Looming power grid rules could make or break the US energy transition

The Federal Energy Regulatory Commission (FERC) has spent two years working on what could be the most important nationwide transmission grid reform in decades. Next week, it plans to finally announce its decision — and the implications for the clean energy transition are huge.

FERC’s goal is to set rules for utilities and grid operators to plan for and fairly share the costs of expanding the nation’s overtaxed transmission grids, which carry electricity from where it’s produced to the substations where it’s distributed to where it’s consumed. The U.S. needs to build these new power lines at a rapid clip in order to shift the country from fossil fuels to clean, cheap, and reliable power, but right now the buildout is far too slow, due in large part to the cost-sharing issues FERC aims to iron out next week.

As the regulator prepares to unveil its long-awaited reforms, FERC Chair Willie Phillips must navigate a key conflict, one that has split states — and Phillips’ two fellow FERC commissioners — along policy and partisan lines.

That conflict is over clean energy policies, and whether the states that don’t have them should have to pay for power lines that they see as primarily supporting the climate objectives of other states.

It’s a politically fraught calculus for Phillips, said Larry Gasteiger, executive director of Wires, a transmission industry trade group. And Phillips’ two colleagues at FERC, Democrat Allison Clements and Republican Mark Christie, have expressed dramatically different views about how to proceed.

“You’ve got Clements on one side of the issue, seemingly, and Christie on the opposite side,” Gasteiger said in an April interview with Canary Media. ​“Where’s the chairman? It will be interesting to see if he can bridge the divide — and if not, who does he side with?”

Phillips has consistently declined to discuss this issue. He has also repeatedly pushed back the date for issuing the final rule from its initial target of late 2023, indicating that the commission may be struggling to reach consensus on key issues.

The root of the challenge lies in the structure of the seven regional entities that manage large swaths of the country’s major power grids, each made up of some combination of states and utilities. This arrangement means that, in many cases, Republican-led states led by pro-fossil-fuel lawmakers have to coordinate to manage the power grid with Democrat-led states that have ambitious grid decarbonization goals.

Currently, there is no federal mandate requiring these stakeholders to cooperate on expanding the transmission grid — something that needs to happen if the states with ambitious clean energy goals are going to achieve them. Meanwhile, the status quo of grid planning hasn’t kept up with the changes coming to the U.S. power sector.

This dynamic has helped contribute to a tremendous backlog of solar, storage, and wind projects sitting in line to connect to the power grid. Republican-led states, as well as the utilities that are heavily invested in fossil fuels, are not keen to fix this problem, which they view as something pro-clean-energy states should deal with — and pay for — on their own.

But FERC’s rule could dramatically change this picture if clean energy advocates get their way.

By mandating some form of cooperation on grid expansion, the upcoming decision ​“could enable hundreds of gigawatts of renewables to be connected that otherwise cannot be” due to grid backlogs, said Rob Gramlich, a well-regarded grid policy expert and president of consultancy Grid Strategies. ​“The best way to do that is to plan proactively, long term, for that future resource mix.”

Transmission upgrades won’t come cheap; the sheer scale of grid expansion needed across the country will likely call for tens or even hundreds of billions of dollars of investment. But the majority of grid experts say the long-term benefits of new transmission far outweigh the costs, which will manifest as near-term utility bill increases — particularly when compared with the problems that may emerge if those transmission projects aren’t built.

Power grid expansion is critical to more than the clean energy transition. It can clear costly congestion bottlenecks, help provide power to serve fast-growing electricity demand, and share power between regions to reduce the risk of outages during heatwaves, winter storms, and other extreme weather threats.

That gives commissioners Clements and Christie ​“quite a bit of common ground that gets missed in focusing on where they disagree,” said Christina Hayes, executive director of trade group Americans for a Clean Energy Grid. ​“Everyone wants to ensure that we have a reliable and resilient grid.”

But the clean energy imperative looming over the rule has made this common ground difficult to find.

Two FERC commissioners, two opposing views

FERC, typically a five-person body, is down to just three commissioners at the moment. And two of them couldn’t be further apart on the subject of the intersection of grid upgrades and clean energy.

Christie, a former Virginia utility commissioner, has long advocated for state authority over transmission planning and cost allocation — and against FERC’s rule to limit that authority.

“If you want to get those regional lines built, you have got to have state buy-in,” he said at a conference hosted by Wires in April. ​“If you tell states, ​‘You pay whether you like it or not’ — and that’s what a lot of lobbyists are pushing us to do — it ain’t going to work.”

Christie also opposes states that haven’t committed to clean energy bearing the cost of transmission to support the renewables built for other states’ clean energy mandates. Today, regional grid operators have wide latitude on how they structure cost-sharing arrangements between states and utilities, ranging from ​“postage stamp” allocation across a region to methods that put the costs for clean energy–spurred projects on individual states. Any FERC rule that seeks to force that issue will ​“be litigated 18 ways from Sunday for years to come, and we won’t get transmission built,” he said.

