The devil in the details of FERC’s electric grid plan

Over the last nine months, the Federal Energy Regulatory Commission has reviewed more than a dozen compliance plans implementing Order 1000, an unprecedented restructuring of the nation’s electricity grid that mandated changes in the way regions and utilities plan and pay for new transmission.  

Order 1000 required utilities and regional transmission organizations to submit detailed plans to meet FERC’s transmission planning and cost allocation requirements. FERC officials said its compliance decisions would not only clarify its transmission policy but disarm critics of Order 1000. FERC would avoid a one-size fits all approach. It would give regions flexibility in planning. States would retain their robust role on transmission. Beneficiary pays would remain the bedrock principle in allocating costs of new power lines.

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The results are mostly disappointing and predictable. Instead of alleviating concerns about Order 1000, FERC’s rulings confirm the commission is headed in the wrong direction on transmission policy. The orders erode the traditional authority of state and regional regulators, assert unprecedented federal jurisdiction over public power, and will saddle many consumers with unfair transmission costs. FERC reality has trumped FERC rhetoric.

FERC’s compliance orders have unleashed a backlash on Capitol Hill, dismayed state utility regulators and the public power community, and divided the commission. “One can see a particularly perverse set of outcomes developing” cautioned FERC Commissioner Tony Clark.

FERC has apparently decided Washington must micro-manage the nation’s power grid. For example, the Commission continues to insist on “top-down” regional planning that ignores state and local authority. States are treated as mere stakeholders in the planning process, and the compliance orders undermine state jurisdiction over transmission siting, permitting and construction.

 In July, the National Association of Regulatory Utility Commissioners (NARUC) took an unusually bold stance, issuing a resolution stating that implementation of Order 1000 “inappropriately infringes on State authority” in key areas of transmission policy as established by Congress. FERC’s failure to recognize the role states play “could actually delay successful transmission planning and cost allocation,” NARUC emphasized.  

In several compliance orders, FERC rejected cost allocation plans that the local regions believed best protected consumers, instead demanding costs be spread more widely and benefits defined more broadly. According to FERC, costs for new transmission can’t be based just on how much consumers would save from building new transmission but must also account for undefined “economic or public policy-related benefits” from new transmission. As a result, some customers will pay more for transmission than what they receive in real, measurable benefits – contrary to the stated FERC policy of allocating benefits roughly proportional to costs.

In Florida, regulators objected to this approach. Florida Public Service Commission member Eduardo Balbis said FERC’s cost-allocation approach could raise rates for Sunshine state consumers forced to pay part of the costs for new transmission lines that won’t benefit Floridians. 

Another issue is the new and unnecessary burden placed on government-owned utilities by FERC. In its ColumbiaGrid order, FERC rejected a compliance plan that would have allowed   public power entities in the Pacific Northwest to participate in regional planning without forcing customers to accept the costs of new transmission projects in advance. FERC’s decision makes effective regional transmission planning in the Northwest next to impossible if public power entities cannot participate in the regional process as a result. Senate Energy and Natural Resources Committee Chairman Ron Wyden (D-Ore.) called the decision “a major step backward” and threatened legislation if FERC failed to reverse its ruling. 

Government-owned facilities such as the Bonneville Power Authority are not subject to FERC jurisdiction, Wyden said. But they “must sign a blank check to pay for the costs of transmission that they have not contracted for and may not use,” Wyden said. “This is directly counter to the interests of Northwest ratepayers and may lead to an exodus from ColumbiaGrid.”

Commissioner Clark shared Wyden’s concerns in the ColumbiaGrid case and has said FERC compliance orders undermine its goals. In the Florida case, Clark voted for the decision but questioned whether FERC’s approach works everywhere. By “shoehorning Order No. 1000 into a region with existing and extensive state-led planning, we could risk the creation of an expensive, potentially litigious, and time-consuming additional layer of unnecessary bureaucracy. If this happens, the counter-productive result will not be more cost-effective and timely built transmission, but less,” Clark said.

Order 1000 raised troubling issues for consumers. FERC’s compliance decisions have only exacerbated these concerns, even among those once willing to give the commission the benefit of the doubt on grid policy.

The future of the nation’s electricity grid remains too important an issue to be determined by administrative fiat. Congress is an appropriate forum for this discussion of national transmission policy, beginning with a House subcommittee hearing this week.

Edelston is the executive director of the Coalition for Fair Transmission Policy, a diverse group of electric utilities across the country, and president of the Energy Policy Group, LLC, an economics and public policy consulting firm serving the energy industries.