The Federal Energy Regulatory Commission is addressing transmission reform for the first time in roughly a decade, and Congress is helping to relieve legal congestion.

FERC asked for comments in mid-July on an "advance notice of proposed rulemaking" that would make changes to improve electric regional transmission planning and cost allocation procedures and the generator interconnection process.

Transmission development is ripe for review. Although utilities have a formal planning process designed to forecast and address transmission needs, much of the actual transmission build-out is reactionary because it is based on individual generator interconnection requests. The two processes are largely uncoordinated. Developers in many regions have lamented recently that the cost and time for completing interconnection is unreasonable. It sounds like FERC agrees.

FERC acknowledged in the advance notice that the generator interconnection process is probably not the most efficient or cost-effective method to plan a transmission grid that will support future generation. The process focuses on one (or a cluster) of proposed generators in a planning bubble based on technology, location and other specific factors, without taking a broader view of system requirements that could support multiple future generators. The objective of the advance notice is to plan better for the increased interconnection demand while still maintaining just and reasonable rates for customers.

The many specific questions posed in the advance notice suggest a major shake-up in generator interconnection procedures may be in the queue.

For example, FERC is seeking comments on:

1. Cost allocation

FERC directed in Order 1000 that the cost of transmission infrastructure must be allocated among entities using the transmission grid in a manner that is approximately commensurate with the benefits each entity derives from the infrastructure. The advance notice admits that the current cost allocation that occurs through interconnection procedures may not satisfy this standard. The current approach might also lead to speculative interconnection requests that waste resources because cost allocation is so dependent on timing and location that some developers may submit "feelers" to assess multiple options for a single project. FERC welcomes proposed revisions. Proposals should address reliability impacts, if any.

2. Future transmission needs

The advance notice also asks for comments about whether transmission providers should amend their regional transmission planning processes to incorporate the transmission needs of anticipated future generators. This would involve anticipating how technology is changing and where future projects might get into interconnection queues, with an express focus on how the role of future federal, state and local climate and clean energy regulations and goals should be considered. Currently, with a few exceptions, regional transmission planning is based on generators in the interconnection queue that have completed facilities studies. This results in a narrow, short-term view of future transmission needs. Among the specific questions FERC poses is how far into the future the process should look and what inputs and assumptions should be modeled. The responses should be interesting given how unpredictable the future generation mix may be in light of the recent meteoric rise in new technologies.

3. Interregional coordination

Transmission planning based on interconnection requests also results in a locationally-constrained view of transmission planning. FERC suggests this approach may impede the development of efficient, cost-effective interregional projects and asks for suggestions.

4. Coordination between interconnection and transmission planning

FERC asks whether it should require transmission providers to coordinate regional transmission planning and cost allocation procedures and generator interconnection processes on concurrent, coordinated time frames. This has the potential to reduce costs significantly that are allocated to a single project.

Anyone interested in providing comments is invited to do so in FERC Docket No. RM21-17. Comments are due Monday, October 10, 2021, and reply comments are due Tuesday, November 9, 2021.

The advance notice repeatedly asks commenters to address whether FERC has the authority to implement suggested changes. Congress is trying to answer that question in part by extending FERC's authority over transmission.

Congress

The US Senate approved a "once-in-a-generation" bipartisan infrastructure package in early August that includes a $73 billion investment in transmission infrastructure to facilitate growth of the renewable energy industry.

Perhaps even more meaningful than the money, the deal would also augment FERC's transmission siting authority. Currently a single state can block a regional transmission project, even if adjacent states support the project.

The bill proposes to change that if the project is sited along a "national interest electric transmission corridor." The US Department of Energy defines these corridors as regions where the public would benefit from additional transmission due to congested power lines coupled with high demand. FERC currently has this authority over siting of gas pipelines, so there is precedent for this proposal. The consolidation of siting authority could in and of itself help advance transmission infrastructure because it would reduce development risks. States have understandably objected to the idea.

The advance notice and proposed infrastructure bill are subject to revision and the actual impact is impossible to predict. They both reflect changes in generation technology, new clean energy policies and the reality that the current electricity grid is aging.

It is reasonable to expect that some version of meaningful transmission reform will emerge from all of this that will affect project developers and lenders.