In this episode, Rob Gramlich of Grid Strategies comes back on the pod to discuss the suddenly sizzling transmission world, where both President Biden and the Federal Energy Regulatory Commission have recently announced significant updates to transmission planning, permitting, and funding.
Text transcript:
David Roberts
When I talked with transmission expert Rob Gramlich (head of the policy shop Grid Strategies) in November of last year, we discussed what might be included in the hotly anticipated upcoming rule on transmission planning from the Federal Energy Regulatory Commission, or FERC. With no substantial legislative progress on transmission on the horizon, the rule, Gramlich argued, is likely to be the most significant federal policy on transmission of Biden’s term.
Well, FERC issued the final rule last week. It will require regional transmission system operators to make longer-term plans and to take into account a wider range of possible benefits from regional transmission.
And that's not all that's happened since Gramlich and I talked. Last month, the Biden administration announced a whole series of significant moves on transmission, on everything from permitting to funding.
That's a lot of action in the comparatively sleepy transmission world! Given everything that's unfolded, I thought it would be good to have Gramlich back on the pod to take stock. We're going to discuss the new FERC rule, what it requires, who's for and against it, and its future. We’ll also touch on the rest of Biden's transmission announcements, what it all adds up to, and what is left to do to get the transmission needed for the clean-energy transition.
With no further ado, Rob Gramlich, welcome back.
Rob Gramlich
Great to be back, David.
David Roberts
Great to have you. You know, Rob, I'm old enough to remember when transmission was a boring, sleepy backwater in the clean energy discussion — like a year or two ago. And now here we are, things are just hopping, just hopping. Exciting times. So let's start with the rule. How close is it to sort of what was proposed or floated originally, what we talked about in November? Are there any sort of striking or interesting changes from then to now that are worth pointing out?
Rob Gramlich
Sure. Well, it's a great week. It's a really big order. I do think it meets the billing of, I call it biggest energy policy in the country post IRA, just because of the significance of the grid for meeting clean energy goals, for reliability, for economic rates and all that for consumers.
David Roberts
People should go back and listen to our original pod for background on this stuff. I'm not going to spend a lot of time on why we need a bunch of transmission. I think people get that. I think, you know, or what exactly FERC is doing. People should go listen to that previous pod. We're just going to get into the FERC rules. So we can skip all the transmission rules. We're just going to assume everybody knows transmission rules.
Rob Gramlich
Can I give you my one sentence summary of the 1300 page rule?
David Roberts
Sure. 1,300 pages. That was the total?
Rob Gramlich
1,300 pages is the Order 1920. Yes.
David Roberts
It's a lot of rule. Yes. Give me your one sentence summary.
Rob Gramlich
One sentence summary: Plan for the future with the best available information, select the best plan for consumers, and allocate costs according to benefits.
David Roberts
There's a lot packed in there.
Rob Gramlich
Yeah, so transmission providers are required to do those things. So that's all, you know, we discussed on the last one, but for those who, you know, didn't listen to that and haven't listened to it since then, you know, that's what it does. And you asked what's changed? I think it got stronger in some key ways.
David Roberts
Oh, interesting.
Rob Gramlich
And we discussed those ways. You asked me back in November, you know, "Is the proposed rule good? Does it need to be different or stronger?" And there were some key ways in which I suggested it really should be stronger, and they did that. The final order, I think people should be very, very happy that it is in fact stronger than the proposed rule and I think it will actually succeed in its objectives.
David Roberts
Well, that's not usually the way these things go. They usually do not get stronger over the course of the process. Well, let's start then with plan. This applies to regional transmission system operators, sort of the RTOs and ISOs. So govern regional transmission in areas that have been, you know, deregulated or unbundled or whatever you want to call it, where they're overseeing wholesale energy markets. What about utilities that remain vertically integrated that have not been unbundled, have not been deregulated? Are they affected by this rule at all or how does that work?
Rob Gramlich
Yes, the rule applies equally to them. So all Transmission Providers — and capital T, capital P, term of art in FERC lingo — all Transmission Providers must do all these things and we can talk about the planning methods and the factors.
David Roberts
Yeah. So it applies to everyone across the country. Everybody's under this rule. Okay. That's one thing I want to —
Rob Gramlich
Right. And by and large, the expectation is utilities outside RTOs would be working with their neighbors and putting together joint plans. But a utility doesn't necessarily have to. Part of this is it remains to be seen how utilities are going to, are going to play it. But technically, FERC's regulations apply to the utility, the transmission provider, and so the regulations technically apply to them. Just, you know, and just them.
David Roberts
Got it. Okay. So let's start with the planning then it says that transmission operators have to make 20-year plans. What is the significance of that? Because I've heard, you know, one of the objections to this rule is that 20 years is just too long a horizon because it's just very, very difficult, especially at a time of extraordinary sort of ferment and change. It's very difficult to know how much transmission we really will need in 20 years. You know, there's a school of thought that says, you know, like: Energy storage, we'll take the edge off that and reduce the amount we need. Or something else, there's a lot of different theories about how things are going to play out. What do you make of the 20-year planning horizon and how is that supposed to work and what's the significance of it?
Rob Gramlich
Yes, any forecast is necessarily wrong, right? And that, you know, that point has been made in the FERC proceeding by many, many people. My view on that, and I think a lot of parties and the majority who voted for this rule is "Yes, but a lot of things are known." And so things like adding new load when new manufacturing plants come online or data centers, they are where they are. They don't just pick up and leave. The generation sources are largely the same. The places where it's windy, whenever you were a kid and there was a windy place, it's probably still windy now.
Places where it's sunny and there's lower-cost available land for solar farms, probably still going to be that way, you know, in 20 years. So look, the whole history of electric utilities is, you know, you have, I mean, these are, this is sort of shared public infrastructure. So whether you're talking about roads, bridges or anything else, obviously things change. But these are long-lived assets. They are long lead time assets. You know, if you get yourself wrapped around the axle over some uncertainty, you're never going to build anything. And then, you know, so you have to, you know, what's the risk of doing nothing?
Commissioner Clements at FERC talks a lot about that: Consider the cost of inaction if you're worried about the cost and the risk.
