Initial Comments of the R Street Institute

I. Issue Summary

On July 27, 2021, the Federal Energy Regulatory Commission (Commission) published an Advance Notice of Proposed Rulemaking (ANOPR) on potential reforms to improve generator interconnection processes, regional transmission planning and cost allocation. On April 21, 2022, the Commission published a Notice of Proposed Rulemaking (NOPR) based upon the ANOPR record. The NOPR would require public utility transmission providers (TPs) to:

  1. Conduct long-term regional transmission planning on a sufficiently forward-looking basis to meet transmission needs driven by changes in the resource mix and demand;
  2. More fully consider dynamic line ratings and advanced power flow control devices in regional transmission planning processes;
  3. Seek agreement of relevant state entities within the transmission planning region regarding the cost allocation method(s) that will apply to transmission facilities;
  4. Adopt enhanced transparency and coordination requirements with the aim of identifying potential opportunities to “right-size” replacement transmission facilities;
  5. Revise their existing interregional transmission coordination procedures to reflect the long-term regional transmission planning reforms proposed in this NOPR;
  6. Not permit TPs to take advantage of the construction-work-in-progress incentive for regional transmission facilities; and
  7. Permit TPs to the exercise of federal rights of first refusal for transmission facilities selected in a regional transmission plan for purposes of cost allocation, conditioned on the incumbent TP establishing joint ownership of the transmission facilities.

The R Street Institute (RSI) filed initial and reply comments in the ANOPR. As with the ANOPR comments, RSI is also filing separately in this notice as part of the Electric Transmission Competition Coalition.

II. Summary of R Street Position

The overarching objective of transmission policy is economically efficient regional transmission planning and cost allocation. This requires all expansion to pass a cost-benefit test, including robustness tests using long-term scenarios that capture risk and uncertainty; cost allocation based on the beneficiary-pays principle; competition for transmission asset ownership; and financial transmission rights. Reliability benefits should be accounted for on an economic valuation basis in an integrated process without artificial reliability and economic classifications; all reliability projects should be economic and all economic projects reliable. The costs of a public policy project failing a cost-benefit test should be allocated to the entities requesting the project. Planning processes should be conducted by an independent transmission planner across all Order 1000 regions in a manner that is stakeholder-inclusive, transparent, independent and accountable in order to prevent undue influence, especially from incumbent asset owners.

With this in mind, the NOPR overall is a mixed bag. A new RSI study (Consumer Study) that reflects a convening of transmission consumer groups infused with independent technical and legal analysis to maximize net benefits finds that the NOPR makes major progress on transmission planning and utilizing existing transmission infrastructure, but has mixed results on governance issues and would severely harm competition.

In these comments, RSI emphasizes the following for select provisions of the NOPR:

  • Regional Transmission Planning. The NOPR’s direction on regional transmission planning is enormously beneficial. The proposed planning time horizon and number of scenarios is prudent and would benefit from sensitivity analysis as well. The quality of these reforms is highly sensitive to governance quality, which places a premium on a process that is independently administered with enhanced transparency, accountability and stakeholder inclusion. The Commission should also:
    • Merge aspects of interconnection into transmission planning for transmission upgrades in order to co-optimize system planning and lower uncertainties, transactions costs, and inconsistencies between interconnection and transmission planning processes;
    • Require a minimum set of benefits for planning evaluation, including economic quantification of reliability benefits;
    • Require that all transmission projects require passage of cost-benefit analysis under the purview of an independent transmission planner and/or monitor across all Order 1000 regions;
    • Enact complementary near- and long-term planning process optimized to account for uncertainty; and
    • Host periodic forums on best practices in long-term transmission planning, especially given input and methodological complexity that the NOPR reforms will introduce.
  • Exercise of a Federal Right of First Refusal. The Achilles’ heel of the NOPR are anti-competitive right-sizing and conditional federal right of first refusal (ROFR) provisions. Based on incentive structure, a conditional ROFR would be employed unconditionally, thus signaling the death knell for transmission competition. Substantively, the justification provided would reinterpret “undue discrimination” in a manner that contradicts all precedent to promote “closed access” by institutionalizing discrimination. This is at odds with the Commission’s statutory duty to combat anti-competitive behavior and promote “open access;” it would also reverse course on the basis of the entire history of the Commission’s landmark rulings. Procedurally, the NOPR ignores the evidence on the record of the benefits of competition—and thus the damages federal ROFR would inflict—and seeks to use an obscure legal tool (Section 309 of the Federal Power Act) which creates massive legal risk that may not be severable from the rule. Worst of all, a federal ROFR may exacerbate the very problem the Commission seeks to address, by empowering incumbent TPs whose incentives are to pursue less efficient transmission development and stifle regional transmission development in a manner that insulates their generation. This behavior is the historic norm from well before competition was introduced into transmission—a federal ROFR would revert the industry back to the dark ages. Based on competition’s cost savings alone and the potential for trillions of dollars in future transmission expenditures, reinstating federal ROFR could easily prove to be a $100 billion mistake. RSI implores the Commission to:
    • Remove federal ROFR considerations from the final rule;
    • Pursue the complementary merits of expanding competition and independent planning through separate proceedings in a proper Section 206 manner; and
    • Adopt the recommendations of the Electricity Transmission Competition Coalition (ETCC) on this manner, whose comments RSI has contributed to and formally endorses in this proceeding.
  • Consideration of dynamic line ratings (DLR) and Advanced Power Flow Control Devices. The Commission should require incorporation, not mere consideration, of advanced transmission technologies in transmission planning processes. This should include, at minimum, topology optimization in addition to dynamic line ratings and advanced power flow control devices. The Commission should require the inclusion of commercially viable technologies generally on a rolling basis as informed by a mechanism that updates a list of qualifying technologies, such as a periodic forum with technology experts from the Department of Energy.
  • Regional Transmission Cost Allocation. The final rule should adhere to the beneficiary-pays principle for conventional transmission cost allocation as well as for network upgrades. The NOPR’s intent to drive state agreement is noble, as it could reduce disputes over cost allocation and potentially siting, however the proposal has some legal and conflict resolution concerns in practice. The Commission should insert schedule discipline and a backstop provision for circumstances where states cannot agree and recognize that state agreement would not reflect the full suite of beneficiaries charged with cost allocation. It must also be noted that states lack the jurisdiction and resources to serve an economic oversight role, and thus added state participation is not a substitute for the Commission’s economic oversight or for competitive mechanisms.
  • Interregional Transmission Coordination and Cost Allocation. The final rule should adopt the NOPR’s proposed interregional transmission coordination procedures. However, this will accomplish little by itself, and the Commission should endeavor to address the core problems in interregional transmission planning and cost allocation, which will require a separate rulemaking that alters the requirements of Order 1000.
  • Enhancements to Proposed Reforms. Quality governance is sorely missing from this NOPR. The Consumer Study found that quality governance is the foundation that enhances all other transmission reforms, including improved planning, optimizing the existing system and effective competition. It is imperative that the Commission prioritize planning stakeholder inclusiveness, transparency, accountability and independence to achieve quality governance and maximize the potential of all productive transmission policy reforms to the extent possible in this proceeding and others.

Read R Street’s full comments here.