Wiring Congressional Negotiations
As we approach the 11th hour of debt ceiling negotiations, energy reforms have become decisive bargaining chips. The parties appear to be converging on energy permitting reform but are at odds on “transmission for renewable energy.” This begs the question of transmission for grid resilience, which undoubtedly has more bipartisan appeal than the green agenda. Fortunately, Hill staff were briefed last week on the importance of transmission regulation reform on pure economic and reliability grounds.
Congress need not pursue regional transmission reform because the Federal Energy Regulatory Commission (FERC) has a pending rulemaking on the matter. This aims to correct deficiencies with FERC Order 1000, which was issued in 2011 to establish a regulatory framework for regional transmission planning and cost allocation. In the late 2000s, FERC commissioners and stakeholders disagreed on whether to sequence interregional or regional reform first. FERC chose the latter with the intent of returning to the former, and—to this day—FERC is trying to fix regional transmission while interregional remains unresolved.
Interregional transmission should have been a priority in the 2000s, when fossil and nuclear generation dominated. That is, there are huge economies of scale favoring larger transmission with major reliability benefits irrespective of the generation mix. Ideally, transmission would be developed at the largest scale first, with lesser scales planned in subsequent order to fill in the gaps.
Instead, this country does transmission backward. Regulation rewards monopoly utilities for overbuilding inefficient local transmission, which stunts efficient regional transmission development. Interregional transmission is virtually nonexistent, and rivals like China built over 80 times what we have. This results in a paradox where transmission remains underdeveloped, yet its costs are rising rapidly. This is a predictable outcome from a regulatory paradigm nearly devoid of economic discipline; it encourages inefficient transmission in lieu of efficient regional and especially interregional development.
Increasing weather severity and the evolving fuel mix increase the resilience imperative of interregional transmission. It is the worst in red states. A recent Department of Energy analysis found major resilience, reliability and economic benefits of expanded interregional transfer capacity, with the greatest need in conservative bastions: the Southeast, Texas, the Plains and the Midwest. Modest interregional investments would have saved lives and over $100 million during winter storms Elliott and Uri alone.
The key stakeholder in all of this is consumers, who pay the transmission bills and benefit from grid reliability. The Electricity Consumers Resource Council (ELCON), which represents industrial electricity customers, called interregional transfer capability “vital” considering that “[r]ecent severe weather events, such as Winter Storm Uri, demonstrated that a crucial element to providing life-saving electric service is the ability to import power from other less-impacted regions.” Groups like the Electricity Customer Alliance want regulatory reform to deter inefficient monopoly utility transmission development and spur efficient, competitive and economically based development instead.
There are three main policy tools on the menu:
- Adopt mandatory interregional transmission planning. What has worked for regional planning can be replicated for interregional planning. In the eyes of experts and consumers, that means independent planning that maximizes net economic benefits to consumers and puts transmission needs out for competitive bid. Consumer groups like ELCON and economists support paying for these projects consistent with the “beneficiary pays” principle. For a decade, FERC has shown no proclivity to translate regional model successes to the interregional scale. If it tried, FERC would likely also xerox flaws in regional transmission planning, such as bifurcating project planning into “economic” and “reliability” designations instead of integrating both objectives. Proper interregional planning warrants congressional leadership but requires sophisticated deliberations.
- Instill a minimum transfer requirement between regions. If mandatory planning is not on the table, a backstop option is to require a minimum transfer level between regions. This floor could use consistent reliability or resilience criteria, such as the ability to withstand extreme weather events, to determine a minimum transfer level suited to specific region-to-region conditions. Most regions lack the ability to transfer over 10 percent of a neighboring region’s peak load, yet a new analysis by Grid Strategies found a minimum interregional transfer capability of 20-25 percent peak load would conservatively approximate the reliability benefit across all regions. Beneficiary pays cost allocation is prudent for this option as well.
- Reduce barriers to merchant high voltage direct current (MHVDC) builds. The MHVDC model lets willing counterparties pay for transmission projects, whereas the previous options require planning and involuntary cost allocation. MHVDC should be maximized but currently faces major regulatory barriers to development. However, it will not be sufficient alone because most regions treat reliability as a public good and lack market mechanisms that provide price signals for reliability investments. Only Texas provides robust pricing for conditions where supply is scarce. Whereas the previous options raise challenges in Texas, enabling MHVDC already attracts commercial interest to purchase capacity rights voluntarily for transmission connections between regions in order to arbitrage the pricing spreads between Texas and its neighbors. This would not make the Texas grid jurisdictional to FERC, either.
Framed correctly, grid reform can break partisan gridlock. Alas, transmission is currently a key sticking point in negotiations because of its costly and green reputation. But if the transmission agenda focuses on the common political denominator—lower net energy costs and augment reliability—there are feasible options on the table. Whether during or after the debt ceiling package, Congress should prioritize a bare minimum for interregional transmission reform—pronto.
