Seeking a Balanced Approach – the BPC Electric Grid Initiative’s Proposed Reform of Existing Federal Backstop Transmission Siting Authority

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Friday, February 15, 2013

The appropriate role for the federal government in the siting of electricity transmission is a contentious issue. The 1935 Federal Power Act left states with the primary authority over transmission facility siting – a logical outcome given that transmission projects at that time were typically confined to a single state and constructed by local vertically integrated utilities.

In the decades since, economic and population growth, along with the advent of competitive wholesale electricity markets, have resulted in electricity markets that commonly span multiple states, and a national electric grid comprised of three large interconnections. The need to provide affordable and reliable electricity on today’s grid increasingly requires interstate transmission lines. In recognition of this need, Congress provided FERC with limited backstop siting authority in the Energy Policy Act of 2005, authorizing the commission to issue a federal permit for projects located in a National Interest Electricity Transmission Corridor (designated by DOE based on transmission congestion and constraints) if state siting authorities had withheld approval of the project for more than a year. However, two recent decisions from the Fourth and Ninth Circuit Courts of Appeals have effectively hobbled this authority.

The Need for Reform

BPC’s Electric Grid Initiative – a task force comprised of some of the nation’s top experts on electric grid issues that released recommendations on February 7 – concluded that changes in the power sector since the passage of the 2005 Act warrant reforms to the existing backstop siting authority. The concerns about congestion and transmission reliability that prompted action in 2005 continue to exist. When these ongoing concerns are coupled with a newer development – the need to integrate large quantities of renewable energy resources driven by state and federal policies – it is clear that we need a new approach.

Balancing State and Federal Interests – the Electric Grid Initiative Proposal

In considering reforms to backstop siting authority, task force members recognized the need for a balanced approach: one that would provide states with ample authority to protect their consumers and the environment, but which would not unduly impede interstate projects with broader regional or national benefits. The Electric Grid Initiative’s proposed backstop siting authority attempts to leave siting and route selection primarily in the hands of individual states – it would apply only to a narrow category of high voltage projects, and under very limited conditions.

The National Association of Regulatory Utility Commissioners’ (NARUC’s) 2009 “Resolution Regarding Possible Federal Legislation Amending the Federal Power Act Addressing Expansion of Transmission Facilities” provided clear and common sense principles for Congress to incorporate into any legislation that would expand FERC’s backstop siting authority. Our view is that the Electric Grid Initiative’s proposal is consistent with the spirit of the NARUC resolution. With the goal of advancing the discussion on the federal role in transmission siting, below is each of the principles included in NARUC’s resolution, followed by a summary of how the Electric Grid Initiative proposal addresses the issues raised.

Principle 1:

“That any such additional authority granted to FERC by the legislation allow for primary siting jurisdiction by the States, and provide that FERC’s “backstop” siting authority be as limited in scope as possible;”

States retain primary jurisdiction under the Electric Grid Initiative’s backstop siting authority proposal. A backstop siting application cannot be filed with FERC unless a state commission is without authority to act on the application, or the state commission has failed to approve the project (including approval of an alternative route) within 18 months of the application, or the state has denied the project without offering an alternative route that is consistent with state law.

The Electric Grid Initiative’s proposed backstop siting authority is broader than current law in some respects, but narrower in other important respects.

  • The proposed backstop siting regime is not restricted to designated National Interest Electricity Transmission Corridors (NIETCs), and thus could be applied anywhere in the nation.
  • Under the proposal, backstop siting authority would be applicable only to high-voltage direct current (HVDC) and 765+ kilovolt (kV) alternating current (AC) projects. There is not a minimum capacity threshold in the current statute.
  • The proposed authority is limited to multi-state projects. There is no such limitation in current law.
  • The proposed backstop authority would potentially apply only if one affected state had authorized the project. This condition in and of itself is not sufficient for backstop siting authority to apply. One of the other conditions noted in the above section on state siting application review must also apply.

Principle 2:

“That, in no event should FERC be granted any additional authority over the siting or construction of new intrastate transmission lines;”

The Electric Grid Initiative proposal does not provide FERC with any additional authority over an intrastate transmission project. Indeed, the proposal would repeal the current law, and thus eliminate any backstop siting for projects within a single state.

Principle 3:

“That, in no event should FERC be granted any additional authority to approve or to issue a certificate for a new interstate transmission line that is not consistent with a regional transmission plan developed, in coordination with affected State commissions or other designated State siting authorities, and other regional planning groups, that covers the entire route of the proposed project;”

The world has changed in the four years since NARUC issued its resolution, with the issuance of FERC’s Order No. 1000 on regional transmission planning and cost allocation, and maturation of FERC policies on merchant transmission projects (i.e., projects where costs will be recovered entirely through customer contracts for capacity instead of through cost-of-service rates). Given these changes, the Electric Grid Initiative proposal relies on the FERC-driven regional planning process as applicable. The proposal is designed to encourage developers of long distance transmission lines to participate in regional planning (and, if applicable, interregional coordination) processes under FERC Order No. 1000. These regional and interregional processes will give states, as well as consumer groups, environmental NGOs, and others another opportunity to provide input into potential transmission projects.

FERC, before exercising backstop authority under the Electric Grid Initiative proposal, must find that the project is consistent with the public interest, consistent with national energy policy, and benefits consumers. The proposed approach would presume that these conditions are met if the project has been included for cost allocation within the relevant regional transmission plan(s) under Order No. 1000. For merchant projects, which are not required to participate in regional planning under Order No. 1000, FERC would have to make these findings based on information provided by a developer, and would favorably consider a project if it has participated in the regional planning process to the extent possible in the applicable regions(s).

Principle 4:

“That, in no event should FERC be granted any additional authority to approve or to issue a certificate for a new interstate transmission line unless there is already in place either (1) a cost-allocation agreement among all the states through which the proposed project will pass that governs how the project will be financed and paid for; or (2) a FERC-approved cost allocation rule or methodology that covers the entire route of the proposed project;”

As noted above, our proposal provides a presumption that a project has satisfied certain preconditions for approval if it has been included for cost allocation in the relevant regional transmission plan(s).

Merchant transmission projects (that is, projects where all costs are allocated through voluntarily negotiated contracts) do not raise the same type of involuntary cost allocation concerns suggested by the NARUC resolution.

 

Principle 5:

“That, in no event should any such legislation allow FERC to preempt State authority over retail ratemaking, the mitigation of local environmental impacts under State authority, the interconnection to distribution facilities, the siting of generation, or the participation by affected stakeholders in state and/or regional planning processes;”

The Electric Grid Initiative proposal is intended to provide states with ample authority to protect its consumers and the environment. First, the state retains full authority over transmission project review in the first instance, including the authority to approve projects subject to environmental conditions and even rerouting requirements without risk of federal preemption. Second, even in the backstop siting process, states may recommend environmental conditions to be included on a FERC-issued permit, and FERC must consider these conditions for inclusion and consult with state authorities before rejecting any state-recommended condition. Finally, FERC is required to give due weight to the environmental record and siting results generated by the state review process.

The Electric Grid Initiative proposal does not preempt a state’s authority over retail ratemaking, the interconnection to distribution facilities, the siting of generation, or the participation by affected stakeholders in state or regional planning processes.

Principle 6:

“That, in no event should any such legislation preempt existing State authority to regulate bundled retail transmission services.”

The Electric Grid Initiative proposal does not preempt existing state authority to regulate bundled retail transmission services.


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