better regional plans on paper at the end of the day, but I am skeptical that that’s going to translate into builds that look like the best version of these plans and that’s because FERC didn’t say, and we’re requiring you to build the best lines that come out of these plans. It just said make a plan and then as a region figure out how you’re going to select what you build. So it hasn’t fundamentally changed the incentives for utilities to not live up to the best versions of these plans. I will note it is a bit of a legal gray area whether FERC could mandate that they follow the plans or not. If regional plans produce results that show tremendous benefits to building regional lines, there might be pressure from state commissions from the public, et cetera for utilities to actually build those lines. But it’s going to take some sort of concerted effort, pressure, monitoring for these plans to turn into steel in the ground.

John Farrell:

I mean color me skeptic that in a quarter century of trying to get utilities to do this differently — I mean as you put it, we’re getting fewer regional lines. I remember Ari, one of his papers kind of talked about how I think it was in the New England ISO that what utilities did when they were basically ordered to do more consideration of regional lines was figure out the loophole of saying, well these are emergency lines that we’re building for reliability purposes and invested even more in those local lines. So maybe we’ll disagree on whether FERC’s ineffective or less effective than it could be. But I guess it’s clear that in terms of especially when you think about whether it’s the analysis from Princeton or others, the amount of transmission in capacity expansion that people are modeling as providing the best benefit or giving us the best hope of building the clean energy future we want is going to be several times more than we’ve been seeing in recent years and we’ve been going backwards.

So I guess I will remain skeptical, but that’s what makes me so interested in your proposal here because if we can’t trust utilities to set aside their private interests or if we can’t trust state regulators to hold their feet to the fire when they develop these new regional plans, assuming that they do that well, you say quote, a system planned by incumbents is likely to remain a system planned for incumbents. So what is your proposal about how we might break out of this cycle of less than good intention planning and then building kind of what serves that private interest?

Shelley Welton:

Yeah, I’m glad that you pulled out that quote. I mean I do think to understand what I’m proposing, I think it’s really helpful to understand that I think there’s something fundamentally broken below the level of we’re not building enough transmission or we’re not interconnecting resources fast enough. And that something is like we’ve created a governance structure where the incentives are just skewed. We can vilify utilities or we can just see them as fulfilling the business model that we’ve asked them to fulfill, right? These are investor owned utilities. U.S. law has said your job is to maximize shareholder value and they don’t maximize shareholder value by building the most efficient, rational forward-looking system for the public, right? There’s just like a fundamental mismatch between having private companies do this planning and thinking that we’re going to get the grid that we want from a public interest perspective.

So that brings me to my proposal, which is I think we need something like what I call a federal grid planning authority. So a federal entity that takes on the job of modeling and figuring out what does a rational grid look like going forward based on what states are planning to build, what we know is coming down the pike in terms of demand, where resources are going to be built, where we’re going to have load growth, some sort of entity that’s a neutral expert body that is not driven by profit incentives, that’s going to take a look at the whole picture and figure out how do we build what we need as cost effectively with as little land footprint as possible, et cetera. And I’ll note this could be a new entity. I think that you could have some offices that already exist within the Department of Energy do this kind of modeling.

We have a ton of modeling capacity in the federal government. Department of Energy does great transmission modeling. The national labs do great transmission modeling. It’s just that right now they keep putting out these plans that are like, look, an inter-regional grid would save us tens of billions of dollars and connect clean energy and then they just sit on a shelf, nobody takes them and then turns that into the plan because that’s not where utilities would want to take the system. So my suggestion is have this kind of planning authority that maps out a system and then regionalize that and hand that to the regions and say, this is your blueprint that you’re working with, right? These are the lines that we’ve determined regionally and regionally make the most sense. Now, if utilities can prove to you that they need some additional lines for emergencies, for reliability, for local needs, sure you can include those in the plan, but this is the baseline and it takes proof that you need additional local lines in order to include them. This would also require FERC being a little bit more heavy handed when it reviews proposals from utilities to build these local lines and say, if you didn’t justify it as part of the regional plan, we’re not going to say that this is a just and reasonable line for you to build. And currently they just don’t provide that kind of scrutiny.

John Farrell:

I love it because it clearly addresses this issue in the sort of governance structure. As you said, utilities have a very rational approach here, which is we make more money if we build these local lines if we’re not getting involved in this regional stuff. And you have different situations with governance in different regions. But ultimately I think the way Ari described it once, and maybe you wrote about this too, is that currently regional planning tends to be sort of the sum of each individual utilities plan, which isn’t much of a regional plan at all. It’s just sort of this very balkanized development plan. So what I like here is you’re talking about independence and the development of the plan. You’re also talking about that plan becoming the baseline for a regional plan as like an optimized model as opposed to a sum of little parts that have no coherent connection to one another in terms of serving a particular public purpose, which I think is just really exciting.