David Roberts
Yeah, I mean, one of the things we discussed in November that I found a little gobsmacking, I think a lot of people do, is that this 20-year planning horizon is not necessarily replacing for a lot of utilities or RTO's 10-year horizon; it's replacing no planning. It's replacing no planning at all, which is, which I still find wild. So what does this mean? You have to plan with a 20-year horizon? That just means you have to show your work, you have to show FERC that you did this. You have to issue a 20-year plan basically on some time horizon?
Rob Gramlich
Yeah, that's right. Well, there's a set of factors you have to take into account, essentially the amount and location of generation and load. Okay, right. So again, there's load growth, new manufacturing coming, etcetera, on the load side and generation. You have a, you know, reasonable sense from consumer preferences, from state policies, and from just what the businesses are doing in terms of interconnection for new generators. There are various metrics on how much power you're going to get from this place or that place and to this place and that place. And that's what transmission planners have always done.
You know, it starts out kind of like crude with, you know, bubbles and lines on a map, and then it gets a lot, you know, with each iteration, gets a lot more fine-tuned.
David Roberts
And another big aspect of this is that the transmission planners have to take this set of benefits of regional transmission into account when doing these 20-year plans. So, I'm curious, your thoughts about — I'm not going to list all seven benefits that, you know, there's some obscure, that's reduced transmission losses, reduced congestion, all sorts of. There's seven of them. And I'm curious, your thoughts on the benefits they have to take into account. And I'm curious, you know, speaking of Clements, Allison Clements, one of the members of FERC, one of the Democratic members of FERC, wrote up an op-ed that just came out recently who said that originally there was a list of twelve benefits that got whittled down to seven.
So, I'm curious, just your thoughts on whether this array of benefits sort of adequately captures the landscape.
Rob Gramlich
Yeah, they had the twelve benefits before and then they had these scenarios. We haven't talked about scenario planning, but it includes scenario planning. And in the original proposal, I think it struck a lot of people as a little micromanagey, like "Do these exact scenarios and do these exact list of twelve types of benefits." So, I think the commission said, "Okay, we'll give you a little bit more flexibility." They consolidated some of them down and kind of recategorized some of the benefits. So, yes, in response to your question, I think these eight cover the topics. The transmission provider has the ability to add some other, but ultimately we'll get to cost allocation at some point.
But FERC has to show that the beneficiaries pay. And so then you have to say, "Well, what are the benefits?" And so it's very helpful for, I think, FERC just to provide the industry guidance of "Here are some benefits and a couple sentences on how to calculate them." I'll just pick out one that's a big one and often underappreciated. And that's reduced reserve margins. So most folks know that you have a generation reserve margin, so you have to have very expensive generation capacity sitting around in case load isn't what you thought, or in case the other generators failed because they have outages.
Well, that's where a lot of the money is from a consumer standpoint. There's a lot of money that you have to pay for these generation capacity reserve margins for generators to just sit there. Well, very often with transmission, you're able to capture the diversity, like load diversity. If somebody's using power over here, well, three states away, they're not. And so, you can end up sharing that way. If you have enough transmission, so you can save yourself on the reserve margin. So, there's a lot of money from a consumer.
David Roberts
Right, right. So right now, transmission area is a little island, and that island has enough reserve margin to cover the island, and then it's sitting right next to another island that has its own reserve margin to cover its island. Whereas, the two islands could just share some of their reserve margin, and then they just wouldn't need to duplicate those efforts.
Rob Gramlich
Exactly.
David Roberts
It's a little ridiculous that reserve margins are duplicated over and over again across the country. We just end up with, in aggregate, wildly excessive amounts of reserve margin, which is, as you say, a lot of wasted money.
Rob Gramlich
Exactly.
David Roberts
So, do these seven benefits mean that transmission planners have to use them, like, show that they've acknowledged all these, or is this more of like a guidance "Do this kind of thing"? I'm just, I'm wondering how prescriptive and how much sort of like legal force these things have.
Rob Gramlich
Yeah, no, they do need to calculate these benefits, and you're right, it's seven. I think I might have said eight, but it's seven benefits. So, they have to basically calculate and show the world these benefits. They do have to do that much. It gets a little bit more nuanced when it gets to how exactly do they use them? Because there's two different stages of the remaining process. One is the selection of projects: What's sort of the decision rule once you know all the benefits and the costs, what do you do then? That's the selection process, and then there's separately the cost allocation process.
So, there's some kind of, like, flexibility applied at each stage. So, I don't want to oversimplify it, but it would be the rough approximation of the whole process is: Calculate all the benefits, compare the benefits to the costs, pick the one that's best for consumers, meaning sort of maximize the net benefits and then allocate the costs according to those benefits. That's just the very simple process consistent with the one-sentence version of the 1300 page rule that I said. But again, there's important nuance in there.
David Roberts
Right. So there's two. As I understand it, Rule 1920 has two major parts. The first is do the 20-year plan based on these seven benefits or taking these seven benefits into account. And then the second has to do with grid enhancing technologies or something like that. What is the second part?
Rob Gramlich
Yeah, well, there's another part. I mean, there's, I don't know —
David Roberts
There are 1,300 pages. I'm sure there are lots of parts.
Rob Gramlich
There are lots of parts. But, yeah, the advanced technology part, I think, is really interesting. We talked about it before, and you've had grid enhancing technologies on your pod before. You had Julia Selker, for example, on one. That's a good one to pull up. But grid enhancing technologies are sort of the more like operational technologies on how you can deliver more power over existing assets.
David Roberts
Right. Getting more out of the existing grid, basically, is what they do.
Rob Gramlich
Right. With, call them new technologies or advanced, but they've been widely deployed in other countries and other places. So, they're definitely in the commercially ready category. So anyway, you're required to consider those in the plan in case those might be the more efficient option. And advanced conductors, which is a difference and a strengthening from the proposed rule.
David Roberts
Oh, reconductoring. We did a pod on that, too.
Rob Gramlich
Exactly. You did. And that's getting a lot of attention lately. And it's great. It's just the actual wire, the cable. You know, modern high-performance conductors can deliver, you know, twice as much power and they don't sag, which is really nice for kind of a resilience standpoint. And also on, you know, hot days and delivering a lot of power, they're kind of more resistant to the heat that's created. So at any rate, that technology also needs to be considered here in this final rule and in the planning process.
David Roberts
So when you're doing your 20-year plan, you have to take into account, "Would it be cheaper just to upgrade our existing lines rather than build new lines?"
