EDPR NA Energy Insight

Why Transmission Planning and Expansion are Necessary for our Economy

August 27, 2024

This past spring, on May 13, the Federal Energy Regulatory Commission (FERC) issued the long-awaited final rule on Building for the Future Through Electric Regional Transmission Planning and Cost Allocation. Order 1920, named in honor of the year the Federal Power Commission was established, implements a much-needed new paradigm for transmission planning that will determine needed grid infrastructure over at least a 20-year horizon under varying scenarios (including extreme weather) while incorporating multiple drivers of transmission needs and properly accounting for the full scope of transmission’s benefits. Importantly, these reforms apply to all of the transmission planning regions and not just the regional transmission operators (other than Texas, which is not under FERC’s jurisdiction).

The Commission concluded that Order 1920’s fundamental reforms are necessary to prevent harm to consumers, noting that the current procedures “can lead to relatively inefficient or less cost-effective transmission investment, with customers footing the bill for piecemeal, inefficient, and less cost-effective transmission solutions designed to meet short-term or small-scale transmission needs.” FERC also explained that the Commission is not requiring transmission to be planned for any particular generation resource and that the need for transmission “is driven by exogenous forces.” In other words, the most efficient transmission development depends upon planning for the most likely mix of resources and patterns of demand, which are driven by a range of policy, technology, and economic factors.

Like any major policy change, Order 1920 has had its fair share of controversy, including 11 separate petitions for review by the Federal Court of Appeals. Some of those petitioners question FERC's authority to implement such a change, while others are seeking targeted revisions to specific items. As the planning regions begin the important work of developing their compliance filings, it is critical that we not lose sight of Order 1920’s significant benefits – especially for reliability and energy affordability, as discussed below. Moreover, this improvement in transmission planning is a key step to fully achieve the array of benefits from the domestic investments catalyzed by the Inflation Reduction Act.

Benefits of Transmission Planning

A July 22 letter from 33 state utility commissioners emphasized the benefits of the rule, stating that the status quo “has led to more expensive outcomes for consumers and businesses than the proactive multi-purpose approach” and “hampers our collective ability to proactively incorporate the transmission needed to maintain reliability in the face of the extreme weather events that are increasingly causing widespread grid disruptions across the country.”

Cost savings come both from more efficient transmission planning and from the resulting transmission itself. Over $25 billion per year is spent on transmission, but about half of that expenditure is only for lines that meet local utility criteria and are not included in the regional transmission planning process. Better optimizing these billions of dollars is essential.

Well-planned transmission saves costs. For example, the Midcontinent ISO’s analysis of its first tranche of Long-Range Transmission Planning Projects found that the net benefits of these projects would range from $23 to $52 billion over a 20-40 year time period, with the largest benefits coming from reduced congestion and fuel costs, and the avoided capital cost of building generation facilities.

Order 1920 achieves further cost savings by requiring full consideration of alternative transmission technologies. Such technologies, which include dynamic line ratings, advanced power flow control devices, advanced conductors, and transmission switching, have proven to greatly increase the capacity of the existing lines at a lower cost than building new transmission.

Transmission infrastructure also generates an array of economic development and job benefits. The Inflation Reduction Act has spurred a wealth of domestic investment in both new generation and manufacturing. Well-planned transmission will steer investment to where it is most needed, connecting new electricity resources to regions where there is increased power demand, which will produce well-paying jobs, new local tax revenue, and electricity cost savings.

Another critical benefit of transmission is to improve the reliability of the grid by smoothing out the diversity of generation availability and variation in patterns of load. If the sun is not shining in one region, transmission can bring in power from wind energy from another area. Similarly, transmission can be used to export power to a region undergoing an extreme weather event from another that is experiencing a lower demand. For example, an ACORE/Grid Strategies report found that an additional gigawatt of transmission ties between ERCOT and the Southeast could have saved nearly $1 billion and kept the heat on in approximately 200,000 Texas homes during Winter Storm Uri. As extreme weather becomes more prevalent, adequate transmission capacity can save lives by reducing the adverse impacts of such weather events on the grid.

What’s Next for FERC?

The full scope of benefits of transmission will not be realized without further action on interregional transmission planning and expansion. The U.S. Department of Energy (DOE) found that under a high clean energy growth scenario, interregional transmission will need to increase by as much as 412 percent. But construction of this important resource has declined, with the average amount of new high-voltage transmission constructed each year falling from 1,700 miles from 2010-2014 to only 925 miles from 2015-2019, down to just 350 miles per year from 2020-2023.

Such limited interregional transmission development represents a lost opportunity for significant cost savings and reliability benefits. For example:

• Increased interregional transmission between PJM and MISO can save consumers more than $15 billion by reducing the need for power plant capacity, plus energy cost savings of more than $1 billion per year.
• An additional gigawatt of interregional transmission capacity would have saved nearly $100 million just during the five days of Winter Storm Elliott in 2022, as a result of reduced power outages and energy prices.

Therefore, while we commend the Commission for taking this important action to improve regional transmission planning, a key next step will be to move forward on a rulemaking requiring fulsome interregional transmission planning and a standard for a minimum amount of capacity between regions. ACORE and EDP stand ready to work with the Commission and the transmission planning regions on these important undertakings.