Landmark transmission reform could dramatically speed US energy transition

The Federal Energy Regulatory Commission on Monday issued a sweeping reform to transmission grid planning, one that proponents say is a major, much-needed win for the effort to transition the country’s power sector away from fossil fuels.

FERC’s action was praised by clean energy and climate advocates, who’ve been pushing the agency for years to craft a “strong rule” around long-term planning, with provisions they say are vital to build the tens of billions of dollars of new high-voltage power lines necessary to meet the country’s energy goals. They say the new rules will allow the U.S. to connect gigawatts of new clean energy projects to the grid, reduce power costs, and improve grid reliability across the country.

But critics — including Republican FERC Commissioner Mark Christie, who voted against the rule, in opposition to fellow commissioner Allison Clements and FERC chair Willie Phillips, both Democrats — say that the order abrogates key state authority to the federal government and that it will face serious challenges in court. Legal experts say the rule could be vulnerable to being overturned by legal challenges if it ends up in front of a court that favors the so-called major questions doctrine.

In the face of these critiques, Phillips and Clements insisted that the new long-term transmission planning rules — including a provision that will make it harder for individual states to opt out of paying for transmission upgrades — are far less costly than sticking with the status quo. Clements has called the current way of planning new power lines “piecemeal,” and both she and Phillips have warned that it is untenable given the challenges the country’s grid faces.

Those challenges go beyond the urgent need to eliminate carbon emissions from the power sector. The country also faces increasing blackout risks — a product of more extreme weather as well as an inability to build and connect clean energy projects fast enough to replace economically uncompetitive fossil-fueled power plants.

“We are at a transformational moment for the electric grid, with phenomenal load growth from a domestic manufacturing boom, unprecedented construction of data centers fueling an AI revolution, and ever-expanding electrification,” Phillips said during Monday’s meeting. “At the same time, the resource mix is at an inflection point, with aging infrastructure, economics, and state policies leading resources to retire.”

“On top of all of this, extreme weather events have become the norm, and the electric grid is routinely being pushed to the brink,” he said. “Yet in the face of these challenges, high-voltage power line construction has declined to a record low in 2022.”

The sluggish buildout of new power lines is a key hurdle facing the U.S. energy transition. The volume of clean energy projects waiting to plug into the power grid is at a record high, in large part because the transmission capacity needed to bring more wind, solar, and battery storage projects online simply doesn’t exist.

The new FERC rules could be one of the most powerful tools the federal government has to solve this problem and get clean energy online faster, U.S. Senate Majority Leader Chuck Schumer said in a Monday press conference.

“The clean energy incentives included in the Inflation Reduction Act have been a huge success,” said the New York Democrat, who has pressed FERC to craft a rule that limits options for states to opt out of paying for regional transmission. “But much of that success would be lost without the ability to bring power from places that generate renewable energy to communities all across the country.”

“A new historic advancement in our transmission policies has been desperately needed, and the rules released by FERC today will go a long way, a very long way, to solving that problem,” Schumer said.

What’s in FERC’s new rule?

FERC’s long-awaited order requires the country’s regional grid operators, which manage transmission networks delivering power to roughly two-thirds of the U.S. population, to create processes to plan and build transmission lines that can support rapidly growing electricity demand at least 20 years into the future. The country’s regional grid operators have roughly 12 months to craft plans to comply, which will be subject to FERC approval or rejection.

Today these grid operators have no obligation to engage in this kind of long-term planning. Some have undertaken large-scale regional plans anyway — the Midcontinent Independent System Operator is one example. But others — such as PJM, which serves the 13-state region from the mid-Atlantic to Chicago — have done little or no regional planning at all.

The order also goes further than the agency’s proposed rule issued in 2022 in making parts of that process mandatory for the utilities, transmission owners, and state regulators that constitute the voting members of those regional grid organizations.

That includes the mandatory consideration of “a broad set of reliability and economic benefits” that transmission can deliver, Phillips said. It also requires that grid plans consider federal and state clean-energy and decarbonization mandates, as well as underlying economic factors that are making fossil-fueled power plants increasingly economically uncompetitive against solar and wind power, batteries, and other energy storage assets. This combination of policy and economic forces is accelerating the retirement of coal-fired power plants in the U.S. — a major threat to grid reliability in some parts of the country, if not adequately planned for.

This aspect of the rule has become a political flashpoint for FERC. Climate advocates and grid experts who have pressed the agency to limit the ability of individual states or utilities to undermine regional grid planning processes reacted positively to the new rule.

“FERC has acknowledged the multiple benefits that transmission provides and has set out a process to ensure that all beneficiaries help to fund projects that reduce customer rates and keep the lights on,” said Carrie Zalewski, vice president of markets and transmission for the trade group American Clean Power Association. “If implemented effectively, this will lead to much-needed expansion in transmission capacity on the U.S. grid.”