Rob Gramlich
Yeah. Or, you know, it's usually a portfolio of, you know, an actual transmission plan, contrary to what I think some people imagine, it's not usually like, you know, big line from A to B. It's usually a set of 120 items. One of them is some substation upgrade, and then replace transformer, and then reconductor this line, and then new right of way — 30 miles right away from here to here. And that's the efficient thing for consumers, right? Because this is a network, really. There's so much physical electrical interaction between all of these interconnected assets and of course power moving at the speed of light.
These interactions are really important. And it's usually so much more efficient from a consumer standpoint to plan the whole thing holistically for the multiple benefits and purposes and with all of the options on the table. They didn't specifically talk about storage as transmission, but you're certainly allowed to. And that's one of many things I think people engaging in these processes would say: consider all these various options and make sure you've really identified the most cost-effective for the need.
David Roberts
I think a lot of people hear about grid enhancing technologies and reconductoring, and they're like, "Well, that's obvious. Why don't they just do that?" So, we discussed on those previous pods why they don't. Some of the reasons they don't just do that. So, it's nice that FERC is basically saying, "You have to pay attention to this stuff." This is the planning part. And then, once you've got a plan and you've written out the benefits based on these seven benefits, you've got a plan, you got the benefits. Then, you have to, according to the rule, divide up the cost of the transmission plan based on who's getting the benefits, basically.
You have to cost allocate based on benefits. And that is done through an agreement of states. What the heck does that mean? What is this state agreement process? What is that going to look like?
Rob Gramlich
That's right. So, the first way to look at it is cost allocation has to follow the "beneficiary pays" rule. And that's as governed by court decisions over the years and FERC policy, longstanding FERC policy, including from Order 1000 in 2011. And so, the cost allocation part of the rule is actually very short. It just says, "Well, we said beneficiary pays 13 years ago and we say that again."
David Roberts
Yeah, but just to note, like, how that plays out in practice varies enormously based on what you are taking as benefits. Right?
Rob Gramlich
Yeah, right. So at the kind of the highest level, okay, beneficiary pays — oh, and by the way, it is economic and reliability benefits. Those seven benefits are economic and reliability benefits, which is something we can return to about the political situation.
David Roberts
Yeah, I noticed reduced greenhouse gas emissions is not on that list of benefits.
Rob Gramlich
Correct. So, in a way, it is kind of very middle of the road, straight down the fairway of traditional FERC policy in that regard, despite what some of the policymakers said.
David Roberts
Yeah, some of the criticisms, I think, are that by choosing these particular benefits, FERC is trying to sort of juice the process to produce outcomes that it has in mind beforehand. And we'll return to that. We'll return to the criticisms here in a minute.
Rob Gramlich
All right. But then, getting to your point, so that anyway, the first level is kind of "Yep, beneficiary pays." The second level is "Oh, but there's the state process." And here is where FERC, after many discussions with the states in this formal joint FERC state task force process, came up with this requirement that is an unprecedented expansion of the state role in this area where states are given this opportunity to say sort of, you know, exactly what that cost allocation formula is for the region. And this is built upon, just like this whole rule is built upon best practices that have been sort of learned from successes and failures over the years.
I think they were looking at the Southwest Power Pool and MISO regions in the Midwest. So, kind of central regions. They have this active engagement of states that are involved in the planning and cost allocation process, and that works pretty well. I mean, nothing really moves forward without pretty good regional support. And that formal engagement where they're really at the table has been beneficial.
David Roberts
Aren't all states, though, kind of trying to maximize the benefits they get and minimize the amount they pay? I mean, I guess they're all doing that and you come out of the middle somewhere.
Rob Gramlich
That's right. Well, I mean, it's, you know, such a complicated industry and, you know, almost every state is part of just a sea of a regional network, and they don't really know what's going on all around them. And, you know, they're all resource-constrained.
David Roberts
And I'm also confused. Maybe you can clarify: Like, the regional transmission organization, their territory is several states. So, they make the plan and then they hand it to states. And they say to states, "You figure out how to pay." Is that basically the process?
Rob Gramlich
Yeah, well, the states have a little more role than that in the various stages of developing the plan as well. But the key one, and the one they care most about, is the cost allocations. So yes, they have that role. Now, there was an issue. This is one point, one of the, I think, four major points you and I discussed in November, David, in terms of what needs to change about this rule to really make it work. And one of the points is, "Yes, engage the states. But at the end of the day, if they can't agree, a decision needs to be made."
And the proposed rule had somewhat unclear, maybe somewhat contradictory language on that. But the final rule is quite clear that, like, "Yes, a decision has to be made. So we can't just, like, have that disagreement be the reason of, like, the whole process ends and nothing gets built." It's, you know, so there's sort of a default policy has to be in place, and if the states can get together and agree on something different, great, go with that.
David Roberts
But if they can't, then what?
Rob Gramlich
Yeah. Well, then there's this sort of, call it, a default cost allocation policy that needs to be in place.
David Roberts
And this is also something that sticks in the craw of opponents of this rule. Yes, this idea that states get to agree on cost allocation, but if they can't, they can't just scrap the whole thing. A default plan gets put in place instead.
Rob Gramlich
Right. If there was really one core difference between the two-vote majority that voted for the rule and the one commissioner who opposed it and dissented, that's really it. The latter commissioner, Commissioner Mark Christie, wanted the states to be able to opt out, essentially, and the majority said no.
David Roberts
I mean, I think the reason the majority didn't go with that is that, you know, there are going to be red states involved in these processes that don't want new transmission at all because it threatens fossil fuels and have every incentive just to tank the process entirely, tank new transmission entirely. And if they had that power, they would use it unless transmission would get built. I mean, that's the basic motivation here for this provision, is it not?
Rob Gramlich
Well, I look at it in terms of just the need to get infrastructure built and paid for. Think of every other shared public infrastructure and whether it would actually get funded if everybody got to opt out. Okay, so the classic public good is national defense. What if we all had a, you know, there was a box on the 1040 form where you could say, do you want to pay for the Pentagon? If not, you get to pay 30% less. Like, everybody would say, "Yeah, I'll pay 30% less."
David Roberts
If you can be a free rider, you will be a free rider.
Rob Gramlich
Right. I mean, that's just sort of basic economics about public goods and free ridership, you know, so that was really a sticking point, I think, between the commissioners. And look, Mark Christie, you know, to his credit, he's been consistent on this position through the entire time he's been on the commission and in these discussions with the states. And, you know, that was his opinion.
