BAAJA Blast Part 1: What Does Permitting Reform Mean for Energy and Natural Resources?
On September 30, the Bipartisan American Affordability and Jobs Act of 2026 (BAAJA) was unveiled by Senators Capito, Heinrich, Lee, and Whitehouse. The bill aims to speed up timelines and reduce roadblocks to building energy infrastructure across the country in order to reduce construction and customer costs. It modifies several existing laws, including the National Environmental Policy Act (NEPA), the Clean Water Act (CWA), the Endangered Species Act (ESA), the National Historic Preservation Act (NHPA), and the Federal Power Act (FPA). It also tightens deadlines, seeks judicial expediency, and aims to increase project and permit certainty.
Punchbowl reported on a deal with the Trump administration that would allow more than 30 wind energy projects to advance through a national security review where they have been stalled for months. Overall, this is good news, and the staff of Energy and Natural Resources (ENR) and Environment and Public Works (EPW) should be commended for achieving a bipartisan proposal.
Almost immediately after the Manchin-Barrasso bill was stalled in December 2024, the text of a new permitting bill was highly anticipated and the BAAJA (being pronounced “ba-ja,” like the cult classic Mountain Dew Baja Blast) did not disappoint. The text clocks in at more than 400 pages and contains 71 sections.
We at R Street wanted to ensure we did our due diligence and not issue any premature statements. With that, we are now prepared to give our thoughts on the bill via a two-part series in line with how the bill divides itself between the two related committees, Energy and Natural Resources (ENR) and Environment and Public Works (EPW).
Introducing the BAAJA Series
This week, in Part 1, we will cover the ENR provisions (sections 2101 to 2302), which include transmission, permitting by fuel type, and, to a lesser degree, the NHPA provisions. We’ll specifically look at reconductoring (section 2102), local transmission oversight (section 2104), and ratepayer protection (section 2107). Next week, in Part 2, we will publish our digest on the EPW sections, which include provisions related to NEPA, CWA, ESA, and Project Certainty.
Given the bill’s breadth of language and the range of possible outcomes yet to come as it works its way through both chambers, the potential impact of what the BAAJA might become is unclear. With that disclaimer, our review will initially focus on the areas we think worth highlighting for the value they will bring or the harms they are correcting, and thus should be championed.
Crucially, even with some of its flaws, which we will discuss, we believe the Bipartisan American Affordability and Jobs Act of 2026 is worthy of passage. R Street is an institution committed to real solutions, and BAAJA is legislation offering exactly that. It addresses many crucial issues in pragmatic and effective ways that will allow the U.S. to finally break free over burdensome regulatory issues—something we strongly believe is essential to securing our place in the coming era of electrification.
Part 1: Energy and Natural Resources
How will BAAJA Impact Reconductoring and Looping?
Reconductoring is an important tool in the transmission expansion toolkit. Put simply, reconductoring replaces old transmission line wires with high-capacity cables on existing towers; a key aspect of this is that it is done without building new transmission towers or buying new land. Due to changes in material science and manufacturing, we’ve developed conductors that can carry more power than the conductors we had decades ago, allowing increases of 25 to 100 percent at around one-third of the cost of greenfield transmission. This innovation should be implemented where appropriate, especially in existing transmission corridors where the existing towers can facilitate advanced conductors.
BAAJA would help speed the reconductoring process up. Under the proposal, reconductoring would receive a categorical exclusion from triggering a NEPA Environmental Assessment (EA) or an Environmental Impact Statement (EIS). It is common sense that a line should not have to go through a full review in order to replace existing conductors or, in the case of double circuit towers, add a second circuit to the towers.
One section of the bill’s text worth watching is the inclusion of the “addition of energy storage at or near a covered facility.” On the surface, this is sensible. However, it is important that energy storage is competitively procured and deployed. Currently, the rules for storage participation in wholesale markets vary, and if transmission owners are allowed include storage costs in their rate base, they will be able to use their monopoly to raise prices on customers to pay for those batteries. This will crowd out those aiming to produce and procure cheaper storage options as these entities cannot simply pass on their costs to captive customers. The result would be elevated costs for all by creating a higher floor on prices. If the bill’s changes are an attempt to treat storage as a transmission asset (SATA) and allow incumbent utilities to rate base storage through Federal Energy Regulatory Commission (FERC) formula rates, more work must be done to ensure healthy competition.
It’s also worth noting that the reconductoring modifications have similarities to proposed modifications for natural gas pipelines that have already been constructed and received an environmental permit. These projects will often have the opportunity to increase compression, add looping, or otherwise improve capacity throughput without departure from their existing approved right of way. While this would facilitate expanded natural gas consumption, it also adjusts the economics of dispatch for downstream generating units, resulting in older uneconomic units being less able to operate and more likely to be retired. This can avoid the need for greenfield pipeline expansion as well, which is beneficial because it increases asset utilization—and thus pipeline efficiency—of the capital already placed into service.
What Changes Does BAAJA Make to Local Transmission Oversight?
