Broad coalition floats cost containment proposal as FERC eyes final grid rule

A broad coalition of power sector groups is urging the Federal Energy Regulatory Commission to adopt a supplemental cost containment proposal in the agency's highly anticipated final rule on long-range transmission planning and cost allocation.

The proposal was unveiled March 6 by the Large Public Power Council, Americans for a Clean Energy Grid, the Clean Energy Buyers Association, and the National Association of State Utility Consumer Advocates.

"This is us trying to get to 'yes,'" said Bryn Baker, senior director of market and policy innovation for the Clean Energy Buyers Association. The trade group represents over 400 members with approximately $7 trillion in annual revenues, including companies such as Inc., Google LLC and Walmart Inc.

"We need to make sure we're keeping customer interests and costs in mind at a few different points throughout the process, and this is outlining what that middle ground can be," Baker said during a March 6 media briefing.

The supplemental filing comes as FERC continues to field comments in the transmission rule's public docket (RM21-17) nearly two years after the regulation was proposed. Parties have been filing supplemental comments in recent months even though FERC's current three-member makeup is expected to soon finalize the rule.

FERC's April 2022 proposal would respond to the shifting US energy landscape by requiring transmission planners to account for the expected location of future power generation projects. The proposal would also seek buy-in from state regulators on cost allocation, a major stumbling block to previous efforts at building longer high-voltage power lines.

Proposal would require periodic benefit-to-cost reviews

FERC's planning proposal contains several provisions aimed at cost containment, such as eliminating an existing construction-work-in-progress incentive that allows developers to start recovering costs before a project breaks ground.

As crafted, however, the proposed rule does not go far enough to control costs, according to the coalition behind the March 6 proposal.

The coalition's supplemental proposal would specifically address the period in which a project has been selected based on a consideration of benefits and costs but has yet to start construction.

"Acquiring land can take a very long time," noted Jonathan Schneider, a partner at Stinson LLP who helped the coalition develop the proposal. "It's pretty clear that in the course of those years, the assumptions on which major projects in the billions of dollars are planned — those assumptions may change meaningfully."

If adopted, the supplemental proposal would require project sponsors to file and post periodic reports that track a project's projected benefits against its estimated costs leading up to the start of construction activities.

When those reports indicate a deviation of 25% or more — the same threshold used by the 15-state Midcontinent ISO in its transmission planning process — the proposal would provide a mechanism for the project to be reconsidered. Project sponsors would be allowed to present cost mitigation plans and could still later qualify for the recovery of prudently incurred costs, according to the proposal.

"Right now, there really is very little that we can do once that project goes into construction," Karen Onaran, president and CEO of the Electricity Consumers Resource Council, said during the media briefing. "Those costs are put into formula rates, and we don't really get to see how they're affecting the bottom line. We have no idea when there are cost escalations way above what had been proposed."

Onaran pointed to a 125-mile, 500-kV transmission project between California and Arizona where costs ballooned from $242 million in 2020 dollars to an estimated $553 million in 2023, even though it was selected through a competitive California ISO process and subject to cost caps.

FERC Commissioner Mark Christie issued a concurrence in a September 2023 order (ER23-2309) conditionally accepting a requested revenue requirement for the developer, DCR Transmission LLC, calling the project "a harbinger of things to come, if certain profit-seeking interests and the lobbying organizations they fund get their way."

Coalition sees basis for FERC adoption

Christina Hayes, executive director of Americans for a Clean Energy Grid, added that the supplemental proposal is "meant to strike a balance."

"We know that once you start putting steel in the ground, that's pretty late in the game," Hayes said. "You've been through your permitting, your site acquisition, all of the planning, and so if things go awry at that point, the alternatives are sort of limited."

Schneider acknowledged that the supplemental proposal comes late in the rulemaking process. But he noted that it closely resembles an earlier proposal included in public comments filed by the Large Public Power Council, which represents 28 of the largest public power systems in the US.

"We do think there's a basis in the docket for the commission to adopt this without an additional form of filing," Schneider said. "You could certainly make a case that the commission would fall short without a proposal to manage costs."

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