FERC hears broad support for transmission monitor during grid task force meeting

U.S. utility regulators on Nov. 15 began to sketch out potential roles for an independent transmission monitor as the Federal Energy Regulatory Commission seeks to strike a delicate balance between encouraging the building out of the electric grid and controlling costs.

The regulators gathered in New Orleans as part of a joint federal-state transmission task force formed in connection with a broader advanced notice of proposed rulemaking to expand the U.S. transmission system.

Academic experts have estimated the U.S. will need to more than double its historical rate of transmission capacity expansion to meet President Joe Biden's goal of achieving a 100% carbon-free power grid by 2035. But participants at an Oct. 6 technical conference on cost containment said that in adding that capacity, an array of regulatory gaps has allowed billions of dollars in transmission investments to escape cost and need reviews.

During the Nov. 15 task force meeting, FERC Commissioner Mark Christie observed that the U.S. transmission rate base has grown by more than 9% year over year for three consecutive years. The aggregate transmission rate base for a group of 76 U.S. utilities increased to $143.8 billion in 2021 from $131.7 billion in 2020, according to Regulatory Research Associates, a group within S&P Global Commodity Insights.

"What goes into rate base goes into consumers bills. Every nickel," Christie said. "I'm not implying that any of these projects weren't justified. The question in front of us is, what is the process by which they get reviewed."

FERC Chairman Richard Glick noted that some states conduct robust cost and need reviews through certificate of public need and convenience proceedings. Other states largely defer to FERC-jurisdictional regional transmission organizations and independent system operators for transmission planning.

But regulatory gaps can allow smaller projects, often dubbed "local reliability" projects, to avoid cost and need reviews. "A lot of times those projects get put into formula rates and there's really not much review," Glick said.

Potential roles for independent transmission monitor

California Public Utilities Commission member Darcie Houck noted that the California ISO's largest transmission owner, PG&E Corp. subsidiary Pacific Gas and Electric Co., has proposed $13.1 billion in transmission capital expenditures from 2022 to 2027. Of that, roughly $11 billion will go toward "self-approved projects" that have not gone through CAISO's transmission planning process, Houck said.

Gladys Brown Dutrieuille, chairman of the Pennsylvania Public Utility Commission, said that commission is also starting to see "more and more" proposed projects rated below 100 kV. Projects below that threshold receive less scrutiny, Dutrieuille said.

An independent transmission monitor could help by providing an impartial cost and need assessment for both local and regional transmission projects, Houck said. The commissioner added that the transmission monitor could also help mitigate "information and expertise asymmetries" between incumbent utilities and intervenors in utility commission proceedings.

Andrew French, a member of the Kansas Corporation Commission, said an independent transmission monitor could also help utility regulators manage a "flood of capital" from transmission developers by encouraging developers to value different types of investments in the same way.

"We need help examining the pace of investment and whether transmission owners are making the most optimal investments," French said. "If you can space out investments and let some depreciation roll off, and invest on a little longer timeline, that helps you greatly on what the rate impact is."

Tricia Pridemore, chairman of the Georgia Public Service Commission, pushed back against the idea of an independent transmission monitor. Pridemore said Georgia's "bottom-up" approach to transmission development helped the state win two of the nation's most lucrative electric vehicle manufacturing deals.

"Your citizens expect you to provide safe, reliable and affordable electric service, and you have the authority to do it without a top-down governance structure," Pridemore said.

Formula rate treatment

Task force members also spent significant time discussing Christie's idea of only granting formula rate treatment to transmission projects in states with robust cost and need reviews.

Transmission formula rates are designed to capture a utility's cost of providing transmission service, which is then used to set rates that include a return on equity. When asked to describe what a robust process looks like, Christie said states could be allowed to self-certify that they have those processes in place.

"I think the best place to start is to ask you, the individual state commissions, to certify whether you have a credible process or not," Christie said. "That would be easy for FERC because we could let you attest whether you have a credible proceeding, or if you don't, what do you need to get it?"

Commissioner Allison Clements raised the idea of requiring transmission developers to submit standardized information to help with "apples-to-apples" comparisons across the country. French said doing so could also help an independent transmission monitor understand which developers "are being most efficient with their dollars."

Clements also stressed that FERC is not seeking to delay transmission projects by emphasizing cost containment.

"I don't think any of us are interested in stymieing or slowing down needed transmission development," Clements said.

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