Shelley Welton:

Thanks. I think it’s exciting too if doable.

John Farrell:

So let’s talk about that. Would having a federal grid planning authority require new legislation? You kind of alluded to the fact that there might be ways that existing federal agencies and offices could act, and I guess I’m also kind of curious, and maybe this gets too far afield into the weeds, but the Supreme Court’s recent action to overturn Chevron deference in terms of giving deference to agencies, would it impede non legislative approaches to doing grid planning?

Shelley Welton:

That’s a big set of good questions.

John Farrell:

We’ll be here for another hour and a half. Sorry.

Shelley Welton:

I’ll try to keep this pithy. So I mean, yeah, in an ideal world, this would be done legislatively, right? That’s going to end run any of these legal uncertainties with current judicial evolving precedent that you were alluding to. And I don’t think it’s an entire pipe dream to think that this could be done legislatively. There is some bipartisan interest in transmission. It’s certainly not going to happen this calendar year, but maybe in the future as concerns mount, I think it’s particularly likely that you might see legislation addressing the inter-regional component of this because FERC’s order 1920 doesn’t do anything on inter-regional transmission, and it’s pretty clear that the regions are just not equipped to deal with how you model build pay for lines that cross regions. But part of what I was trying to do in mapping this federal grid planning authority as the ideal entity is to use it as a baseline, almost like thought exercise for what kinds of reforms FERC should be prioritizing if we really think that governance is a problem.

And I do think that there’s some space for FERC to step in and do some things on its own here. So FERC’s legal authority over transmission comes from its authority to ensure that rates and practices are just and reasonable. It’s a pretty squishy phrase, and basically what it’s been interpreted to mean is that FERC should make sure that utilities stay financially healthy, but otherwise make sure that customers aren’t overspending. It is super clear that at the present juncture, customers are radically overspending. It is not just in regional the way that we’re doing grid planning. FERC just acknowledged this in order 1920. So if you think that 1920 doesn’t go far enough, if you think that regions just aren’t capable of amalgamating utility preferences into a just and reasonable plan, I think there’s a lot more space for FERC to say, look, this model can’t produce just and reasonable results.

Here’s something that we think could work. Like start with a publicly modeled plan and then you can still do your plan. You can still come up with your lines, but use this as your baseline. Otherwise we’re never going to get to a just reasonable system. Would that get challenged in court? Absolutely, a hundred percent. Would it hold up under this Supreme Court that has been very skeptical of agencies using longstanding authority in new ways? Maybe not, right? I think that there’s some risk in going that far, but even if FERC wasn’t comfortable wholesale trying to implement my strategy, I think it points towards a lot of other things they could do that are smaller and almost certainly within bounds. So maybe just to give you an example, one thing that a lot of parties were calling for when they were doing reform was for FERC to put in place an independent transmission monitor in every region that would basically just sit on top of the transmission planning process and make sure that they think it’s actually producing independent results.

We have similar things for electricity markets already. This wouldn’t be a real legal leap. It would improve things less than my plan too, but I think it would be useful. The other thing that FERC could do is just start scrutinizing utilities proposed transmission lines more right now. So utilities file their plans for what they’re going to build with FERC right now, the way that this system works is without getting into the weeds, the way that this system works is that basically, unless somebody challenges a line as unjust and unreasonable, FERC doesn’t review it, those presumptions could get changed for local lines as sort of an impetus for utilities to participate more in the regional process.

John Farrell:

Your paper is out there and we’ll link to it on the show page for folks who want to dig in and read more about the details of these.

We’re going to take a short break. When we come back, I ask how we might have to prepare to play utility resistance whack-a-mole, how we account for non-transmission strategies to add grid capacity, and what advocates of good governance can do. You’re listening to a Local Energy Rules podcast with Shelly Welton, presidential distinguished professor of law and energy policy at the University of Pennsylvania, Carey Law School and Kleinman School for Energy Policy. Hey, thanks for listening to Local Energy Rules. We’re so glad you’re here. If you like what you’ve heard, please help other folks find us by giving the show a rating and review on Apple Podcasts or Spotify, five stars if you think we’ve earned it. As a bonus, I’ll gladly read your review aloud on the show if it includes an energy related joke or pun. Now, back to the program.

