Cost-Causation Is No Cause for Concern

With recent calls from the right for its bipartisan passage and bicameral work on moving the bill forward, the Energy Permitting Reform Act of 2024 (EPRA) may just make it over the finish line during the lame duck session of the 118th Congress. While the bill deals with a number of issues from oil and gas leases to hydropower license extension, the portion on transmission planning gets a great deal of attention and interest. However, recent confusion and misstatements over the transmission cost allocation provisions require clarification.

The Federal Power Act (FPA) currently provides the Federal Energy Regulatory Commission (FERC) with backstop certification and siting authority for transmission projects found to be in the public interest. To get to FERC, the projects cannot be sited or approved by a state, and they must be located within certain predefined corridors. Both determining those “national interest” corridors and seeking a permit from FERC separately implicate the National Environmental Policy Act (NEPA). EPRA removes the need for defining corridors, cutting out a duplicative NEPA review. The bill also adds more detail to the FERC transmission certification process and guardrails for the project’s eventual cost allocation, where today none exist in statute. 

EPRA requires that the cost of any transmission certificated via the FPA’s backstop provisions be allocated to customers who benefit from the facilities “in accordance with the cost-causation principle.” The bill lists benefits to which cost should be allocated, including improved reliability, reduced congestion, reduced power losses, greater carrying capacity, reduced operating reserve requirements, and improved access to lower cost generation that achieves reductions in the cost of delivered power. The bill also ensures that customers will not pay for transmission certificated by FERC from which they receive no benefit (or trivial benefit) unless they choose to. Despite recent comments to the contrary, these provisions are not controversial and align with current legal precedent.

EPRA’s listed transmission benefits are straightforward, well understood, and already in use today. Reduced congestion and improving access to additional generation are primary considerations of PJM’s market efficiency planning. In the bill, improved reliability includes greater geographic and resource diversity, as well as a reduction in risk parameters used by utilities and RTOs across the country for decades. Today, planning processes consider the risk of generation derates in defined geographic areas and correlated outages of power plants. It is only reasonable to allocate the cost of alleviating risk to the people whose risks are being alleviated. Further, there is an outer limit with reliability, as processes are intended to hit defined reliability metrics. If a region is already sufficiently reliable, more transmission may not be necessary for reliability’s sake. Under EPRA, that region would not be allocated costs of backstop-sited transmission commensurate with any increase in reliability. 

FERC precedent and its recent orders are instructive as to what the cost-causation principle requires. The agency issued Order 1920 earlier this year, which requires transmission providers to conduct long-term transmission planning. The rule also set forth requirements on cost allocation for facilities planned under that process. FERC largely left its decision intact following requests for rehearing, issuing Order 1920-A in November. The bipartisan decision continues FERC’s long-standing precedent on cost-causation allocation of transmission costs, ensuring customers pay for transmission roughly commensurate with the benefit they receive from the facilities. With statutorily defined benefits and codification of the cost-causation principle, customers are safe under EPRA from subsidizing transmission that exclusively benefits others. However, the bill institutes a belt-and-suspenders approach to protecting customers from paying for transmission driven by others’ needs and benefits. 

In addition to a strict approach to cost-causation transmission cost allocation, EPRA also contains a “Ratepayer Protection” section clarifying that customers cannot be involuntarily allocated the costs of transmission from which they receive no benefits (or only trivial benefits). This hews with language used by the 7th, 8th, and D.C. circuit courts of appeal in creating and upholding FERC’s cost-causation principle. Rather than calling into question the cost-causation and benefits language in EPRA, this section of the bill merely ensures FERC understands the task at hand: If customers do not benefit from transmission projects certificated by the agency, costs shall not be involuntarily allocated to them. 

Plenty of obstacles to building economic transmission already exist. It is laudable that Congress is considering removing some current roadblocks, especially in the form of unnecessary applications of NEPA. In doing so, it is reasonable for the federal legislature to provide guardrails and guidance for FERC’s certification and cost allocation determinations. For whatever view one may hold of the entirety of EPRA, its transmission cost allocation provisions are no cause for concern.