David Roberts
Before you get to Christie, because I want to, I want to dive into what he says. But just on the state agreement process, do we expect states to engage in this in good faith? Do they still have the power to sort of like, monkey wrench this process if they don't like it, if they don't like new transmission? Just like, how much wiggle room do these states have in this?
Rob Gramlich
Well, there is wiggle room in multiple places in this order. So, you know, I don't want to say it's, you know, it's all, like, nailed down now that they've issued the final rule. But I do think it is an unprecedented opportunity for states to engage in a more formal way in these important decisions that affect their states. And so, I think any given state would be crazy not to take that opportunity and participate.
David Roberts
But I remember when EPA issued climate rules for, with the power plants, and it was the same thing. Like, "States, come up with a plan to do this. If you don't, we're going to impose a plan on you." And you would think states would be crazy not to come up with their own plan suited to them best. But, like, there were still intransigent jerk states that did that. So I don't know if we can entirely project rational behavior onto all states.
Rob Gramlich
Yeah, well, you know, again, it's, you can't do that. But I do think you can look to these states like, let's take the Southwest Power Pool (SPP) states. These are not radical, progressive states. Oklahoma, Kansas, you know, Dakotas, parts of New Mexico, you know, that middle of the country, kind of the reddest of the red states. The states have been actively involved in regional transmission planning over the years. And, you know, I think most of them, the individuals who've been involved, would say it's great that they were able to be involved and the outcome has generally been good.
So hopefully other states look at that type of example and say, "You know, we can do that, too."
David Roberts
Yeah. I actually meant to mention earlier when we were talking about who this rule applies to, I think we both forgot to mention it does not apply to Texas.
Rob Gramlich
Correct.
David Roberts
It does not apply to ERCOT in Texas, which is its own island and not really part of a larger regional grid. That's a whole different topic. So, the main thrust of the rule then is, you got to make a plan, and then the states have to get together and figure out how to divide up the costs of the plan. You have to choose the plan that's best for consumers, and then the states have to divide up the costs. This is the process that's been set up. The FERC Commission is supposed to be five people, but it's down to three.
There's two Democrats and one Republican. The two Democrats voted for it. The Republican, Mark Christie, objected quite strenuously, I would say oddly strenuously in a way, for reasons I don't totally understand. So maybe you can unpack that for us. Why is he so angry? And what is it that's in the rule that bugs him so much? Also, while I'm at it, Neil Chatterjee, former member of FERC, Republican, tweeted, "This is a bipartisan rule. I would have voted for it. I'm a Republican and I would have voted for it." So it's clearly not just a partisan thing. So help us understand the politics here, like who objects and why.
Rob Gramlich
That's right. Yeah. And not to mention, you know, we've had 25 years of, really 30 years of bipartisan FERC commissioners and commissions issuing rules, trying to do these same things on transmission planning, most of the time not achieving their goals. But transmission planning generally has been supported on a bipartisan basis. And not to mention, a lot of these federal transmission policies, both for DOE and FERC, were really led by Republicans in the early 2000s. The Bush administration, Senator Domenici in the Senate Energy Policy Act of '05. You know, those were a lot of these same policies and Republican-led at that time.
And that, I think, sort of changed when most members of Congress forgot about transmission or weren't — you know, it just wasn't on their radar for 20 years. But then it became on the Democrats' agenda when they realized, "Oh, wait a minute, there's no transition without transmission," as we say.
David Roberts
Well, now I think it's getting coded as a renewables versus fossil fuels thing. It's getting coded basically, it's like new transmission is for renewables and against fossil fuels. That's kind of how it's getting politically coded, but not totally. Like I said, Chatterjee is for it. So, what's Christie's deal?
Rob Gramlich
Yeah, so Neil Chatterjee has helpfully said, "This is not partisan." He would have voted for it. I think that's true for other former Republican commissioners. But the way things work is, it's not even though the commissioners have a party attached to their name. They don't usually sort of align with any particular political —
David Roberts
Supposed to be independent.
Rob Gramlich
Right. They are. You know, and they, you know, and they are. They are. I mean, all the three current ones certainly are. They have their own, you know, minds and positions, and they, there's not any discernible sort of party policy on these issues, even if they wanted to just align with the party.
David Roberts
Right. Yeah. The party is confused as well. Both parties are.
Rob Gramlich
Yeah, so you have three commissioners. And of course, when you're down to three, the individual views really factor prominently. So, yeah, this one commissioner dissented. And again, to his credit, I mean, he's been honest and straightforward, and he's also very open as commissioners go. Like, he'll listen to groups on all sides of this and he'll consider his views. And he's been doing this for a long time and taught law school and has been a regulator. So it's just that his, one of his views is that states should be able to opt out of paying for this shared regional infrastructure.
And I think the problem with that, as I think I've heard Chairman Phillips or Commissioner Clements or both say, is it's just hard to imagine getting infrastructure built if, again, you get to opt out and you look across the economy and other types of infrastructure, and sure enough, at some point some policymaker needs to make a decision about which taxpayers or ratepayers need to pay. And while it'd be nice if everybody got to make their own decision without being compelled, that's probably a recipe for the thing not getting built.
David Roberts
Yeah, it's not a neutral, opting out is not a neutral thing. It is a decision of sorts itself.
Rob Gramlich
Right. So, you know, my disagreement, and I think the majority, that Chairman Phillips, Commissioner Clement's view of it is just like that view is fundamentally irreconcilable with a meaningful transmission planning rule. And so, they're just observing from the outside, it just looked like that was just a bridge too far, like there wasn't a way to reconcile. And of course, everybody would prefer to have a unanimous bipartisan rule. It's always better to do things that way. But just because of the individuals who are there and their views and convictions, that appears not to have been possible.
David Roberts
Well, how idiosyncratic is that to Christie? Is that a commonly held view that states should have this right?
Rob Gramlich
I don't think that's a very widely held view now, you know, these days. You know, who knows? I mean, most policymakers haven't been asked the question or been put on record. But you know what I —
David Roberts
Or wouldn't even know what you were talking about if you asked them.
Rob Gramlich
Right. Certainly, historically, in FERC policy, the last 30 years that I've been watching, that's an anomaly.
David Roberts
There was another order. There were two orders. There's 1920 and then there's 1977. Where, by the way, is there any significance at all to these numbers? Is there some mystical — is this like a Taylor Swift thing where if you do enough numerology, you're going to find hidden meaning here, or like, who comes up with these?