I think what’s so interesting to me though about what you’ve laid out here is you have sort of the most ambitious approach and ambition I think is a relative term here, is that FERC would really lean into that just and reasonable rates authority and say essentially, if you’re not moving toward a regional plan that models what is actually most cost effective, that you’re not just and reasonable. I mean, to me that seems very common sense, at least in terms of being like, yeah, I mean the authority’s clearly there. It’s clear that people are going to pay a lot more if we don’t adhere to this. Why wouldn’t FERC have the authority to do this? So ignoring the sort of Supreme Court and the Chevron deference thing for a minute, and also thinking about, one of the things that really struck me about what Ari has written about was that not only has FERC, as you mentioned, acknowledged in recent orders that the cost to customers are not just unreasonable. They’ve also acknowledged that utilities have lots of market power here and that this issue of governance reform in fact is necessary in order to solve the problem, or at least they have to effectively address this problem of exercising of market power. And it’s kind of unclear to me how other than addressing governance, you can do that.

So to me, I look at what you’ve proposed and I think they’ve got to try it. And frankly, yes, you’re going to get sued by the utilities over this because as you pointed out, very rationally, they’re more interested in building these parochial local lines that make them money. But you have to test that authority and actually try it. And what it might do usefully is if you lose in court as FERC now you know have to go to Congress to get the authority to do this, and it’s very clear that you need to go to Congress and that action is needed. So I don’t know, part of me feels like why try sort of a half measure here when the problem is so big when it’s lasted for so long, when the problem is really rooted in, as you said, a system that’s not designed to work correctly. Why not try for something that might actually fix that?

Shelley Welton:

Yeah, I mean I think this is a really delicate dance that you imagine that the lawyers at FERC are doing, right? On the one hand, you can swing for the fences and fear that it’s going to get struck down and you’ve lost the time it takes to do that. On the other hand, you can not swing for the fences and it’s still going to take, I mean five or 10 years to percolate whether or not 1920 does any good, right? And that to me is the fundamental challenge here is that we’re in a planetary emergency and if you want to build a system that could possibly respond to that emergency, we don’t have five or 10 years to see if the next set of incremental improvements changes the system or not. So I guess I am more of a swing for the fences kind of person.

John Farrell:

It seems hard that you couldn’t be honestly given the state that we find ourselves in. Let’s talk a little bit then about, I think this is relevant both in the terms of if FERC swung for the fences, but also even if they try to act incrementally here, like you said, this sort of timeline for order 1920 to percolate down. I can imagine that you might share one of my concerns, which is how utilities will lobby to defeat reforms that elevate regional planning expense of their interests. I think famously when the feds have exerted more authority, such as when they banned the right of first refusal and transmission line ownership in some order back in the day a couple decades ago, utilities actually went to sympathetic state legislatures and won laws in up to a dozen states that preserved their monopoly protectionist policies. So they’ve proven very effective at undercutting federal oversight by going to the states where they can. So I’m kind of curious, how do you think states might need to prepare for how utilities would respond to efforts to improve federal grid oversight, even if it’s anywhere from the modest to the swing for the fences, and are there other places other than state legislatures and state regulatory commissions we would have to be prepared to play sort of utility interest?

Shelley Welton:

I like the way that you described that. Yeah, I mean I certainly share this concern, right? You’re going to see this pressure exert itself somewhere in the system when you’re threatening powerful incumbents that have not just a lot of economic power, but a lot of political power. One of the challenges here with order 1920 that maybe is worth highlighting is that utilities in many states have gotten their states opposed to the order because what they say is, look, there are these crazy blue states that have these really aggressive clean energy targets and they’re going to need transmission to accomplish their targets. But you, state that doesn’t have that, you’re going to be paying for transmission that just benefits those blue states. And so you’ve seen a lot of states come out against order 1920. So what they’ve said to their states is, look, you’re going to be paying for these blue states transmission. Now, I think FERC did a really careful job in order 1920 in the way that it structured things to make so that’s not going to be the case. States are only going to pay for the benefits that they get, and if they don’t have public policy benefits, they don’t have clean energy policies that are driving the need for a line, they’re not going to be paying for that. They’re going to pay for the economic and reliability benefits that they get from these lines. So I think making that case to states and having states understand how when you get down into the nitty gritty, it’s not the case that they’re going to be subsidizing each other’s policies, is really critical here because utilities are using this line as a way to turn states against what are really just fundamentally cost saving efforts for state rate payers.