Those legal threats are already looming. In 2022, a group of 17 Republican state attorneys general sent FERC a letter threatening to challenge the agency’s forthcoming rule, accusing it of ​“socializing the costs of a massive transmission build-out to connect renewable energy.”

Clements, an energy policy expert who previously led grid policy at the nonprofit group Energy Foundation and at the Natural Resources Defense Council’s Sustainable FERC project, supports grid planning that expands the capacity for clean energy. But she’s also stressed that her stance is not based solely on climate concerns. The reality is that clean energy is cheaper than fossil-fueled power and is expected to make up the vast majority of new electricity generation for decades to come.

In that light, ​“short-sighted transmission planning may lead to unnecessary customer costs down the line,” she wrote in an April tweet after FERC announced plans to issue the transmission rule. ​“States will get more efficient outcomes by planning ahead and together, rather than waiting until there is an acute need or trying to go at it alone.”

This view has been echoed by a host of former FERC chairs, clean energy advocates, corporate clean energy buyers, environmental justice groups, and national security experts, who are all calling on FERC to issue what they have described as a ​“strong” transmission rule in next week’s meeting.

U.S. Senate Majority Leader Charles Schumer, a New York Democrat, wrote in a July letter to FERC that ​“the lack of a clear cost allocation mechanism, based on an assessment of a defined set of benefits that transmission provides to a region, continues to come up as one of the most significant hurdles to building needed transmission infrastructure.”

Establishing the benefits of transmission — and making them mandatory

Today, U.S. regional grid organizations have widely divergent approaches to coordinating big projects across multiple states and utilities. Those differences start with the benefits they ascribe to building transmission — definitions that may represent threats to stakeholders with a vested interest in protecting existing fossil-fueled power plants.

Most transmission projects are built in response to clearly defined reliability or economic problems — say, upgrading parts of the transmission network that are becoming overloaded by increasing power demand, risking grid failures or causing costly congestion problems.

This approach hasn’t led to lower transmission costs. In fact, U.S. utilities have consistently increased spending on transmission over the past decade. But most of that money has been spent on smaller projects within a single utility’s service territory. For utilities, this is a win: It allows them to sidestep messy coordination with other states and utilities while also increasing revenues by passing the costs of those power lines to their customers.

But this ​“piecemeal” approach, as Clements has described it, is inefficient and ineffective for solving problems that are bigger than any one utility.

FERC is considering mandating regional grid operators to evaluate a much more expansive roster of benefits for its forthcoming transmission planning rule. They include the value of deferring the need for higher-cost generation and increasing access to lower-cost generation — a calculus that now privileges clean energy over coal-fired power in almost every circumstance, and clean energy and batteries over new fossil-gas-fired power plants in most of the country.

This would make interregional transmission projects much more appealing to regional grid organizations than they are today. But it could also threaten incumbent fossil-fueled power plants, said Claire Wayner, a senior associate at decarbonization think tank RMI. (Canary Media is an independent affiliate of RMI.) And those power plant owners, investor-owned utilities, and state policymakers that oppose clean power mandates hold significant power in the governance of regional grid operators.

“You’re seeing non–clean energy states deeply oppose any sort of planning that results in them paying for transmission associated with clean energy policy,” Wayner said. ​“On the other side, clean energy states aren’t asking non–clean energy states to pay for no reason. What they’re asking for is for costs to be assigned commensurate to benefits.”

The tricky part is getting stakeholders to agree on what, exactly, those benefits are. That’s why Wayner and other ​“strong” transmission rule proponents are pushing FERC to make its list of benefits mandatory — not optional.

How to build transmission when states don’t agree: A tale of two grid regions

Some grid regions have already taken steps to redefine the benefits of bigger-picture grid planning.

Take the Midcontinent Independent System Operator (MISO), which includes all or part of 15 U.S. states and Canada’s Manitoba province. Its latest long-range transmission plan has spurred $10.3 billion in transmission projects expected to enable 53 gigawatts of clean energy development and provide $37 billion in benefits over the next 20 years.

MISO’s list of benefits includes standard economic measures, like reducing grid congestion losses and fuel costs. But it also assesses the value of an expanded grid to reduce power outage risks from extreme weather events — and critically, the value of future carbon-emission reductions. 

Other regional grid operators face a harder time getting utilities and states to agree on such an expansive set of benefits, however. Take the 13-state region, from the mid-Atlantic to Chicago, served by grid operator PJM, which relies on short-term reliability and economic pressures to spur grid investments.

The backlog of clean energy projects trying to connect to PJM’s grid has grown so severe that it threatens to put the clean energy goals of states including Maryland, New Jersey, and Illinois out of reach. But PJM also includes Ohio and West Virginia, two states that have made retaining coal-fired power plants a policy priority.