Rob Gramlich
No, there is actually a method to the madness. First of all, the chairman gets to decide the number, and Chairman Phillips wanted to, I think, point to the history and tradition of the agency and this need for sort of shared infrastructure. And so, 1920 comes from the year the Federal Power Commission was originally created.
David Roberts
Oh, hilarious, that's awesome. What about 1977 then?
Rob Gramlich
And that is the year that the law was passed to change it from the Federal Power Commission to the Federal Energy Regulatory Commission. How about that?
David Roberts
Hilarious. That's fun. Okay, so what is 1977?
Rob Gramlich
So, Order 1977 is the FERC implementation of the federal backstop transmission siting legislation that was originally passed in Energy Policy Act of 2005, notably a couple years after the Northeast blackout.
David Roberts
Yes. Never exercised, though.
Rob Gramlich
That's right.
David Roberts
The authority has never been exercised, even though it's been around for ages.
Rob Gramlich
That's right. Because there were a couple of court decisions that really defanged it and rendered it useless. And so essentially, what the Infrastructure Investment and Jobs Act, (IIJA), otherwise known as Bipartisan Infrastructure Law, what that did, that bipartisan law did, was to essentially undo the court decisions that had rendered it useless and restrengthen it to the way most of us originally thought it was supposed to work. But without getting into the details, it essentially made it, again, a strong, or a meaningful, at least federal backstop siting approach, where if the Department of Energy designates some line or path as a national interest electric transmission corridor.
David Roberts
A NIETC.
Rob Gramlich
A NIETC. Then the process goes to FERC, and FERC can issue a permit somewhat similar to what FERC does with the gas pipeline side. Of course, the pipeline authority is plenary, meaning it's not backstop, it's full stop.
David Roberts
Yeah, they can approve pipelines anywhere, anytime. They can permit transmission projects in these NIETCs, in these corridors. And they just released, like a week ago, I think, the first information about where these corridors would be, and just to my eye, I'm like, "That's it?" These little, these tiny little squiggles on the map. There's nothing in the Southeast like, what did you make of the NIETCs? This is slightly off topic, but I'm curious.
Rob Gramlich
Yeah, this is an important Department of Energy activity going through the new Grid Deployment Office, and it was sort of a "little here, a little there" set of designations.
David Roberts
Kind of a sad trombone effect, I felt. I thought they were going to be much more ambitious with that.
Rob Gramlich
Well, it's a step-by-step process, I think, and also testing out the process for a few where it really made sense, I think is probably a good strategy, especially given what happened 15-20 years ago when they tried to implement it and got beat back by the courts. So, doing it where it made the most sense or they had the best data probably made some sense. I don't think anybody expected that it was going to have a dramatic effect right away. Moreover, most people think that it's sort of a "carry a big stick" type of policy that may rarely, if ever, actually be used and result in a federal permit.
But just the fact that it exists means things like, my state of Maryland has this line hoping to get cheap power through Pennsylvania. And the Pennsylvania commission said, "No, there's plenty of benefits to the region and to other states, but not enough here. So we're going to reject it." So, you know, that was kind of a classic problem, and this NIETC policy could remedy that in situations.
David Roberts
Oh, are you in a NIETC?
Rob Gramlich
Not really. Well, there is actually one kind of near here in the DC area because partly because we've got this massive load growth from data centers in Virginia. Yeah. So, I mean, FERC's rule in 1977, Order 1977, essentially implements their part of it. The one change from the proposed rule on that was they agreed with states: States had pushed back and said, "No, don't do the simultaneous FERC and state process," which a lot of the industry had said, "Please do it that way, it's faster." But FERC agreed with the states that said "No, instead, do a sequential process, let the states fully do their thing, and then FERC steps in."
And so, I think it's a little slower the way they did it. But, you know, I understand they're trying to work with states, and they did actually get a 3-0 unanimous vote with all three commissioners on that. I think largely probably because they did work with the states and do what the states asked.
David Roberts
And, is there anything in either of these orders on interregional lines? Like, these are about longer lines within RTO regions or within utility regions. Obviously, the vision, I think, the future vision for a lot of transmission advocates is we also need interregional lines, sharing between regions. My understanding is that they basically punted on that. Is that correct?
Rob Gramlich
That's right. So, does this rule handle everything? No, this is one step in a process. And the main sort of undone thing is the interregional case. Through this lengthy three or four-year process, they sort of jettisoned a few things. I think it just kind of got too big to handle. So, they focused on the regional. They got a good, strong regional order now in 1920. They really haven't addressed interregional transmission meaningfully. And, of course, that's really important from both a reliability standpoint and a clean energy integration standpoint. So, that remains to be done.
Also, Congress is considering acting in that area. That would be, of course, more effective if they would do that. So that would be great as part of permitting legislation and whatever deal they may come up with to, you know, any such deal will have a transmission provision, no question about that. And interregional, I think, would be a focus of that. So, yeah, there's more to do on the interregional case.
David Roberts
On the politics of this possible permitting and further transmission legislation, one of the things you hear conservatives complain about is that these recent moves from DOE on permitting transmission have sort of poisoned the well, and now Republicans are going to take their ball and go home and not going to work on bipartisan permitting or transmission stuff. How seriously do you take that?
Rob Gramlich
Well, just to clarify, I do hear Republicans upset with how the administration has implemented the, you know, the debt ceiling deal had some NEPA reforms, and so the Biden administration agreed to that as part of, you know, our paying our debts and keeping the global economy afloat. And so they're not happy about that. And that has soured somewhat, the conversations on the hill about permitting reform, but they're not dead. I do think there are earnest discussions going on, in particular at the Senate Energy Committee. And so, you know, a little bit of time heals all wounds.
David Roberts
Can we, can we, though, assume that probably not until after the election? I mean —
Rob Gramlich
Well, for final passage, yeah, I think most people say the lame duck period after the election, you know, if it's gonna pass this Congress, that's the most likely time. But of course, there's a, you know, there are steps you have to go through at the committee level, and, you know, there's a lot of work to do between now and then. So I'm hopeful that those discussions continue.