At the end of the day, more generally, I think my big worry about how order 1920 might play out on the ground is that again, FERC has given a ton of power to the regions to design their own processes for transmission planning. So it said, consider these benefits, do scenario modeling, but these regions still have every incentive to have a plan, produce the fewest regional lines possible to bake in assumptions and use methods that show fewer benefits rather than more from regional and inter-regional lines. And so my worry is that a lot of the shenanigans here are going to turn up in internal RTO and regional transmission processes, which is like a byzantine warren of committee meetings and subcommittee meetings and modeling meetings. It takes tremendous resources, it takes tremendous expertise to understand how inputs and assumptions and models are spitting out results, but that’s where the game is going to be and that’s a hard place or advocates to effectively participate.

John Farrell:

I think about my intro to transmission stuff was back in the early 2010s when FERC, I think it was under the Energy Policy Act of 2005, they were going to create these adders for doing transmission projects, regional benefit transmission projects, and I wrote a piece not even publicly published in a transmission and distribution magazine or anything, it was just on ILSR’S website basically saying this was a terrible idea because we’re basically just giving more money to utilities to do something they already get paid pretty richly to do. And that was unfair to rate payers. I actually got a call from FERC chair John Wellinghoff, and he was reaching out and he was like, I think you make a good argument. It’d be great if you’d participate in some of these regional places where this kind of conversation is taking place. But that’s kind of how I left that conversation, sort of as you put it, like it’s really difficult to have the expertise to participate in those places.

And it was also really sad to realize that the head of the federal government’s regional grid oversight office is essentially hoping that I, a nonprofit advocate, am going to show up and help make sure that we’re holding utilities feet to the fire. So I do share that concern as well of these are really, I mean even just a traditional sort of state-based regulatory commission proceeding can be really challenging. I can only imagine what it is like at the regional level when you have multiple utilities bringing in data, even getting access to the data is sometimes very complicated, being allowed to participate, signing nondisclosure agreements, et cetera. So it seems to me at least that that’s a very legitimate concern about how this planning might take place and whether or not it will actually be designed in the best possible way. So I dunno, I’m convinced by your proposal that we need some more independent governance of the planning process and more independent planning.

Shelley Welton:

Well, and clearly you have your finger on the pulse of transmission based on prior experience.

John Farrell:

I forgot about it for about a decade, but now I’m back and yeah, it seems like the experience hasn’t changed a whole lot. I wanted to ask you about one other thing though. So one concern I have about transmission planning, writ large is just about the balance of how we make investments to get to our clean energy system. And so for me it’s about how do we accurately forecast the transmission needs to create that most optimal system? One of the things that I’ve noted and haven’t been terribly significantly involved in I think as a result is that transmission planning has historically not been terribly effective at examining alternatives. When states look at the certificate of need for a new transmission line proposed by a utility, they might ask them to talk about alternatives. I remember in my conversation with FERC chair, John Wellinghoff utilities would have to consider alternatives if somebody else proposed them but didn’t have to examine them themselves.

I wrote a piece recently called Three Ways to Green the Grid without new Transmission. It wasn’t to say that we don’t need any at all, but that there are some interesting and new underused strategies like grid enhancing technologies, reconductoring distributed energy generation like rooftop solar. So I guess I’m just curious what gives you confidence that if there was independent federal planning, that it would avoid some of the pitfalls we’ve had with existing state utility regional planning that has been discounting strategies that effectively get more transmission capacity for us and sometimes at a lower cost than new lines?

Shelley Welton:

Yeah, I think this is a really important point to bring up. The first law review article that I ever wrote was called Non-Transmission Alternatives, and it was about how order 1000 did not adequately create procedures for non-transmission alternatives to be considered alongside transmission. So this is absolutely something front of mind for me as well. My very frank answer is that I don’t think federalizing grid planning is going to solve all of these challenges, but I think it might help. So let me just say a little bit about why I think it might help, and then maybe I can say about the residual challenges that I think remain. So I think it might help for a couple reasons. One is, again, this just back to incumbent incentives. It is very well documented that utilities have lots of incentives, not to say model in robust distributed energy resources that would negate the need for a new transmission line.

A federal grid planner is not going to have those same incentives to sort of try to cook the models to bake out other solutions because there’s no profit interest at stake. The other thing that I think might be really synergistic here is that you are not alone in getting excited about some of these new possibilities for basically enhancing existing transmission capacity. The Department of Energy has been doing some really great work on this, and so I think you’d see federal grid planners that really shared an interest in modeling reconductoring dynamic line ratings, et cetera, alongside new lines. I think they’d be very good at doing that. I think what this wouldn’t solve is the possibility for local distributed and community resources to play an important role in replacing transmission and large distribution where it makes sense for them to do so. And I guess the challenge here is that states at the end of the day have control over generation, and this is really a state level decision.

