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The Federal Energy Regulatory Commission (FERC) is poised to pass new policy that will expand regional transmission capacity, but how impactful will its new rule be? In this episode, grid policy expert Rob Gramlich gives the lay of the land.(PDF transcript)(Active transcript)Text transcript:David RobertsBy now, it’s fairly well understood that the US badly needs more electricity transmission lines to keep up with the changing generation mix and growth in demand that will come with clean electrification. But new lines, especially the much-needed longer-distance regional lines, are being built at a snail’s pace. If the US is to hit its mid-century climate goals, transmission capacity expansion must radically accelerate.Congress helped a little with money in the infrastructure bill, and the Biden administration helped by establishing a Grid Deployment Office inside the Department of Energy, but arguably the biggest opportunity for progress comes in the form of an upcoming rule by the Federal Energy Regulatory Commission (FERC). It will beef up the commission’s existing rules on regional transmission planning, but exactly how much it will strengthen them depends on the final rule, expected early next year. Transmission advocates are urging FERC to pass a rule with reel teeth — including Senate Majority Leader Chuck Schumer, who sent the commission a letter with encouragement and suggestions in July. Nobody knows more about grid policy than Rob Gramlich, founder and president of Grid Strategies, a policy analysis and strategy firm. He is executive director of the WATT Coalition, co-founded and used to run Americans for a Clean Energy Grid, serves as a board advisor to a half-dozen other groups, and has a long history in the industry, including a stint at FERC in the early 2000s. I talked with Rob about the current state of affairs in transmission policy, the scope of FERC’s authority, and the details that matter in the coming rule. Don’t let the technical-sounding subject scare you off — this was a fun one, and incredibly clarifying.Okay then, with no further ado, Rob Gramlich. Welcome to Volts. Thank you so much for coming.Rob GramlichThanks, David. Great to be here.David RobertsI am excited to talk about this. I know that perhaps FERC is not at the top of people's mind when they think about excitement and thrills, but I think people will see by the end of this why this is a very good time to tune in to what FERC's doing. So let's start here. I think we can assume for the purposes of this pod that Volts listeners understand the need for more transmission, specifically the need for more long-distance transmission for a bunch of reasons. We know that the resource mix is changing. We care more about renewables now.They're located in different places. They're located not necessarily next to load. They're remote. We're going to double or triple the amount of electricity we're using in the coming years, because we're electrifying everything. So we need more transmission for that reason. We know that connecting up a wider geographical area makes the whole system more reliable, makes the whole system cheaper. Transmission is the wonder tool of energy. It makes everything better, and yet we are not building it. So back in the late 90s, FERC, the Federal Energy Regulatory Commission, which has jurisdiction over interstate transmission, released a series of orders.So in the beginning, there were, just across the nation, just dozens and dozens of individual vertically integrated utilities, all of which were building their own transmission, more or less for their own areas. And so back in the late 90s, FERC saw this and many other people saw the need for more interregional transmission and issued a series of orders trying to kind of nudge things in that direction, doing, among other things, they created regional transmission operators and independent system operators, RTOs and ISOs, which were supposed to be regional organizations that did regional transmission planning. And there were others too, I think, going all the way up to 2011, there were other orders, basically like, "please friggin utilities, get together and start doing some planning, do some interregional planning." And yet, despite this series of orders, and despite the existence now of RTOs, we're still not building interregional transmission.I mean, we're building it at a snail's pace and not necessarily where we need it, and certainly nothing close to the pace we need to be building at. So maybe let's just start here. Why, given the existence of RTOs, which are explicitly supposed to do this, is there still not adequate regional transportation planning? Maybe you could run through the three P's here. That's going to help kind of set us up for what's to come.Rob GramlichSure. Well, first of all, thanks for your help in communicating all that. So let's stipulate that the need for transmission is understood. And that's great that it is, because a few years ago it wasn't. But you've been helpful.David RobertsIt does seem like that at least has sunk in, in the wider world.Rob GramlichI think that's right. And of course, in