David Roberts
Obviously, there will be lawsuits. That's just America these days. Probably going to be a bunch of red state attorneys general suing against this rule like they sue against every rule issued by the federal government. It seems like these days. So, let's talk a little bit about legal vulnerability, if there is one. I mean, it seems like to me, you know, a layperson, that everything FERC is doing is pretty obviously within FERC's authority. But I think the threat, the cudgel that's being waved around is once again our old friend "major questions doctrine," which is the doctrine that agencies may not do things that strike John Roberts as too ambitious.
So, what's your read on the legal vulnerability here? I mean, you agree that lawsuits are inevitable, I assume. You agree that this is probably going to end up in the Supreme Court eventually. What's your take on how it fares?
Rob Gramlich
That wouldn't surprise anybody. Yeah, I mean, you know, big things get challenged. I have to say, "Really? You want to spend your time on something that's planning infrastructure for the future based on best available information?" Like that?
David Roberts
They do, Rob. They do want to spend their time on that. Yes. The answer is yes.
Rob Gramlich
I'm just an earnest kid from Michigan, and I think people just should trust each other and get along. But yes, you're right.
David Roberts
Not suited to our times. But is that the vulnerability? Is "major questions," like, if it gets dinged, that's probably going to be the rationale, do you think?
Rob Gramlich
Yeah. Well, David, I think the lawyers at FERC would be shocked to hear you say, or anybody allege that there are courts and judges out there that will be inclined to find a weakness with this rule.
David Roberts
Oh, dear. Oh, heavens.
Rob Gramlich
You know, Kim Smaczniak and Matt Christiansen on staff in particular. This is the first that thought would have occurred to them that these challenges could happen. But, so look, with that in mind, I think they put together a legally bulletproof order. And the only reason I have any hesitation there is that I'm not a lawyer or really even qualified to comment on it, but I do in my work, have the privilege of being able to talk to a lot of really good lawyers. And everybody I've spoken with says, this is legally as bulletproof as you can make it.
But being legally bulletproof by itself doesn't assure what any, you know, random judge from a bad circuit, you know, could do with this or any other order for that matter.
David Roberts
Yes, being legally sound is necessary, but not sufficient for getting through this — the Supreme Court, I think. Okay, so let's briefly touch on the other stuff, the other transmission stuff that's happened. Biden made a bunch of announcements a couple of weeks ago. There was something on permitting, something on funding some line, a bunch of stuff. What was all that? What happened?
Rob Gramlich
Yeah, there were a bunch of things in that last week of April. They announced some further projects using their Transmission Facilitation Program. This is the one people call it "anchor tenant." It's where the government kind of takes a financial position on a line to kind of stimulate other, you know, all the other private subscribers to the line to kind of get it over the hump. And I really love that policy. I think transmission developers love that policy. Not a lot of funding for it, but that's, you know, put that on the to-do list. If there's ever another budget.
David Roberts
Do you know the number off the top of your head how much?
Rob Gramlich
Yeah, they've got $2.5 billion authorized to use for that program. Senator Cantwell originally introduced it at a $20 billion IIJA. So hopefully, that can get expanded in the future. But look, this is all very helpful to kind of go fully through the process with some actual projects because there turns out to be a lot of details on how to iron those out. So they've — anyway, they made another announcement about that. They announced a goal of upgrading 100,000 miles of transmission lines. This gets back to that grid enhancing technology and advanced conductor. The administration is very excited about trying to do that, you know, to maximize our existing network.
David Roberts
What does goal mean? Are they going to pay for it? Like, what does that mean?
Rob Gramlich
Yeah.
David Roberts
Is that symbolic?
Rob Gramlich
I mean, you know, it's a goal. I think the intent is to kind of galvanize both the industry and the various parties, the utilities, their state regulators, federal regulators and certainly DOE, which is the only one that, specifically in the federal government, can do something. They don't have a ton of money, but they do have some money and discretion to support some of those lines. So that was a goal. And then there's been also recent administration activity and grid deployment office activity at DOE related to their lead agency authority. This is where it's another thing that passed in 2005 that never was actually implemented, where sort of the idea is a lot of lines, particularly in the West, will need a bunch of federal permits from different federal agencies.
It's so relevant in the West because there's so much federally managed land. So the idea is to have — and that just gets to be a morass of a process, partly just because understaffed agencies trying to do a lot. And so the funding certainly helps, I should say. But the lead agency role also can really help in the view of most transmission developers anyway, because just the coordination and the timelines and the consolidation of the NEPA, the energy or the environmental impact statements, etcetera, that efficiency, administrative process efficiency, can be really valuable. So the DOE has been implementing that.
David Roberts
So what that means the grid deployment office just sort of gathers all that together and administers it basically, and simplifies that process?
Rob Gramlich
That's right. There was a sort of an informal process for that in the Obama administration, and then the FAST Act was a policy passed, I don't know, five or ten years ago that encouraged some of that. So, there's been sort of other ways this has been done, but this is now really formally doing that specific provision in the Federal Power Act. And so, that should really help. And by the way, the administration got nine agencies to sign a memorandum of understanding to do that.
David Roberts
That's a lot of cats to herd.
Rob Gramlich
I might be naive, but I'm not naive enough to think that nine agencies in the federal government can just quickly agree to give one of the agencies lead authority over anything. There's a lot of turfiness. So, the White House, I mean, nothing like that happens without White House leadership. So, the White House really, I think, helped kind of broker that.
David Roberts
You know, I'm required by law to ask this: It seems like what's impeding lines out West is kind of what is impeding a lot of other stuff, which is the endless environmental review, endless NEPA. Sort of like, do any of these things that the administration did address NEPA at all, or change NEPA at all, or address that whole kind of morass?
Rob Gramlich
Yes. Two things that lead agency role does try to aim to cut that, the NEPA implementation time in half. So that's great. And then also, I didn't mention yet, but there's a categorical exclusion from NEPA for or reconductoring. So if you're doing what we were talking about with replacing the old cables and assets with new, modern, advanced conductors, that can go forward under a categorical exemption from NEPA. So that's another really good one. Credit to the lawyers at Department of Energy for putting that together. And that can apply to a line of any length, which is very important because obviously some of these are hundreds of miles.
David Roberts
Let's reflect then: You got all these moves from DOE and the administration, and then you have this FERC rule. You know, this is vague, but, like, what's it all add up to, Rob? Is this going to, like, you know, well, I'll frame it this way: You know, everybody's panicked about load growth. Right now, all of a sudden, everybody's panicked about load growth: "Oh, no, the data centers are coming. The data centers are coming." People are, you know, utilities are out there trying to build gas plants to serve these. One way you can subvert the need for new generation for these new loads is by hooking up broader transmission networks.