Should states get to opt out of paying for regional transmission?

States that lack clean-energy mandates have previously argued that they shouldn’t be forced to pay for transmission projects that support the climate goals of states within their shared grid regions. A group of 17 Republican state attorneys general warned FERC that they plan to legally challenge any transmission planning rule they consider to be ​“socializing the costs of a massive transmission build-out to connect renewable energy.”

Christie, the commission’s sole Republican, echoed those arguments in his dissent during Monday’s meeting. The costs of building transmission are passed on to utility customers — and state regulators have a right to challenge costs for transmission projects that they have determined don’t provide economic or reliability value to the customers of utilities they regulate, he said.

“This rule is a pretext to enact a sweeping policy agenda that Congress never passed,” he said. “It is intended to facilitate a massive transfer of wealth from consumers to for-profit special interests, particularly generation developers — primarily wind and solar — transmission developers, [and] influential powerful corporations,” such as major data center operators like Amazon, Google, Meta, and Microsoft, which have set clean-energy targets.

Christie also criticized the decision to strip the options for states to opt out of paying for transmission projects, which he says was central to his decision to support the launch of the rulemaking two years ago. “Even if the states agree to an alternative cost allocation formula, the transmission providers under this rule can ignore it,” he said.

But Clements, a Democrat whose term at FERC ends this year, challenged Christie’s arguments at Monday’s meeting. She argued that FERC’s order doesn’t take authority away from states, as Christie contended, but rather appropriately applies FERC’s authority under existing federal law to take a multitude of state policies into account in transmission planning.

“All transmission needs are inherently influenced by state policies of all stripes,” she said. “They always have been, be it a zoning law, an economic development incentive, or a state renewable standard.”

Clements also challenged Christie’s assertion that the order will drive up costs without delivering commensurate or even greater benefits. “Customers’ bills will skyrocket if states go at it alone in ensuring grid reliability,” she said. “We cannot stick our heads in the sand and ignore the need for new regional transmission in this country.”

“The truth is that enormous sums of money are going to be spent on transmission investment, regardless of whether or not it's done within the framework of this new rule,” Christie said. Multiple analyses indicate that the country must more than double its current transmission capacity to absorb the growing amount of clean power being built to meet federal and state climate goals.

But while U.S. utilities have consistently increased spending on transmission over the past decade, it’s been a patchwork approach. Most new projects have been within an individual utility’s service territory, not shared across a region.

That lack of long-term planning has led to more expensive outcomes for everyone, Clements said. She pointed to a $780 million transmission project proposed by PJM and approved by FERC earlier this year in a bid to prevent potential grid reliability problems that could be caused by shuttering a coal-fired power plant in Maryland.

“It is hard to imagine the region could not have found a more cost effective solution had it begun planning for that retirement, along with other anticipated shifts, further ahead of time,” she said. “Whether the next straw that breaks the camel's back is an economically driven retirement or a large manufacturing facility coming online, the status quo last-minute and piecemeal approach is an expensive proposition.”

Phillips echoed these arguments in a press briefing after Monday’s meeting. “I would not support this rule if I did not believe that it would lower costs in the long term for our consumers and provide more reliability for our system and for our communities,” he said.

The legal challenges to come

Phillips and Clements also insisted that Monday’s order — dubbed Order 1920 in recognition of the year that Congress passed the Federal Power Act, which created the precursor agency to FERC — is well within FERC’s legal authority under federal law. But Christie expressed a dramatically different view. He called the order “a blatant violation of the major questions doctrine the Supreme Court set forth.”

Christie’s statement echoes the argument Republican state attorneys general made against FERC’s order, as well as against the U.S. Environmental Protection Agency’s clean power rule issued last month. The Supreme Court evoked this legal theory, which holds that federal agencies must act based on strict interpretations of laws passed by Congress, in 2022 to overturn a power plant emissions rule implemented by the Obama administration’s EPA.

Whether such an argument will hold sway with the courts is an open question, said Ari Peskoe, director of the Electricity Law Initiative at Harvard University. In his view, the fate of FERC’s order may rest in which court the eventual legal challenges end up being heard.

“In a very real way, the legality of this rule may be decided by lottery,” he said, referring to how legal challenges to FERC are assigned to federal circuit courts of appeals.

FERC’s order is not a quick fix to the country’s grid bottlenecks. Major transmission expansions take years to plan, let alone to build. Individual power lines still face legal challenges and permitting roadblocks that can halt them after years of work.

In the face of these significant barriers to building much-needed grid infrastructure, states that might oppose FERC’s order have “a choice to make,” Clements said at Monday’s meeting. “You can get drawn into a lose-lose debate over who precisely caused the need for each specific system upgrade as grid inadequacy festers. Or you can take advantage of the unprecedented seat at the table this rule provides. Working together is your best shot in ensuring that your citizens, and those of your neighbors, are equipped to compete and flourish into the future.”