That makes it hard to find consensus for changing transmission policies, said Jon Gordon, a director at clean energy trade group Advanced Energy United. ​“There are 13 states, very different politically, from deep red states closely aligned with fossil fuel interests to the bluest of blue states with aggressive clean energy goals,” he said. ​“It’s very hard to get anyone to agree to anything.”

Should states have veto power over regional transmission costs? 

That brings us to the central conundrum that backers of a ​“strong” transmission rule hope FERC will address — the risk of some states being able to opt out of paying. That issue is now at play at PJM, which is working on an initiative to create its first long-term regional planning construct.

In January, the grid operator issued a consensus proposal that drew fire from clean energy advocates for continuing to allow some states to refuse to pay for transmission expansions deemed to be driven by other states’ clean energy goals. The problem with this approach, RMI’s Wayner said, is that it allows states to benefit from transmission projects without paying any of the costs — or to impasses that lead to the projects not being built at all.

MISO took a very different approach in its long-term transmission plan, assigning the costs of its latest regional transmission buildout across all the states and utilities in the region, Wayner said. But that approach faces some tough political barriers in PJM, she said.

And it might not work at the federal level with FERC Commissioner Christie. ​“If politicians in one state want 100 percent green energy, that’s fine, if they want to pay for it, if they want to accept the reliability consequences,” he said at the April event hosted by Wires. ​“But don’t make consumers in another state pay for it unless they agree.”

Clements, by contrast, has questioned the viability of any regional grid planning process that would allow individual states to block projects that have won broader consensus.

“Affordable system operation does not and cannot depend on an opt-in structure,” Clements wrote in a recent concurrence to a FERC decision that denied Maryland’s protest against paying its assigned share of a PJM-approved regional transmission expansion. ​“Making necessary transmission upgrades contingent on a state’s voluntary assumption of costs could imperil reliability.”

That’s the view that most ​“strong” rule proponents have taken up. Gramlich at Grid Strategies said that the state regulators and utilities within regional grid operators should have a say in the long-term plans they collectively craft.

“But at the end of the day, a decision has to be made, even if some state is not happy about it,” he said. ​“If states were just allowed to opt out of paying their fair share, then nothing would work — everyone would try to opt out and foist the cost on their neighbor.”

Does planning for the future mean planning for fossil fuel power plants to close? 

Gramlich highlighted something else that MISO’s plan does well, and that he thinks FERC’s rule should require other regional grid organizations to do: assess which power plants will open, and close, in the decades ahead.

“Doing that type of assessment naturally brings with it some uncertainty. But it’s a lot better than ignoring those likely retirements altogether,” he said.

Tom Rutigliano, senior advocate for climate and energy at the Natural Resources Defense Council, contrasted MISO’s approach from the approach laid out in PJM’s proposed long-term regional transmission plan.

“They’re going to include a limited amount of renewables, not the full amount that clean states are proposing. And they’re going to be conservative about the retirement of fossil fuel plants,” he said.

That creates a risk that PJM — and other grid operators that might follow a similar course — will make long-range plans that either fail to identify transmission that can carry more lower-cost clean power to regions that could benefit from it or, conversely, to call for excess transmission to carry fossil-fuel-generated power to regions that won’t need it.

PJM’s proposed approach also fails to acknowledge that ​“economic retirements” — power plants closing because they can’t compete with cheaper alternatives, not because state policies demanded their closure — ​“have been the biggest driver in the change of PJM’s resource mix over the past decade or so,” Rutigliano noted.

“The real wild card is the FERC order on transmission planning,” he said. ​“We’re really hopeful that it goes beyond what PJM is laying out.”

But what appears to be rational economic planning to some can appear to be problematic to others. FERC Commissioner Christie said in testimony before Congress last June that the looming reliability problems being forecast by PJM and other regions are tied to the too-rapid retirement of fossil-fueled power plants, as well as what he called a ​“national campaign of legal warfare being conducted against every single natural gas pipeline or related facility.”

Hayes, of Americans for a Clean Energy Grid, noted that changes in U.S. energy markets, from the rise of cheap fossil gas in the 2010s to the rise of cheap clean energy and batteries in the current decade, have moved much more rapidly than U.S. transmission policy has developed to accommodate them, however.

“We’ve seen markets continue to evolve. But transmission really hasn’t,” she said.

FERC’s final rule won’t be the end of that process, she added. Utilities and grid operators must make plans to comply with it, which are subject to FERC review. Legal challenges could throw a wrench into the rule’s implementation. And the coming departure of Clements later this year, and the Senate confirmation process and eventual seating of the Biden administration’s three nominees to bring FERC back to its full five-member commission, may alter the political and policy dynamics at the agency.

“If it was easy, everyone would do it,” Hayes said. ​“Chair Phillips should really get a lot of credit for landing this plane.”