recent years, it's been more sort of the climate-focused policymakers and community who have understood this, which is great, as they should, for the incredible clean energy need for transmission and climate benefit. But just suffice to say, it wasn't always such a democratically tilted issue. But that's a separate conversation we could get into. But, yeah, FERC has been, in the 90s, the early 2000s, had orders trying to beg, plead and borrow the industry to get going on regional transmission. And in fact, it goes even way back. I mean, the 1935 Federal Power Act itself has some language about the voluntary, encouraging the voluntary coordination of the systems.And then there were actions in the pre-war and wartime to be able to produce the military assets and airplanes and everything by — we needed to increase the production basically out of the electric industry.David RobertsYeah, it's a bummer. We decided to build this interstate road network basically for security purposes around then, and did not decide at the same time to do the same thing for transmission. It would have been a good move on our part.Rob GramlichThat's right. But there were actions by the predecessor to FERC, the Federal Power Commission, during those same years, though, trying to strengthen the connections, but it only went so far. And then it was really when the electric industry tried to restructure to get generation competition in the 90s that it started pushing harder. There was a 1993 regional transmission group RTG policy statement, and then they said, well, that's not enough. And then they had Order 888 for open access transmission. That included a push for voluntary creation of independent system operators. That's where that term really came into practice.It was encouraged and voluntary. And then the commission tried in 1999 to require participation in the regional transmission organizations (RTOs). That's where that term was sort of defined. But Chairman Hoecker, at that time, couldn't quite get the votes to make that mandatory — so it was voluntary. And then I was part of — my full-time job was standard market design. I'm not embarrassed to say that one never made it to being even a rule because of a political backlash. Again, another story for another day. But that was at least strong encouragement. And then Order 890, when Republican Chairman Joe Kelliher came in, he had been on House Energy and Commerce and in the Bush administration, and he tried to require, well, he did require through Order 890, some strengthened planning requirements.And then Chairman Jon Wellinghoff issued Order 1000 and the commission, of course, in 2011. And that also sort of went another step further. In this process, some of those orders were challenged in the courts. Then FERC's hand was actually strengthened after all of that because the court challenges upheld FERC's authority and said, "absolutely, you can require transmission planning." So FERC's role here has only been strengthened over the years in terms of the clarity of its legal authority. And yet, as you say, it hasn't really worked yet. So here we are at the end of 2023 with an agency that actually is in charge of this and has quite clearly been claimed by the courts to be the one entity that can really do this in a significant way.And it's actually kind of exciting now, because look at this, we have this great proposed rule that Chairman Glick and the commission issued a year and a half ago —David RobertsWell, before we get to that, though, I want an explanation for why those previous ones didn't work. Like why aren't RTOs building these things?Rob GramlichYeah, there are probably a few reasons.David RobertsYeah. In like 100 words or less. Because we can't get too bogged down in this, because I know this is a tar pit.Rob GramlichI'll try to just give you a few. Look, I mean, one issue is incumbent generators don't necessarily want to enable new generation to come onto the grid. So we have these RTO entities, incumbent generation owners, whether they're part of a utility or independent, they are usually not the strongest supporters of new transmission. So that's a factor. And then those entities are active in FERC proceedings as well. That's one factor. Another factor: We had all this transmission collaboration happening in 2010 through 2013, and a bunch of transmission got built. We actually got a ton of new renewable energy connected to the grid a decade ago.From these, I'm sure many of your listeners know about the multivalue projects in the Midwest and Texas competitive renewable energy zones. So there was a little bit of a renaissance then, but then it was very short lived, and it ended like ten years ago, it stopped. Some people say Order 1000 had some unintended consequences that stopped that. I think that's part of it. Also, the cost of solar dropped and the cost of gas dropped, so a lot of that transmission was more wind driven. And when you could do a lot of gas and solar, you didn't need quite as much transmission.So I think that does factor as well. And then I just sort of think, like, inertia took over. People got used to going to regional transmission planning meetings and making