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FERC has been working on transmission policy reform for two years now and recently took a major step with approval of the generator transmission interconnection final rule. Interconnection reform should encourage earlier withdrawal of speculative and nonviable generation projects, accelerate commercial operation of viable projects, and reduce queues. Hopefully, the final rule will reverse the steep increase in the lag from interconnection request to commercial operation, which rose from an average of less than 2 years in 2008 to 5 years in 2022. I would like to offer some views on next steps the Commission should take.
In my view, grid development is not meeting the challenge of the electricity supply transition. Today’s grid was developed to deliver yesterday’s power supply mix and we need a different power grid as the supply mix changes. But grid expansion is not proceeding at the necessary pace, and shortfalls in grid development are impeding the transition, slowing renewables deployment and perpetuating the operation of uneconomic generation.
There are challenges to grid development other than interconnection queues. First, regional transmission planning has not produced the results that were envisioned in Orders No. 890 and 1000. While there has been significant transmission investment in recent years, grid investment has been interconnection-driven, not the product of regional transmission planning. This much is proven by a Berkeley Lab analysis showing network upgrade costs accounting for an ever-increasing share of total interconnection costs since 2009.
One of the principal barriers to effective regional planning has been the Order No. 1000 requirement that regionally-cost allocated projects be subject to competition. As a result, utilities that own and build most transmission tend to favor smaller, more incremental projects. I am a strong supporter of competition and believe it has produced impressive savings on regional transmission projects, but Order No. 1000 and its implementing orders granted so many exemptions to the competition requirement that the exceptions swallowed the rule. I see no prospect that the Commission would consider curtailing these exemptions. Moreover, in recent years many states have adopted right-of-first-refusals, erecting a new barrier to competitive projects. The Commission must make a policy choice. Which is more important, accelerating the pace of grid development, particularly regional projects, or continuing to subject only a handful of RTO transmission projects to competition, knowing projects awarded to competitive developers could be blocked by state ROFRs?
Second, even perfect planning will not accelerate grid development without increased grid investment. Here I must admit I find the Commission’s current posture incomprehensible. On the one hand, it calls for sharp increases in grid investment. But on the other hand, it proposes policy changes that would make transmission investment less attractive and riskier than other regulated investments, discouraging grid investment. When I was FERC Chairman, we applied the lessons of the California-Western Power Crisis and acted to spur increased grid investment, establishing policies that made grid investment more rewarding than other utility investments as well as less risky. The result was consistent with classic regulatory economics: a sharp increase in grid investment. However, the current Commission has proposed going in the opposite direction, making grid investment less attractive and riskier while hoping for increased investment. If the Commission wants to jump start grid investment it must change course.
Interconnection reform is an important first step, but additional reforms are needed to develop the grid we need to deliver tomorrow’s electricity supply.
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