Right? Legendarily, that's one of the benefits of transmission. You can share generation over larger fields. So, is this package of reforms enough to meaningfully address this load growth and take some of the edge off it, or sort of like, what's the cumulative significance of all this?
Rob Gramlich
So maybe we've got a third to a half of the job done, chipping away at these things with the regional FERC rule, these DOE programs, that's helpful. But look, on a more macro level, we still don't have a solution to the following problem: We've got lines, really, the big high capacity lines crossing multiple regions, the interregional transmission, you need those for a resilient grid and for clean energy integration. We haven't had any real significant action from anybody to really make that happen. There are, you know, we talk about the three P's that are the barriers for transmission: planning, permitting, and paying.
I think that paying part — or cost allocation in the jargon — is the big problem because, you know, whereas a transmission line might cross a couple of dozen utility footprints, you know, each of those couple of dozen utilities have a way to recover costs of their own little island. The industry just didn't grow up with any way to recover costs across many of them.
David Roberts
But it's significant that cost allocation for regional transmission is, if not solved, at least on paper now. At least there's a process now on paper. To me, that's the biggest thing in this FERC rule is cutting through that knot in regional transmission. Do you agree with that?
Rob Gramlich
Yes. Yeah, that's right.
David Roberts
So you need to do that for interregional, basically?
Rob Gramlich
Right. So, you've got the planning and the paying, the planning and cost allocation in the regional context in Order 1920, but then the interregional contacts, we don't have anything. Now. There was a policy that got most of the way through the Build Back Better into the IRA process, a transmission tax credit for these big high voltage long lines. And that got left, unfortunately, on the cutting room floor. And that would have been really helpful. Right. That's a 30% investment tax credit. So, it doesn't pay for 100% of the line, but it does make the cost allocation challenge 30% easier.
Right. So, it would really be nice in the next, if there is an opportunity at some point in a future tax package. And I don't want to get into all the scenarios, but there is a massive, you know, Trump tax cut thing that comes up next year.
David Roberts
And you can do this through reconciliation, right? It's all tax policy.
Rob Gramlich
If there's another reconciliation bill, you certainly could do that.
David Roberts
Interesting. But, this will, do you think, like, do you anticipate this spurring any kind of renaissance of regional transmission lines?
Rob Gramlich
I think it does help a lot. All these tools together collectively that have been implemented in these last four years. So, the FERC planning and these DOE sort of enabling programs, they do help a lot. You know, moreover, all the regions kind of got the memo. So, the transmission providers and regional transmission organizations got the memo from, you know, Chairman Glick when he started these, then Chairman Rich Glick, you know, that this is what they're supposed to do by the regulator. And even though, you know, he didn't issue the final rule, his term expired and he's no longer there.
But like, you know, a lot of them started doing this. They started doing regional planning pretty consistently. In fact, you know, New England just even very recently sort of filed their own approach that's quite similar. You know, New York, MISO, PJM have all been sort of working on it. So I think it already stimulated a lot of activity even before there was a final rule. So, and then there's a bunch of lines around kind of non-RTO areas that, for example, California ISO has really been working with other states and with their agencies in California on a lot of this.
And MISO has this long-range transmission plan. So, it's definitely in the state regulatory world and the electric industry world. A lot of people have been talking about transmission and working on these things. So, this sort of environment has really encouraged a lot of activity. But again, it's still, we need to, I think, mark and I think, celebrate the issuance of a major rule like this Order 1 920 especially. It's the big one. It's definitely the biggest in grid policy in the last 20-plus years. And I think because of the importance of the grid, it's the biggest energy policy since the Inflation Reduction Act.
But that said, it doesn't take care of all the issues because we have this big interregional need. So, we're going to have to look to the next Congress and administration term for future FERC action to address that.
David Roberts
Does this in any way exhaust what federal agencies are capable of doing without Congress, or is there still much more that, say, FERC could do? And if so, what is the significance of the five-member commission being down to three? Clements is leaving, I believe, in a couple of months. Joe Manchin is a big jerk about new nominees for FERC. So, a) what's the situation with FERC? And then, b) what else could FERC do on transmission beyond this?
Rob Gramlich
So, there are three FERC nominees. The president has nominated one Republican, two Democrats, and it is the task of Senate Energy Committee Chairman Manchin to schedule their business meeting to vote those out of committee. All the signs look good. They all did great in their testimony.
David Roberts
So none of them are being held up? None of them are being sort of made an example of by?
Rob Gramlich
No, no. I mean, there's no evidence of that.
David Roberts
And they're good from your — I mean, maybe you can't say honestly, but like, what do you make of the nominees?
Rob Gramlich
Since it's just you and me chatting here, David, and you promised not to bring your recording equipment, I'll tell you what I really think about these individuals.
David Roberts
Give me the scoop.
Rob Gramlich
No, look, it's a good slate and they're all very qualified and smart, and I don't see any political, you know, roadblocks. I think it's just a matter of, you know, scheduling it, getting it done.
David Roberts
So you think FERC will be back up to full five-person strength maybe by the end of the year?
Rob Gramlich
Well, I would think this summer, I mean, as you said, Allison Clements' term is up. June 30 is the exact day, you.
David Roberts
Have to have three to do anything, right?
Rob Gramlich
Yeah, I mean, the expectation is she was going to serve out the term. And so, I mean, that's what I assume is she would leave. So they need to get going, but I think they plan to and they've been on track to process them. And again, there's been no indication of any problem. So I expect this summer they'd be back up to five. So then turning to your broader question of what's next, I do think there's some actions for FERC still in potentially this year. One is on dynamic line ratings, which again, we discussed before in the planning context.
But since those are very useful, even forget about new lines just on the existing grid. If you never have a new line, you still have this huge opportunity to squeeze more out of the existing grid. And there are really good proposals to say where and when dynamic line ratings could be required. So, I could see something like that happening in the near term.
David Roberts
I mean, there is stuff that's one of the grid enhancing technologies that are covered somewhat in 1920, right? I mean, at least they suggest that utilities take them into account.
Rob Gramlich
Yes, but again, as part of a transmission plan, like an expansion plan. So, I think it's a somewhat separate, certainly related question of just looking around at the existing grid. Are there pathways that have repeated congestion where it might be a windy area where dynamic line ratings could be very beneficial? So, in those cases.
