America has not been building the kind of transmission lines it needs to reliably and cost-effectively power our grid, and a major part of the problem has been our short-term, just-in-time planning process. On May 13, the Federal Energy Regulatory Commission (FERC) released Order No. 1920, meant to modernize the transmission planning process by viewing the system through a wider lens to plan for and construct the transmission system we need for the future.
This Order will require transmission providers, including RTOs, ISOs, and utilities outside of RTO regions, to take a long-term, regional approach when planning for future transmission needs and determine how the costs will be allocated to different customers. The Order recognizes that the transmission system has not been planned holistically, but has instead been built through a piecemeal approach focused on smaller local projects and not larger regional and interregional facilities. This piecemeal approach results in higher costs for consumers in exchange for fewer reliability benefits. Order No. 1920 will require transmission providers to look at larger regional projects that can help transition the grid into a more efficient and cost-effective transmission superhighway.
The United States is seeing a rapid increase in demand for electricity, more frequent large-scale extreme weather events that bring a risk of costly and dangerous blackouts, and a shift in the types of generation being interconnected to the electric grid. Transmission is needed to address all of these shifting needs, and how we plan for it will determine how well we’re able to keep the lights on and at what cost. This Order aims to address these evolving needs of the transmission system. Order No. 1920, if properly implemented and enforced, will bring improved grid reliability, accommodate future energy demands, and facilitate the integration of new renewable energy resources.
Key Provisions of Order No. 1920:
Long-Term Regional Transmission Planning
Transmission providers traditionally have not conducted long-term, comprehensive plans, instead opting to look five to seven years into the future to identify their needs. This has not resulted in the construction of large regional facilities to help with the growing needs of the transmission system. Instead, it has led to smaller, local patchwork fixes in the system that are subject to little oversight and provide minimal benefits to the entire system.
In Order No. 1920, FERC requires transmission providers to develop at least three long-term regional transmission scenarios of at least 20 years and to update those scenarios every five years. The scenarios must take into account seven factors, including state-approved IRPs, trends in resource types, future fuel costs, resource retirements, and generator interconnection requests. The evaluation of these factors must be an open and transparent process.
The Order also requires transmission providers to measure seven benefits when evaluating each planning scenario to determine the most effective and cost-effective solution, all related to cost and reliability outcomes. The required benefits are: (1) avoided or deferred reliability transmission facilities and aging infrastructure replacement; (2) a benefit that can be characterized and measured as either reduced loss of load probability or reduced planning reserve margin; (3) production cost savings; (4) reduced transmission energy losses; (5) reduced congestion due to transmission outages; (6) mitigation of extreme weather events and unexpected system conditions; and (7) capacity cost benefits from reduced peak energy losses.
The Commission also required the evaluation and selection of the long-term regional plans to be an open and transparent process that includes the input of states in the process and results in a public explanation of why a project was or was not selected. But ultimately the transmission provider is responsible for regional transmission planning and will determine the best course of action for selection of transmission facilities that will most cost-effectively meet regional needs.
Advanced Transmission Technologies
Advanced Transmission Technologies are solutions using hardware or software to improve the efficiency of the transmission system. They are like opening an express lane on the highway to ease traffic congestion or using Waze to find the most efficient route to your destination while avoiding traffic and accidents.
The Commission determined that transmission providers are currently overlooking and undervaluing advanced transmission technologies. These technologies can improve new and existing transmission facilities and reduce the need for construction of large-scale transmission systems. Order No. 1920 requires transmission providers to consider dynamic line ratings, advanced power flow control devices, advanced conductors, and transmission switching. These solutions offer lower-cost improvements that can be installed quickly and improve reliability, efficiency, and capacity of new and existing transmission systems.
Cost Allocation
Costs for transmission facilities should be allocated based on the benefits customers receive. This is a regulatory principle that has been used for over a century. However, in Order 1920 the Commission recognized that the definition of “benefit” needs to be updated in light of the wider set of benefits that transmission delivers to end-use customers. Otherwise, we will fail to build transmission that would deliver net benefits to customers. Many transmission providers currently require states to fund transmission facilities through a State Agreement Approach where states determine how the costs are allocated to customers. Under this process, if a state does not want to pay, it can essentially opt out of paying for the transmission facility, effectively vetoing the project even if the project would have delivered significant net cost and reliability benefits to the region.
In Order No. 1920, the Commission instead determines that transmission providers must allocate costs based on the multiple benefits provided and requires transmission providers to include in their tariffs one or more long-term regional cost allocation methodologies, taking significant input from states. The Commission also allows states to determine a separate cost allocation process that is different than the transmission providers’ default process. States have a six-month engagement period to work through a cost allocation methodology. If the state cannot agree in those six months, the transmission providers’ default cost allocation methodology would be implemented. This would effectively eliminate a single state’s ability to block transmission projects that would deliver net regional benefits, allowing such lines to move forward.
Some have criticized this Order as FERC overstepping its authority and shifting costs to consumers to promote renewable energy goals. This takes a limited view of what Order No. 1920 can do to improve the efficiency of our transmission system. It also ignores that the benefits which form the basis of project evaluation and selection, and ultimately cost allocation, do not include public policy, but rather are limited to cost and reliability outcomes. For example, if State A has a renewable energy goal and needs to have a transmission line built to bring renewable energy into the state, the cost of that line would only be allocated regionally if the line is selected by the transmission provider on the basis of the cost and reliability benefits listed above. This line may also bring transmission congestion relief to State B and allow State C to reap the benefits of lower-cost electricity from renewable generation. If the line does not bring sufficient cost and reliability benefits to be selected as part of a regional plan, Order 1920 provides a voluntary option for State A to pay an incremental cost to move the line forward.
The Bottom Line
The current regulatory paradigm leans on local transmission projects with limited focus on the larger regional and interregional needs. The majority of the US transmission system was built over 25 years ago well before there were thoughts of data centers, utility-scale renewable projects, and electric vehicles. We need to transform the electric grid to accommodate the needs of customers and build the most resilient, efficient, and cost-effective system.
Click here to learn more about Advanced Energy United's work to eliminate barriers and expand opportunities for advanced energy technologies to participate in competitive wholesale markets through engagement at FERC and RTOs/ISOs.