sure nothing actually happened, and they got good at eating muffins and checking the compliance box, but then not actually doing anything. So, I think it's just ripe for a whole reshuffling. And that's what FERC can do.David RobertsOkay, so before we get to this FERC opportunity, let's at least give a little shout out to some movement lately, some policy wins. So in the Infrastructure Act, the Bipartisan Infrastructure Act, there's some money for transportation, which I think is nice but inadequate. And then there's this new Grid Development Office. Are those the two biggies, and how sort of like a big of a deal are those, relatively?Rob GramlichRelatively, yeah, potentially over time. The Grid Deployment Office could be huge, and it's off to a great start. I will say the current team there and the current administration and Secretary Granholm are leading, I think, a very productive and promising exercise there.David RobertsWas that created by legislation, or was that just created by an executive action?Rob GramlichTechnically just an executive action by Secretary Granholm. She can set up offices, if she so chooses —David RobertsAs an office within DOE.Rob GramlichThat's right, which — put this on your list of future policies. Let's actually formalize that in legislation. It would be nice to do that, but there was actually an attempt. But that's a longer story. But that office has financing tools, it has permitting tools, it has capabilities. They've been hiring like crazy, really good people, and that could really be a very helpful enabler of transmission, private sector investment. There's no shortage of capital that wants to invest in this sector, but it's just a morass trying to get projects done. So DOE has important tools. Many of them are now kind of all being consolidated in this Grid Deployment Office to enable transmission.David RobertsAnd what's the money in the Bipartisan Infrastructure Act?Rob GramlichRight. Well, very little, unfortunately. I mean, there's like one really great provision called the Transmission Facilitation Program. Senator Cantwell introduced that, but it's a $2.5 billion program, and it's not technically a loan, but it's sort of like a loan. It does have to be paid back, and so it's not really that much money. It's intended to be a revolving fund, but $2.5 billion in the scheme of an industry that spends that every couple of months is not transformative.David RobertsAnd there was, at one point in the Build Back Better saga, a pretty hefty tax credit for transmission, which got stripped out at some point. That would have been serious money, right?Rob GramlichThat could have been serious money. It's scored at 13 billion. But who knows? The way tax credits work is if the industry really gets excited, it's uncapped. And more could have been done, so that could have been great. And it's so hard to figure out who pays for how much. Just starting to evolve into the three P's, planning, permitting and paying that paying part is, I think, the hardest, because it's a public good and everybody benefits some, so nobody wants to pay for it. And so that tax credit could have at least made that whole problem 30% easier by covering 30% of the investment cost.David RobertsRight. So then you're having to allocate 70% rather than having to allocate 100%. And we'll get into that cost allocation in a bit. So we've had some movement, but inadequate, and there is some legislative stuff that would be relatively easy and high impact. And maybe when we get through this FERC stuff, we can touch on that before we're done. But now, in terms of the tools Biden has to use here, well, not even Biden, really, since it's supposed to be independent. But in terms of federal tools, basically we're dealing with FERC. So before we jump into the proposed rule, let's just talk for a second about FERC.As I understand it, there are supposed to be five commissioners, ideally. There are, in fact, four, and we're heading to three. So, make some sense of all that for us. Where are we with FERC in terms of the balance of commissioners?Rob GramlichYeah, that's right. There's supposed to be five, no more than three from one party. So over the years, it's typically been three-two, one direction or the other.David RobertsRight.Rob GramlichAnd Chairman Glick, his term expired, and so he is off. And that seat is open. Commissioner Danly, his term ends, well, technically, June 30.David RobertsSo, wait, Glick is gone, which left a two-two Republican-Democrat split. That's the current state of affairs?Rob GramlichThat's the current state of affairs, as we said. Yes, for, I guess, the entire year of 2023, it'll be two-two.David RobertsRight. And then Danly, who is a Republican, is stepping down when?Rob GramlichThat's right. So, yes, every year one seat opens because they're staggered five-year terms. So he will need to leave by the end of 2023 in a month or two.David RobertsGot it. Which will leave a two to one Democratic majority on FERC and those other two — we don't have to get into this, but what the hell is going on? Why is it taking so long to get new commissioners? Is it Joe Manchin…
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