FERC 1920: Meeting Electricity Demand with Faster Planning, Better Cost Recovery

The difficulty of getting a new transmission line even as far as the shovel-ready stage is a hot topic within the industry. It is a complicated process involving negotiations with landowners, multiple government oversight agencies, engineering work, global logistics, local geological surveys and economic models. A big enough issue in any one of these areas can and has been enough to bring proposed projects that most everyone agrees need to be built to a standstill. Also, even if all other needs are satisfied, investors or project partners may pull out if they think a different investment might net them more certain profits. Beyond that, once a line is built or upgrades placed into services, there is always the question of who is going to pay for it?

All these considerations are why it took the Federal Energy Regulatory Commission two years to work on Order No. 1920. This represents the first time in more than a decade that FERC has addressed regional transmission strategy, as well as the first time the commission has directly addressed the need for long-term transmission planning.

FERC intervened to guarantee that the transmission system can satisfy the nation’s expanding demand for dependable energy by issuing new regulations on how to plan and pay for facilities that areas of the country will require to keep the lights on and power the American economy into the 21st century. According to Ken Silverstein from Forbes, it is designed to support the Biden Administration’s decarbonization targets and strengthen the system to resist harsh weather that may devastate local economies.

Along with Order No. 1920, Order 1977 was unanimously approved that echoed bipartisan sentiment in other permitting reform venues. Order 1920 mandates transmission operators to perform and revise long-term transmission planning over a 20-year period to anticipate future demands. It also allows for the cost-effective extension of transmission that is being replaced, a process called “right-sizing” transmission infrastructure. Furthermore, it specifically recognizes the governments’ critical role in the planning, selection and financing of transmission lines.The recent FERC rulings carry far-reaching economic impacts. Reforms to improve interstate transmission policy can provide more than $100 billion in benefits, including billions of dollars in yearly consumer savings in certain states, according to Devin Hartman of center-right think tank RStreet.

However, Order 1920 was passed 2-1, with Commissioner Mark Christie, the FERC’s single Republican, dissenting strongly. He was particularly concerned the rule supports a renewables agenda and would affect customers.

Christie said in his dissent that Order 1920 was an attempt to enact a broad energy policy agenda never passed by Congress, adding that it fails to deliver the consumer protections guaranteed by the Federal Power Act. He also argued that regional transmission operators (RTOs) should not be required by long-term planning rules to try to predict what the country’s power generation mix will be 20 years from now.

FERC Chairman Willie Phillips said consumers stand to gain far more than to lose, with much depending on implementation quality, lawsuit results and supplementary reforms.

“Our country is facing an unprecedented surge in demand for affordable electricity while confronting extreme weather threats to the reliability of our grid and trying to stay one step ahead of the massive technological changes we are seeing in our society,” Phillips said. “Our nation needs a new foundation to get badly needed new transmission planned, paid for, and built. With this new rule, that starts today.”

In their May 14 statement on 1920, Phillips and his fellow commissioner Allison Clements said FERC must deliver on reliability as well as affordability, adding that FERC cannot meet its statutory responsibilities under the Federal Power Act without a strong power grid.

More than 70% of the grid was built over 25 years ago and much of it was put into service in the 1960s and 1970s, the commissioners noted, adding that the country has so far failed to make the kind of investments needed with the scale and speed called for in this “pivotal moment.”
The regulation is intended to encourage projects that benefit ratepayers, resulting in increased transmission capacity that can provide cheaper power. It also covers how expenses are allocated among ratepayers in projects involving many states.

“We must conduct this planning and cost allocation on a regional basis and with an aperture consistent with the scope and scale of the challenges we face. That is, after all, why Congress enacted Title II of the FPA: To provide a coherent regional and national regulatory regime and avoid the harms and costs that come from a balkanized electricity system in which every state is its own regulatory island,” Phillips and Clements wrote, adding that FERC’s final rule will do that.

The Industry Reacts

Long-term planning will need to account for the impact of extreme weather caused by climate change, as well as project costs. By increasing transmission capacity, regions affected by natural catastrophes will be more resilient since they can get electricity from other parts of the country.
FERC also revised its backstop authority. That means the feds can intervene if the states fail to push through vital — log-jammed — projects. “FERC’s backstop siting rule will help ensure that no one state can veto transmission lines that are in the general interest of the nation,” says Cullen Howe, senior advocate for the Natural Resources Defense Council.

According to Forbes, over the next decade, the will result in much more renewable energy and markedly less coal-fired electricity. Litigation will abound for both reasons, but the regulatory commissioners took this into account when they approved the new regulations.

“When it comes to the critical question of ‘who pays,’ we are providing transmission planners with the maximum flexibility we can legally allow in order to facilitate negotiated, regionally appropriate solutions,” Phillips and Christie wrote.

