Support builds for independent utilities monitoring

WASHINGTON — An aging electric grid, fossil fuel power plant retirements and a massive renewable electricity buildout are all contributing to a boom in transmission and distribution wire projects by electric utilities across the country.

In 2020, investor-owned electric utilities spent $25 billion on transmission, up from $23.7 billion in 2019, figures that the Edison Electric Institute, which represents investor-owned electric companies, expected to only grow going forward.

Ohio-based American Electric Power, which is one of the nation’s largest electric companies and which operates the largest transmission system in the country (serving 5.5 million customers in 11 states) said last year that it plans to spend $23.3 billion between 2022 and 2026 on transmission and distribution.

But much of that spending is happening on local projects in states with widely differing regulatory regimes. And there’s been growing concern at the state and federal level that too much of it is occurring without enough transparency and oversight to ensure transmission owners are appropriately planning for new technology, considering more cost-effective regional approaches or alternate solutions and not ripping off their ratepayers.

“There’s going to be a significant amount of transmission built,” Federal Energy Regulatory Commission Chairman Richard Glick said at a Nov. 15 meeting of a joint federal and state task force on electric transmission. “We need to make sure consumers get the best bang for their buck.”

The meeting came more than a month after a FERC technical conference during which electric utility regulators and consumer counsel from a wide variety of states said, to varying degrees, that they often lacked the authority, information and expertise to properly vet and oversee the rising number of transmission projects happening in their states.

That’s led to growing support for the idea of an independent monitor to examine the need, costs and planning behind the wave of new projects to protect customers and ensure utilities — for whom transmission spending and the return on equity it comes with is a major profit stream — are looking beyond their own narrow financial interests.

Electric companies and transmission owners see it as an unnecessary layer of bureaucracy, and even some utility regulators say it’s a job best left to states.

But some state regulators do have processes in place to properly vet transmission projects and utility building plans, which are called integrated resource plans.

Tricia Pridemore, chair of the Georgia Public Service Commission, touted Georgia’s pro-business rankings, economic development wins, below-average electric rates, growth in solar energy, lack of outages or brown-outs and a collaborative process between regulators and utilities that “has been perfected over decades” at the Nov. 15 FERC task force meeting. (According to the federal Energy Information Administration, however, Georgia is hardly an electric rate utopia, ranking 15th-most expensive in average residential retail electric price.)

She admonished other state utility regulators to secure the budget and staffing to properly oversee projects rather than rely on a federally imposed monitor.

“It lessens your authority to do the hard things that simply must be done,“ she said.

Pridemore is presiding over state PSC hearings this fall that could result in a 12% rate hike for Georgia Power, with a substantial amount set aside for transmission system spending that the company claims is critical.

Jeff Burleson, a senior vice president of environmental and system planning at Atlanta-based Southern Company, which operates electric companies in Georgia, Alabama and Mississippi, said the company posts transmission plans twice a year on the Southeastern Regional Transmission Planning website and gets “a significant amount of oversight at our state regulatory agencies.”

“I also don’t feel that there is value for us from thinking about some sort of independent monitor because we already have so much scrutiny that comes through all of our processes,” he said.

The Federal Power Act, which dates to 1920, grants FERC oversight over electric transmission in interstate commerce and charges it with ensuring that costs billed to customers are “just and reasonable.”

“Yet, over the past few decades, the commission has used its expansive ratemaking authority to institute several shortcuts that reduce its direct oversight,” according to comments filed with FERC by Ari Peskoe, director of the Electricity Law Initiative at Harvard University Law School. “The commission’s policies do not protect consumers.”

Peskoe singled out FERC “formula rates,” which, instead of relying on a contested rate case to establish the utility’s cost of service for transmission, allows the companies to file information with FERC in various categories — including rate of return, operations and maintenance, depreciation, taxes and other factors — that is used to calculate the formula rate they’re able to charge customers for local projects.

While there’s some opportunity to challenge utilities’ formula rates, “it’s not practical to do so on the piecemeal basis that these other projects are progressing,” Easler said.

FERC Commissioner Mark Christie, a former member of the Virginia State Corporation Commission, has said the amount of transmission spending utilities are packing into their rate bases nearly tripled between 2012 and 2020.

“What goes into rate base goes into consumer bills,” Christie said at the Nov. 15 task force meeting. “This is a hugely important issue. This is a ton of money.”

Transmission projects that span different utilities’ service territories in areas managed by regional transmission organizations go through a vetting process involving multiple parties, but utilities have almost total control over local projects, a major incentive to avoid regional projects in which they may have to share control and profits with another utility.

“They like the status quo, which is them building their own transmission wholly within their own territory and not having to share,” said Nick Guidi, an attorney with the Southern Environmental Law Center who works on electric regulation issues at FERC and is pushing for market reform in the Southeast.

Guidi quibbled in particular with the characterization by Burleson, the Southern Company executive, that the company’s state regulators conduct a thorough review of transmission projects.

Even where certificate of public need procedures (a permit to build and operate a utility facility) exist in the Southeast, it’s generally only for new lines, not lines that are being rebuilt, upgraded or replaced.

Many states limit what their public utility commissions can approve based on size of transmission line, leading to utilities often picking solutions that fall under that threshold in order to avoid scrutiny.

That means that while the project might not be the most efficient or cost effective, it’s the easiest one for the utility to get built with the least amount of oversight.

In North Carolina, a public need certificate is only required for new construction of a transmission line that’s 161 kilovolts or larger, James McLawhorn, director of the energy division at the North Carolina Utilities Commission’s Public Staff, which is the state’s consumer advocate, said.

In October, Kentucky Public Service Commission Chairman Kent Chandler, said the monitor could serve a similar function to the independent market monitor in PJM, the nation’s largest regional transmission operator that coordinates the movement of wholesale electricity in all or parts of 13 states and the District of Columbia. The market monitor is tasked with helping maintain “competitive and nondiscriminatory” power markets.

There seemed to be little appetite among consumer advocates or utility regulators for giving the monitor authority to issue orders rejecting or requiring any particular projects to be built.

A final FERC decision on independent monitors, however, isn’t imminent. Though the current discussion on independent transmission monitoring is occurring as the commission is weighing a proposed rule aimed at encouraging more effective long-term regional transmission planning and changing how benefits and costs of new transmission are allocated, an order on independent monitoring would most likely come in a future rulemaking proceeding, experts said.

“Everyone complained when it was first raised. … It’s going to stop the system, we’re just going to be stalled out,” Adrienne Mouton-Henderson, director of market and policy innovation at the Clean Energy Buyers Alliance, said. “And that’s simply not been the case.

“Band-Aiding the system right now and putting the same assets in place is not helping us get renewables there; it’s not helping corporate sustainability goals; it’s not helping us get to clean energy. Transmission lines need to be rebuilt, they need to be upgraded regionally, and we need to make sure that we do it in a cost-effective manner for all ratepayers. … And we simply aren’t doing it right now.”

Robert Zullo/States Newsroom via Georgia Recorder