Lessons to Carry From the Feds' Proposed New Infrastructure Rules

With the Infrastructure and Jobs Act allocating $65 billion for the construction of new transmission lines and boosting the Federal Energy Regulation Commission’s (FERC) authority in development, the nation looks poised for a rapid transformation of the grid. Right?  
That depends on how one defines terms. A recent FERC conference suggests an uphill battle in executing these visions.  
Demand for transmission capacity keeps growing with customers’ demand for renewable energy in places far from solar or wind generation. Interconnection queues hold roughly 734 gigawatts of proposed generation, 90 percent of which are renewable energy projects. Large upfront capital costs are a major reason for delayed projects, and the Infrastructure Bill addresses this through an innovative $2.5 billion revolving loan fund, which allows DOE to effectively guarantee a customer for new transmission lines by buying up to 50% of the planned capacity. However, the financing has yet to support a project. “I think the anchor tenant proposal is going to be somewhat limited in its deployment.” Richard Glick, Chairman of FERC, recently said.  
While more capital from the loan fund could help alleviate one major barrier of generator connection, major inefficiencies in permitting policies at the national and local level still threaten projects from being completed. To address this, the Infrastructure Bill grants FERC the authority to approve interstate projects that have been denied in state processes. While this logically promises to ease current inefficiencies in transmission development, some think this could easily cause greater pushback and more headaches for FERC. "I think members of Congress are overestimating the federal government's ability to approve transmission lines in a speedy manner while underestimating the controversy this will foment amongst constituents," Tony Clark, former FERC commissioner said.  
One explanation for these challenges arises from FERC’s relationship to Regional Transmission Organizations, or RTOs. The use of the nation’s transmission and the ability to accelerate its development must go through RTOs, which are quasi-autonomous. FERC created RTOs with the vision of having independent market operator somewhat removed from the whims of politics. While RTOs have been effective for protecting consumer rates and maintaining grid reliability, the level of bureaucracy they add can make it inherently difficult to pass sweeping reforms. This has become a point of tension for advocates calling for a complete transformation of our energy grid.  
FERC is aware of this challenge, and in July issued the largest proposed reform to transmission in over a decade, through a mechanism known as an Advance Notice of Proposed Rulemaking (ANOPR). The proposal, Building for the Future Through Electric Regional Transmission Planning and Cost Allocation and Generator Interconnection, allowed stakeholders to comment on over 100 potential transmission reforms, including planning and resiliency, cost-allocation, and enhanced transmission oversight. During the initial comment period, FERC received over 170 responses from consumers, most RTOs, and private developers, among other groups. (This comprises a pretty ordinary volume of comments, but the conversation is just starting.) FERC will then consider these responses and publish a Notice of Proposed Rulemaking (NOPR), which will likely be the largest reform to transmission policy in over a decade.  Experts who’ve talked to CEFF see the volume of comments as a signal that Glick’s outreach will make FERC rulings more responsive and thus more durable.  
ANPORs are a procedure employed across the Federal Register that invite participants to shape a future rule, but it isn’t a commonly used as a tool by FERC. One explanation for its use here may be the recent establishment of an Office of Public Participation (OPP) to improve FERC’s engagement with stakeholders. While a director for the OPP has yet to be nominated, this ANOPR reflects that FERC is beginning to consider its transparency more seriously.  
The Importance of Planning 
FERC recently held a Technical Conference on the planning reforms included in the ANOPR, signaling their interest in moving quickly on these issues. To some, planning is viewed as one of the most feasible improvements in the near-term, and many groups acknowledge that the expansion of clean energy requires new methods of “planning for the future.” Panelists’ responses during the conference, however, suggest that agreeing to the language of change remains a challenge.    
How to model long-term transmission scenarios without taking on undue risk was one hotly contested issue during the technical conference. Critics argue that RTOs take a “siloed” approach to transmission planning, considering the economic, environmental, and political benefits separately rather than in an integrated approach. By doing this, regional planners may be omitting projects that are net-beneficial when renewable energy goals and emission reductions are taken into account. From the perspective of RTOs though, planning far in advance with uncertain variables can heighten the potential for stranded assets and eventually harm consumers. 
One variable that advocates want mandated in planning processes is the “identification of areas with high renewable resource potential.” In the last major reform to transmission policy, FERC only required that utilities participate in regional transmission planning to ensure RTOs could build a more comprehensive scheme. However, this rule had no explicit requirements for planning by fuel-type, and was not prepared for such a rapid increase in renewable energy developments. Proponents argue RTOs need to proactively plan for where wind and solar projects are expected to be built and ensure that they connect to the grid.  RTOs do not deny that renewable energy is critical to meeting our public policy goals, by stress the significance of “regional differences” and they caution against a “cookie-cutter” approach. 
Cost Allocation 
While planning is critical to catalyzing transmission development, many see relieving cost barriers as essential to ensuring transmission lines actually get built. However, RTOs are at even greater odds with these proposed reforms, and FERC acknowledges that change in this area will be more difficult.  
The dispute lays with the cost-structure currently used for generator interconnection. Most RTOs follow a “participant pays” structure, which requires a single generator who intends to connect to the grid to pay for the entire costs of upgrading. Most interconnection in the US is almost at capacity, which means that a new project almost always has to develop new infrastructure rather than using existing. However, when one generator interconnects, other projects can take advantage of this new infrastructure without paying. The resulting classic free-rider problem discourages developers from connecting their projects to the grid.  
One of the suggested solutions is to adapt a crediting policy, which reimburses developers for the cost of interconnecting over10-20 years. This is commonly used in regions not under an RTO jurisdiction, but RTOs are firmly against change to their current policy. In a previous order, FERC gave RTOs flexibility over how to distribute generator interconnection costs, and RTOs are hesitant to lose this level of autonomy. 
 What Does FERC Have Authority to Do? 
The debate over transmission planning and cost allocation largely boils down to mandates versus guidance. RTOs want a new order to reflect their autonomy in decision-making, while advocates believe that watered-down language threatens the effectiveness of reform. Many of the challenges addressed in this current ANOPR have been known for decades, but previous attempts at reform virtually maintained the status quo.    
What’s Next? 
How the ANOPR proceeds now largely rests in the hands of FERC. In a recent media briefing, Richard Glick said he is still poring through the comments it received, and the commissioners will then try to reach an agreement on how to issue a proposed rule.  
Chairman Glick expressed hope that a notice of proposed rulemaking (NOPR) could be issued by early next year, and a final rule by the end of 2022. Given the breadth of the ANOPR, however, Glick mentioned that the issues may have to be addressed in separate orders.  “We may have to divvy up some of these issues into different rulemakings, depending on how difficult the task is and how different commissioners view issues,” Glick said.