David Roberts
Yeah, I have to say, I mean, it's just crazy that FERC has to make them do that. It's crazy that FERC has to force this. Like, of course, you should be doing that already.
Rob Gramlich
Yeah, you know, under different regulatory models — look, there's no great way to regulate natural monopolies. In the UK, they do have more of a performance regime and they, guess what? They actually do really widely deploy all these grid enhancing technologies. So, you know, that would be great if we could get to that. But in lieu of that, it's kind of like carrots and sticks, you know, choose one or the other or both. So that's one. And then again, interregional, FERC has authority to do something on interregional. Congress has obviously better, stronger authority that's sort of clear and more decisive and much less subject, obviously, to court challenge.
So, if Congress acts on that, that'd be fantastic. But in lieu of that, or even regardless of that, FERC can act and do some things. So, I think they're going to, you know, once the staff gets a well-deserved break and breather and summer vacation, including Chairman Phillips for all his work on that, you know, then hopefully they can kind of turn to the interregional case. And they do have a team, I know, working on this and a lot of folks are giving them ideas on what and how.
David Roberts
There's no way that's any of that's going to get done before the election. Right?
Rob Gramlich
Yeah, no final action. Personally, I'd love to see a process started where they could, I mean, they could get a proposed rule, not any kind of final rule.
David Roberts
Interesting. So, there is more FERC could do. And we do expect FERC to be at it at full strength soon. That seems positive. Yep. And so then finally, then, you know, as you keep saying, Congress needs to act. I'm wondering, you know, you say that the top priority here is interregional. You need basically Congress to plead or beg or induce or bully regions into cooperating with other regions and having transmission lines that cross regions for all the reasons we all understand. What else would you like Congress to put in and is there, in your political judgment, a serious prospect of bipartisan legislation that does this?
Like, is there enough will on both sides of the aisle to do this? Because, as I said, transmission is sort of like in danger of getting coded as blue, getting coded as renewable. And it seems like that sentiment is kind of spreading on the right. So, I'm just curious, what's your take on the temperature of Congress on this?
Rob Gramlich
On the substance of it, I think that kind of interregional transmission could be sort of a more of a planning type of thing, or it could be this minimum transfer capacity idea, which has some nice elegance to it.
David Roberts
Which is just to — say quickly what that is, because I feel like that's an important concept in these discussions.
Rob Gramlich
Yeah. You have region A next to region B, and they just, the idea is you got to have X percent capacity between those two regions. They do that in Europe.
David Roberts
Right. Just the ability to pass energy back and forth — the line capacity.
Rob Gramlich
Yeah, so it's kind of an insurance policy. And that's part of the problem is, you know, at FERC, how do you decide the right insurance policy? Congress can more easily just say, "All right, well, just like we don't know the exact number, but here's an insurance policy, just do this minimum level, and then, and then go and argue about the optimum level. But let's just make sure we're protected and safe with some minimum level." Yeah. So that's an option. And then, of course — well, and then I guess two other areas. One is, you know, in the more sort of NEPA related.
I do think there are some process reforms that could speed things up in that context. And I think that would be very helpful for getting infrastructure built. And then thirdly, this whole NIETC thing we were talking about, the backstop siting, there's some really clunky parts of that that I don't think were intentional. So, for example, you have to go — I mentioned there's a rule for DOE to designate and FERC to issue the permit, but you have to go through the full NEPA at each separate stage. In fact, you could argue a third stage because the corridors are also used for DOE financing.
So, let's say you get a loan guarantee also. So, you got to get like three NEPA rounds. So, it's just, you know, there's a lot of just cleanup. Just let's get some process hawks to clean up some of these clunky steps. And that's another category for reform. So, I think that would all be very useful. Now, politically, is there room for a deal? I mean, I think we were very close just recently that fall after the Inflation Reduction Act. Of course, you know, Pelosi, Biden, and Schumer had all committed with Senator Manchin to do something on permitting that was, I think, part of the overall deal to pass IRA.
And it was really knife-edge then. I think, honestly, the Republicans didn't want to give Manchin the win because they thought he might —
David Roberts
Yeah, everybody blames progressives for that, Rob. But let's just say that the Republicans were, they were not on paper in support either.
Rob Gramlich
Right. So, for whatever political reason there. So, I do think still there's room for a deal now. Both sides, you know, have some hard thinking to do about this. Republicans need to ask themselves, go look in the mirror and say, "Wait a minute, why do I dislike transmission again? What's so bad? What's so bad about this?"
David Roberts
It's woke Rob.
Rob Gramlich
"Do I really need to, you know, oppose getting this infrastructure built?" And so, they need to kind of come to the table even if, you know, they might be getting utility lobbying from their hometown utility. You know, and I think probably progressives need to also look in the mirror and say, "Well, let's see. Let's —"
David Roberts
Do we really love NEPA?
Rob Gramlich
Yeah. Well, I mean, you know, NEPA's going to be there. But like, let's say a proposal comes out, let's take a serious look at what the net carbon impact would be because it could be the case that there's something that enables certain fossil infrastructure and yet the carbon benefit of the transmission provisions are so good that it's a net positive one.
David Roberts
This was always the argument, right? Is that if you just make permitting in general easier, clean energy wins. That was always kind of the argument for this.
Rob Gramlich
That's where we are, right? That's the big state we're in. It's just, it's kind of like the same issue — and didn't I see your tweet, David, about a Sierra Club person testifying in favor of housing in some area? Right. So like you said, "Check your priors on this one," right. So, you know, that's the thing. It's just like, you know, NIMBY YIMBY stuff in urban housing. You know, I think on kind of clean energy infrastructure. First of all, there are very strong proponents of transmission across the environmental communities. But, you know, but when it comes to the legislation that might have involved fossil, that's where obviously it gets really tough.
David Roberts
Right. Right. I mean, this all seems like a lot more than one might have anticipated if one were looking at transmission, say, two or three years ago. So at the very least, I think we can take some pleasure in the fact that, like, it really does seem to have gripped the political class at last, the need for this, or at least partially gripped. So, and you're probably as responsible as anyone in the world for that happening. So I hope you're taking some satisfaction in all this.
Rob Gramlich
It's kind of you to say. Always good to be with you, David.
David Roberts
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