Larry Gasteiger, executive director of the WIRES Group, said action on incentives should be done in a holistic manner; otherwise, we risk sending the wrong signals to investors at the wrong time. “WIRES shares FERC’s objective of ensuring that rules are in place to facilitate investment in transmission infrastructure required to meet the nation’s well-documented needs. Building the grid of the future must be a bipartisan effort driving toward a common goal — a safe, reliable, and affordable grid,” said Gasteiger.

Some in the pro-renewable energy community stress the challenge to the industry represented by recent physical and financial devastation of severe weather events as well as the filings afterwards.

“The threat of climate change means that we must act quickly to decarbonize the power sector, and this FERC proceeding is a historic opportunity to speed up the transition to clean energy. Solar and storage voices will play an active role in these discussions around transmission reforms, and we are grateful to the Commission for moving this important process forward,” said Sean Gallagher, vice president of state and regulatory affairs for the Solar Energy Industries Association (SEIA).

Carrie Salewski, the American Clean Power Association’s vice president of Markets and Transmission said FERC’s rule has a critical role to play in integrating renewables effectively and establishing more transmission interconnections between regions.

“With demand for electricity growing, extreme weather becoming more common, and America’s power grid getting older and struggling to keep pace with the need for transmission expansion, the time to act is now,” Salewski said.

Dan Brouillette, president and CEO of the Edison Electric Institute, said EEI member companies invest more than US$150 billion in power grid upgrades. The industry is doing its part and needs support from state and federal lawmakers as well as large electricity consumers and technology providers.

“Allowing for scenario planning over a longer time horizon is a positive step that aligns well with the fact that transmission assets are in service for decades. While we would have liked to see FERC adopt a right of first refusal for jointly owned transmission facilities, we are encouraged that the commission created those rights for other projects and that they will continue to consider the joint ownership proposal going forward,” Brouillette said.

The Future

The proposed final rule concludes that the status quo approach leads transmission providers to invest in inefficient or less cost-effective transmission facilities, with the costs being collected through Commission-jurisdictional prices. This dynamic causes transmission customers to spend more than is required or suitable to satisfy their transmission demands, as well as consumers to lose out on advantages that outweigh their costs, resulting in less efficient or cost-effective transmission expenditures. This, in turn, renders the Commission-jurisdictional regional transmission planning and cost allocation processes unfair and irrational.

The proposed final regulation would require transmission providers to incorporate provisions in their tariffs for reevaluating previously selected long-term regional transmission infrastructure in specific instances.

Furthermore, the proposed final rule includes measures to ensure the consideration of regional transmission infrastructure that would fulfill specific transmission needs identified during the generator interconnection process, but have not yet been built. The proposed final rule mandates transmission providers to examine a variety of transmission technologies, including dynamic line ratings, advanced power flow control devices, advanced conductors, and transmission switching, throughout regional transmission planning procedures.

In addition, the proposed final regulation rejects the NOPR proposal to establish a conditional federal right of first refusal based on joint ownership. The proposed final rule states that the Commission would continue to analyze the proposal and potential federal right of first refusal problems in subsequent proceedings.

A recommendation that was not included in the draft final rule was to limit the availability of the construction work in progress incentive. The proposed final rule emphasizes that any action on the incentive should be examined in a separate session to allow for a more comprehensive approach to transmission incentives.

FERC set out to remove some of the hurdles. Every five years, transmission owners gather to get on the same page — to decide what will be required, where, and when. The idea is to think 20 years ahead. Currently, 260,000 MW of power generation are ready to join the U.S. grid, more than double the existing fleet of generators. According to the Lawrence Berkeley National Laboratory, solar, wind, and battery storage account for 95% of the generation in the queue.
According to Alex Boyd, CEO of PSC Consulting, “FERC’s Order No. 1920 is a significant step forward in U.S. transmission planning. The rule mandates a 20-year regional planning horizon, introducing ‘right-sizing for optimized infrastructure and aligning cost allocation with global standards. It addresses the fragmentation in inter-utility collaboration, facilitates renewable energy integration, and enhances grid resilience. The rule emphasizes rigorous cost-benefit analysis, state involvement, and the use of advanced grid technologies, paving the way for a reliable and sustainable energy future.”

The overall next steps for this rule being put in place was outlined briefly in a conference ran by Sandhya Ganapathy from EDP Renewables, where Christina Hayes of Americans for a Clean Energy Grid said to be on the lookout for Orders 1920a, 1920b, and so on, simply to make sure this order is as clear as possible. In addition to Hayes, Ray Long of American Council on Renewable Energy emphasized that stakeholders will be crucial in the implementation of the new order. It’s a long road to stabilization, and it seems as if the road starts now.