Electric Grid Investment in the Public Interest

November 3, 2023 | 3:45 pm
American Public Power Association
Mike Jacobs
Senior Energy Analyst

Electricity is necessary for reading this blog, phoning your family, and buying milk at the store. Most every modern public health, safety and security system we rely on also depends on the electric grid. To expand and modernize the nation’s electric infrastructure, the federal government recently announced new funding. This continues a 100-year-old tradition of government shaping the electric grid. State and federal governments have a solid foundation for a broad range of government policies that combine the public interest with electric utilities building the power grid.

The public’s practical reliance on electricity supply and the long-term, dispersed economic benefits from electric system upgrades reinforce the continued and evolving role of local, state and federal governments in the electric grid. Because a modern, robust electric power system needs investment to meet growth in electricity use and enable new energy technologies for the transition to cleaner energy and a healthier environment, state and federal governments are active in supporting new transmission and improvement of existing grid infrastructure.    

Since July, when I wrote about state governments planning for new grid infrastructure, a lot has happened and more needs to happen. Most important, the utility industry is still waiting for the Federal Energy Regulatory Commission (FERC) to finalize its pending regional transmission planning rule. The potential reforms to regional transmission planning FERC presented in July 2021 could address the vulnerabilities and reduce the recurrence of devastating power outages of the past few years. Grid reliability is part of FERC’s authority and responsibility.

While FERC has been reluctant to address the underlying reasons for inaction on transmission planning, other authorities have found the means to promote the public interest when it comes to grid infrastructure. Congress and state legislatures are helping build a modern grid. New funds for U.S. Department of Energy (DOE) efforts will address some obstacles blocking investment in interstate transmission. In the past month, DOE announced financial support for several large, impactful transmission projects.

DOE will contract in advance to use a portion of three transmission lines that it selected on October 30. Each of these lines will transport at least 1,000 megawatts (MW), which, at the scale of a conventional nuclear power plant, is large enough to provide economies of scale in land use, construction, and energy losses. The DOE commitments assure developers and lenders that customers and suppliers across state lines can fill the demand for these lines over time. Arranging all the smaller users of a large line is a bit of a chicken-or-egg problem. The announced DOE capacity commitment bridges these obstacles of timing and scale. DOE used this approach for transmission connecting Nevada and Utah, Arizona and New Mexico, and New Hampshire, Quebec and Vermont.

Transmission investment in large interstate projects is often hindered by a misapplication of the principle that “beneficiaries pay.” Compared to the broader approach to building infrastructure, this is a more recent constraint  on transmission funding. The federal and state involvement in transmission is good and necessary to counter the bias in utility stakeholder debates that do not account for all the potential beneficiaries. The government influence on transmission expansion is an adjustment to correct the assumption that the market will perfectly organize buyers and sellers, even for infrastructure assets that have 40- to 80-year lifetimes and disperse benefits widely.

The largest of the 58 grid partnership projects the DOE announced on October 18 gets right to the fallacy that current transmission planning and cost allocation is sufficient to identify and confirm beneficiaries across state and regional boundaries. In truth, significant present-day practices for grid investment do not even attempt to describe beneficiaries beyond the party that asks to expand the grid. The DOE will fund approximately one quarter ($464 million) of the costs of a set of transmission improvements between Midcontinent Independent System Operator and Southwest Power Pool, two grid operators that serve the Plains states. This “joint targeted interconnection queue” project will unlock approximately 30,000 MWs of new generation—primarily wind and solar energy—that has been proposed along the boundary between the two grids. This funding effectively acknowledges the public benefits of grid expansion, but these transmission investments would be too expensive for new generators to afford. 

State governments see that transmission is key to economic development, much as the federal investment in harbors, highways and communications has enabled economic growth across the country. Nebraska and New York have a long history of public investment in the power grid. Twenty years ago, there was another round of public support for electric transmission in Idaho, Kansas, South Dakota and Wyoming. Recent legislation established the Colorado Electric Transmission Authority based on lessons shared by the New Mexico Renewable Energy Transmission Authority and the North Dakota Transmission Authority. All of these states recognize that transmission policy is a key part of the supply chain for energy and the economy.

Public investment in transmission recognizes that such funding has broad and diverse benefits that are not typically captured in utilities and grid operators’ cost-benefit analyses. Those benefits are maximized when the voices of affected communities are heard and local priorities are acknowledged, a role that governments should be well-suited to play.

Illinois, Maine and Maryland have recently adopted legislation for transmission needs and energy storage that can build on other states’ experiences. In addition, the Union of Concerned Scientists has published equitable grid principles for transmission decisionmaking through conversation with communities. When the public is represented in transmission planning, more policy objectives, benefits and community safeguards can be included. Where public benefits are widely dispersed, and processes are ill-fitted, local, state and federal governments have to play a role in the determining the future of the electric grid. 

Posted in: Energy

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Mike Jacobs is leading the Union of Concerned Scientists’s work on electricity markets and regulatory reform. He develops proposals in an effort to shape federal, regional and state electricity markets, regulation and policies to encourage the expansion of renewable energy resources and the reduction of coal-fired generation.