Feds Issue Final Rules to Boost Transmission Project Expansion

Federal energy regulators acted May 13 to end the long timeline for more U.S. transmission built to expand energy connections—particularly for renewables—by enacting two much-anticipated rules seen as historic reforms for project regulatory planning and cost allocation.

The planning rule, approved 2-1 by the Federal Energy Regulatory Commission as Order No. 1920, requires power providers to conduct 20-year-ahead plans for long-term transmission needs and note facilities needed to meet those mandates to avoid building “piecemeal” expansion that addresses only near-term needs. Plans must be updated every five years under the rule, to take effect in 60 days after Federal Register publication. 

Some projects have been blocked by state officials in areas where local residents oppose them, but the new rule also enables developers more leeway to work with states on project planning and cost allocation at an earlier stage, but also allows FERC to counter state objections in corridors deemed necessary for national power grid stability.  

Commissioners unanimously approved a separate final rule, No. 1977, to give the agency backstop siting authority for transmission projects that cross grid boundaries, which administration officials said is critical to cut “red tape” for project construction that states may not have approved. 

Controversies

FERC said the rule, first proposed in 2022, has generated more than 30,000 pages of public comment to date. 

Each transmission provider must submit a compliance filing within 10 months for a project within its boundary, and 12 months for a project that crosses interregional lines (see map). 

Developers also must submit plans on how to split project costs between states and companies, while grid operators must weigh key benefits to determine whether transmission proposals will meet long-term needs cost effectively. The rules also enable grid operators to rethink projects that face cost-overruns or delays. A project applicant must engage with state regulators for six months before an official filing.

“Transmission system planning has failed to prepare the grid for the future,” leaving new generation projects stuck on long waiting lists to connect with the grid, Commissioner Allison Clements said before the FERC vote. New federal tax incentives have spurred a boom in power projects awaiting connections, mostly in renewable energy, totaling about 2,600 GW—double the current U.S. generation fleet, she said. An estimated $20 to $40 billion will be spent annually on transmission to handle the new generation, Clements estimated.

U.S. power grid capacity may need to expand 144% by 2040, based on fast rising
levels of electricity demand and clean energy penetration, the U.S. Energy Dept. estimated in its latest National Transmission Needs study.

“This rule cannot come fast enough,” FERC Chairman Willie Phillips said, citing “phenomenal load growth” in the U.S. from data centers, industrial and manufacturing growth, electrification and electric vehicles. 

“Combined, these two new rules mark the first significant FERC action on transmission policy in more than a decade,” he said. 

Rejecting the planning measure was Commissioner Mark Christie, FERC’s only Republican, who said it fails to protect consumers. “It’s a pretext to enact a sweeping policy that Congress didn’t enact,” he said, noting it too heavily favors renewable energy. Clements said the new rule will protect customers from the current piecemeal transmission buildout. 

Project Competition Supported

In a turnabout on a controversial mandate, FERC relented from its original proposal to deny developers eligibility to receive “construction work in progress” tax incentives that allow them to begin recovering transmission project costs in rate bases before they are put in service.

The incentive “helps de-risk projects by providing additional revenue certainty earlier in the development cycle, but has long been criticized for shifting risk to ratepayers for projects from which they are not (yet) deriving any benefit,” says a Foley Hoag law firm analysis, but added that FERC “declined to limit the availability of the incentive at this time,” although future agency review is expected

In another key change from its proposal, FERC declined to allow investor-owned utilities and public power utilities the “right of first refusal” for transmission projects—which would have enabled them to build a project without competing bids from independent transmission companies. That provision had been the subject of heavy lobbying in FERC comments and overall communication by both utilities and project competition supporters.

A February report from WIRES, a trade group representing many major U.S. power utilities, opposed competition, claiming it would impede utility collaboration and stall projects. But independent developers claim utilities have been slow to develop needed large-scale projects. 

Competitive bidders also tend to have access to lower cost financing, with less cost escalation due to labor and supply chain issues than utility-built projects, said sector consultant Brattle Group.

Illinois Gov. J.B. Pritzker (D) last year vetoed a provision for right of first refusal. “Eliminating competition will cause rates to increase in the broader region that has $3.6 billion in planned transmission construction,” he said then. In December, the U.S. Supreme Court declined to hear a challenge from Texas to keep its 2019 law that allowed only electric utilities with an existing in-state presence to build new transmission lines. 

It let stand an appellate court ruling that supported efforts by NextEra Energy Inc. to build lines in the state.

Reaction Pro and Con

Some states have already threatened lawsuits, with Commissioner Christie noting potential legal vulnerability related to whether FERC has overstepped its authority as a federal agency.

House Energy and Commerce Committee Chair Cathy McMorris Rodgers (R-Wash.) predicted higher costs “at a time when energy prices are already sky-high and more than half the nation is at elevated risk of forced blackouts.” She announced in February that she will not seek reelection aftwr 20 years in Congress.

But Justin Vickers, a Sierra Club senior attorney, said the rule is in FERC’s jurisdiction. “I think the commission is on very strong footing here,” he said. “We can send power around the country. It increases reliability and it lowers price.”

Sen. Tom Carper (D-Del.), chairman of the Senate Environment and Public Works Committee, said expanding transmission capacity is key to meeting climate goals. “More clean energy projects will get off the sidelines and onto the grid,” he said. 

Carrie Zalewski, American Clean Power Association vice president of markets & transmission, applauded the FERC action but said “there are also areas in the rule to build upon, especially with regard to the integration of new resources and enabling more transmission between regions.” 

The Edison Electric Institute, which represents investor-owned utilities, said it was “disappointed” that FERC failed to approve right of first refusal, which it claimed “would have promoted collaborative planning and helped to avoid the costs and delays” of ineffective FERC project development processes.

Said the group: “A one-size-fits-all approach does not work, as different regions have different needs and different states have different policies. Unfortunately, this final order does not seize the chance to alleviate the most significant challenges that we are facing.”