So I think the best that the federal government could do if they were the grid planner is say, states, please robustly model distributed and energy community energy and give us those inputs to our model so that we can include them, but it’s going to be up to states whether or not they are planning and projecting the kind of resource mix that would balance all of those considerations. And it just means that we haven’t fixed the challenge state by state of figuring out how to balance transmission, large scale generation, distributed community, et cetera, and all of the challenges that exist at the state level right now because states are going to feed that into the model. It’s not going to solve those challenges.

John Farrell:

One of the things that interested me so much in your proposal is that I sort of released my own proposal this year about the distribution grid and sort of similarly said, we need an independent governance at that level, that this issue around modeling alternatives to utility scale energy or sort of maximizing the kind of combination of distributed energy resources with large scale resources also doesn’t work in the system because we have incentives for the incumbent utility to say, well, we like doing utility scale stuff because it supports expansion of transmission in the case where they’re vertically integrated, or maybe we like utility scale stuff because it’s more aligned with utility ownership of the asset, and we get to put it in the rate base. There’s so many different ways in which they kind of put their thumb on the scale and in addition, have control over the interconnection process that is used effectively by their competitors. So I can link to that report, but don’t want to go down the weeds here.

I want to ask you a final question about the regional planning authority, which is where can folks who are listening to this, where can advocates show up to support governance reforms for transmission planning? Are there existing proceedings? Are there petitions to FERC, to the DOE? Where is this conversation happening that folks could participate in if they like as I do this idea that we should have more independent grid planning?

Shelley Welton:

Yeah, I mean, I think the dream world we should construct is one where folks don’t have to show up to participate in transmission planning. That should be the baseline goal, but

John Farrell:

Amen.

Shelley Welton:

Until we get there, I mean, I think one really important place to be paying attention to right now is order 1920 implementation, right? So Burke put out this order and they basically said, regions, you’re going to need to file new tariffs. That’s what they’re called at FERC, but basically new plans for how you’re going to do planning going forward that conform to our principles. Each region is now going to develop a plan and submit it to FERC, as I was suggesting earlier. I think a lot of the details of what they come up with in these plans are really going to matter. So plugging into how regions are approaching the challenge, how they’re designing their planning processes, what best practices might look like at the regional level. The devil’s going to be in the details of how FERC implements this order in terms of how much efficacy it has.

So I think it’s a good place to be focusing attention more broadly. I have been joined by a lot of advocates and scholars. I think even one piece of legislation in calling for FERC to open a broader what’s called notice of inquiry into regional governance. FERC has done this in the past. It does it from time to time when it just basically says, we think there’s a problem out there and what we want to do is just start a record and figure out what’s going on. So I think the time is really ripe to ask FERC to create a new notice of inquiry into grid governance and just sort of air these issues, get some experts together, get some regional advocates together and figure out what’s going on and how could we fix it. The last time that this happened, it resulted in a whole new set of independence principles for RTOs, which obviously didn’t fix the challenges, but I think that starting to talk about this as a core challenge to a clean energy grid is really important.

John Farrell:

Let me know where I can sign up to support that effort. I think that sounds great. Well, Shelley, it was so great to talk to you. For folks who’ve been listening and want to learn more, Shelly’s proposal is called Governing the Grid for the Future, the Case for a Federal Grid Planning Authority. Shelley, it was such a pleasure to have you on Local Energy Rules. Thanks for joining me to talk about these issues of transmission planning governance.

Shelley Welton:

Thanks so much for having me.

John Farrell:

Thank you so much for listening to this episode of Local Energy Rules, where I discussed governance of regional transmission planning with Shelly Welton, presidential Distinguished professor of law and energy policy at the University of Pennsylvania, Kerry Law School and Kleinman School for Energy Policy. On the show page, look for a link to Shelly’s paper governing the grid for the future, the case for a federal grid planning authority and her earlier work on transmission alternatives. You’ll also find links to my article on the Three Ways to Expand Transmission Capacity Without Building New Lines, my podcast interview with Ari Pescoe, Ari’s research on the Utility Transmission syndicate, and other related podcast interviews and resources. Local Energy Rules is produced by myself and Maria McCoy with editing provided by audio engineer Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear how we can take on concentrated power to transform the energy system. Until next time, keep your energy local, and thanks for listening.