Another area of welcome expansion is the oversight of local transmission planning and development. While the title implies jurisdictional expansion, it is clear from the text that the intention is to provide a means of redress for states to refer their transmission owners to FERC for review of their local transmission planning processes and investments. This has been an issue in the past. Multiple complaints have been made to FERC outlining its failure to properly oversee local planning and, therefore, how the commission has not adequately ensured “economically efficient energy for consumers at a reasonable cost.” Note that R Street has been among the parties submitting these complaints, including EL25-44.
Generally, transmission investment falls into three buckets: local, regional, or network. Under FERC Order 1000, competition was introduced to regional transmission projects, which resulted in lower costs for customers, but local projects remained shielded from competition. Because of this, Transmission Owners (TOs) generally try to focus their finances on the local level in order to avoid sharing the costs with other jurisdictions. This proposed reform would, over time and implementation, diminish the incentive to allocate capital excessively to local transmission when regional projects might solve constraints more economically. In addition, RTOs and ISOs have a duty to assess whether any proposed local transmission plan passes a “do no harm” test, but beyond that review, it is solidly within the purview of the TO.
In PJM, for example, this has meant that the vast majority of transmission expenditures have occurred at a local level, with the costs flowing into FERC formula rates with a presumption of prudence. The “presumption of prudence” is a legal standard that assumes a TOs’ investment decisions are done in a responsible and carefully considered manner, and the burden of proof to overturn that presumption is upon customers, consumer advocates, and state regulators. A report published by David Gardiner and Associates for the Consumer Advocates of PJM States found that between 2018 and 2022, PJM TOs invested 67% of all transmission capital into local projects, with only 29% flowing to regional projects. The Ohio Consumers Counsel filed a complaint in 2023 highlighting this precise concern. By creating the structure for states to pursue review of local projects by FERC outside of the traditional Federal Power Act 206 filing, and outlining the penalties that FERC can levy if the investment is found to be unjust and unreasonable, BAAJA would inject an appropriate degree of fiscal discipline at a time when helping Americans afford electricity is of the utmost importance.
Are BAAJA’s Rate Payer Protections a Good Idea?
One area that is sure to garner attention within the bill is a proposal to expand ratepayer protections in the face of new large loads—what BAAJA calls computational load owners and operators and what the rest of us would call Data Centers. The bill specifically finds that under wholesale rates filed at FERC, it is unjust and unreasonable if the rates charged to data centers are less than the embedded costs and incremental expansion costs to interconnect them. In other words, data centers will pay the existing transmission rates for service and the incremental costs for the equipment to connect them to the grid.
To better understand this, it is important to look back at the 1994 Transmission Pricing Policy Statement from FERC. In it, five principles were laid out:
- Revenues shall be based on prudent incurred costs plus a return on capital
- Compatibility or the idea that in order to facilitate open access the transmission owner should charge themselves the same rates they would charge anyone else to use and access the system
- Efficient expansion of the transmission system, interconnection of generation and loads, fully utilizing existing lines, and dispatch of generation
- Pricing should be fair and equitable
- Pricing should be practical (i.e. a customer should be able to calculate how much they will be charged for transmission service)
An important component of the Pricing Policy Statement was that a customer seeking transmission service would be charged the higher of either embedded costs or incremental system expansion costs, but not both. What is proposed in the law is to require FERC to revise this statement within 270 days of enactment to allow for both embedded costs and incremental costs to be assigned to data centers. The incremental costs would be credited against the annual transmission revenue requirement (ATRR) which would result in all other customers being unharmed by the increase in transmission needed to serve the data center. This would reduce the risk of double cost recovery by the TO. In addition, there is also prescribed exit clause language that would continue to charge the data center for the costs incurred if they leave the energy system. This has been described in a catchy AI tune here.
As popular as these proposed changes might be with the public given the current attitudes on data centers, it may be a short-sighted aim to quell public unrest by punishing or extracting excess fees from new customers. If these were aluminum smelters or silicon chip fabricators, they likely wouldn’t be targeted, nor would Congress likely reach so far into retail jurisdiction as to prescribe the outcome of retail rate-making.
In addition, it is important to remember that the original construction of the bulk power system was not for the convenience of the residential customer, but for the industrialists so they could manufacture more efficiently. After the industrial customers were satisfied and there was remaining capacity, then residential customers benefited from the system someone else paid for—but they were still charged for using it. Under the proposed legislation, data centers would be charged for the system that exists and for the increased system costs they require even if those expansions will benefit all customers. This comes across less as good policy and more as lawmakers trying to extract their pound of flesh from today’s political punching bag.
Why BAAJA Will Help America Electrify
These three policies are but a beginning of the topics broached in BAAJA. Reconductoring of transmission lines and reasonable expansion of natural gas pipelines within existing rights of way should be free of NEPA review. Local Transmission expansion should have a means for review, and creating an avenue for that review is long past due. In regard to data centers, for all their ills, they are advancing the grid forward in front of reindustrialization, electrification, and new industries coming to our shores. It may not serve us well to punish them for spinning up the flywheel ahead of time. The future is electric.
There are tradeoffs to everything discussed above, and that we will discuss in Part 2. That’s the point of liberal democracies. No one side gets everything they want but society moves in a better direction. A bill like this harkens back to politics of yesteryear because it solves problems in a practical manner, and no one leaves completely happy. That is a good thing.