A lack of transmission has “partially protected” utilities with fossil generation from new competitors seeking to deploy renewables, said Catherine Hausman, an associate professor at the University of Michigan, in a working paper.
Saying that “many grid observers have argued that the transmission planning, siting, and permitting processes in the U.S. do not lead to socially optimal investments,” Hausman examined how various companies would gain or lose from the addition of interregional transmission.
Hausman modeled how Midwestern electricity markets would change if transmission constraints were removed. Four fossil-heavy Midwestern utilities that would “stand to lose the most” would have collectively earned $1.3 billion less in net revenues in 2022 without transmission constraints, because low-cost renewable power would have reached their customers, outcompeting the utilities’ fossil generation.
Hausman’s paper exploring utility incentives with regard to transmission has been conditionally accepted for publication in American Economic Review and is available here.
A much larger federal role
To ensure deployment of regional and interregional transmission can speed renewables deployment, and bypass any utility incentives to stall transmission, Shelley Welton, a University of Pennsylvania law professor, proposed federal management of transmission planning.
For-profit companies have “too large a role” in grid planning, and recent reforms “improve grid planning at the margins but do not adequately address underlying governance concerns,” Welton wrote, in a paper published before last year’s election.
Congress should pass legislation creating a “Federal Grid Planning Authority” (FGPA), Welton said, and task it with creating a national grid development plan every three years.
Congress “should mandate” that all regional planning entities under the jurisdiction of the Federal Energy Regulatory Commission (FERC) “must accept the national plan as the baseline” for their regional planning efforts.
“Deviations” from the FGPA-generated baseline plan “should be permissible only when proven necessary to FERC,” Welton proposed.
Congress should also “confer automatic federal siting authority for every transmission project approved in the FGPA plan.”
Alternative approach
In the near term, recognizing “the present political impossibility” of a federal grid planning authority, Welton proposes how the Federal Energy Regulatory Commission could accomplish a similar set of governance reforms “through more effective use of existing legal authorities.”
Under the Federal Power Act, FERC “might make a determination” that regional transmission organizations (RTOs) and regional transmission planning entities outside RTOs, “as private membership clubs, inherently lack the independence or comprehensive vision necessary to produce just and reasonable regional and interregional transmission plans.”
FERC would have “decades of evidence to back this determination,” the paper says.
“Simultaneously,” the Department of Energy “might work to establish a new or revamped public office of grid planning.”
FERC could then “mandate that regional planners use DOE-produced plans as the baseline from which to launch their regional planning efforts.”
Alternatively, Welton said, FERC could make a “similar but less expansive finding related specifically to interregional planning.”
“If FERC were not prepared to undertake so dramatic a remedy,” Welton also proposed a “new priority list of moderate actions that it might undertake.”
Welton’s paper “Governing the grid for the future: The case for a Federal Grid Planning Authority” was published by The Hamilton Project, an economic policy initiative at the Brookings Institution, which is a Washington-based think tank.
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