Podcast – Unpacking FERC's Transmission Planning and Permitting Final Rules

Elizabeth Noll: Hello, everyone. Welcome to Holland & Knight's "Energized Exchange." We're excited to be here today to discuss with you all the recent FERC, the Federal Energy Regulatory Commission, their Transmission Planning Rule, Order 1920. My name is Elizabeth Noll. I am joined by my colleague Nic Martell. I am a senior policy advisor here at Holland & Knight. In my practice area, I support clients that are seeking federal funding and financing for clean tech solutions. You know, a big piece of this is in and around the electricity sector and transmission investments. Prior to joining Holland & Knight, I was at the Department of Energy and the Congressional and Intergovernmental Affairs Office. I was there during the passage of the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. And as we will discuss later, you know, kind of saw how the administration was beginning to think about deployment in and investment in the electric grid, like the establishment of the Grid Deployment Office. So we'll touch on that later. But, Nic, do you want to introduce yourself? 

Nic Martell: Yeah. Thanks, Elizabeth. My name is Nic Martell. I'm an associate in the Nashville office for Holland & Knight. I am an energy associate, specifically in the energy regulatory space. Previously to joining Holiday & Knight, I was at the Federal Energy Regulatory Commission with the Office of General Counsel. So I got to see how the sausage was made there at FERC and got to learn from some really great folks there at the agency. So we will go ahead and kick this podcast off. So Elizabeth is going to help us set the stage here. Can you provide us with some context for this rule in the broader environment for electricity, and how it kind of sets the stage for us? 

Elizabeth Noll: Yeah, absolutely. Thanks, Nic. So, you know, I think as most folks know, you know, the last decade plus for electric utilities, we've seen, you know, flat or declining load growth. But that is all changing on its head. Across the board, you know, we're seeing load forecasts for electricity demand doubling and even tripling. For example, PJM's forecast, as of this January, was showing, you know, an expected low growth of more than 3X. Some folks are even saying that that is going to be an underestimate for expected demand. So, you know, why is this happening? There's the piece of this that is associated with the supply side. You know, we've seen anticipated and announced retirements of, you know, electricity generation. And that's been happening, you know, fairly steadily in recent years. But then there's been this big shift on the demand side of the equation. Customers are really demanding more capacity for a number of end uses. You know, most notably, we're hearing about data centers that are increasing demand on the system and use electrification like electric vehicles. And then there's also been just huge investments in the manufacturing sector, largely driven by the recent, you know, IIJA and IRA passage, the clean investment monitor — for folks who aren't familiar with it, this is a joint effort by the Rhodium Group and MIT Center for Energy and Environmental Policy Research. They've been tracking the clean energy and clean tech investments. And they have this comprehensive database that they're reporting, you know, a $67 billion investment in manufacturing and deployment of clean energy, clean vehicles, building electrification and the like. That $67 billion in the fourth quarter of last year represented like a 40 percent increase over the same period in 2022. So we're just seeing a ton of new demand coming on. And why does this matter for transmission? You know, it's fairly simple. You know, the ability for these manufacturing plants, these data centers to get the power will really determine where it gets built. So, you know, as states are contemplating or trying to attract new opportunities, they could really be at risk of missing out on, you know, economic development opportunities if the grid can't keep up. So, you know, the increased focus and increased discussion at the state, the federal, the local level around power is really an extension of, you know, how is the transmission system going to help deliver that power to these facilities, to these new opportunities? So that's kind of the context that we're having this conversation in.

But Nic, I'm going to turn it over to you. Can you give us, you know, a little bit of history as to this order and kind of, you know, what is FERC's role in the transmission space? 

Nic Martell: Yeah. Thanks, Elizabeth, for that helpful context. It's a really big deal out there. There's a lot of exciting stuff going on, and FERC plays a major role, not only in the regulation of transmission, but the planning and everything that goes into that. It is a complicated process. And, you know, these orders are here to help facilitate the planning and the procedure and everything that goes into making this as effective and efficient and transparent as possible. So FERC has issued a number of orders in the past that really created the foundation for this draft final rule that we see today. FERC had a number of previous orders, specifically Order No. 888, 890 and 1000. And those orders, the commission kind of incrementally started to develop these requirements and how we think about and govern regional transmission planning and the cost allocation process. Specifically, the Order No. 1000 set out a number of regional cost allocation principles, many of which still need to be followed today, with the new order that we see with things such as the costs that need to be allocated within the transmission planning region, and that it needs to be roughly commensurate with the estimated benefits provided. Additionally, anyone that does not receive benefits from a project cannot be allocated those costs involuntarily. And also, it was established that there is a cost benefit threshold ratio. So the numbers were thought about and basically the outer bounds of the cost benefit threshold were established previously. But most importantly, the thing that they come back to over and over again in this process was an established way to carry this process out that is transparent and keeps all parties involved because it is a huge grid and it is a huge project and all parties need to be involved to understand the magnitude of being able to put a project like this together and have it done effectively and efficiently. So today what we have is the order that came out with the commission's May 13 special meeting. And that all began under Chairman Glick. When the commission originally considered these new rules in July of 2021, there was an advance notice of proposed rulemaking. A year later, in April of 2022, we saw that notice of proposed rulemaking that proposed the specific reforms that we got in the final rule just a couple of weeks ago. And I just want to shout out FERC staff, because I think… there was something like 30,000 pages of comments, and this was a huge undertaking for staff for them to gather all of these comments and respond to them and put everything together and give us this final rule that we see today. It was a huge undertaking, and it's a big step forward for the grid. 

Elizabeth Noll: So Nic, you were probably there for some of that, but also have been pouring through the rule that we got last week. So tell us in broad strokes what's in the final rule? 

Nic Martell: Yeah. So there were two rules that actually came out. Obviously the big one was the cost allocation transmission planning rule, more affectionately known as Order No. 1920. But then there was also the siting backstop authority rule that came out, Order No. 1977.

So I'll go ahead and start with Order No. 1920. This transmission planning and cost allocation rule tried and did achieve in establishing a more thoughtful transmission planning process. The order requires FERC-regulated transmission providers to develop long-term 20-year plans which identify the long-term transmission needs while working with the relevant stakeholders and relevant state entities. The new rule tries to tackle the difficult task of linking costs with those rate payers that benefit from a project. So I'll kind of describe the order in two buckets, the first being the transmission planning aspect, and then the second being the cost allocation. For the transmission planning, the order aims to make the transmission planning process more forward-looking. You know, the FERC jurisdictional transmission providers specifically need to develop a long-term transmission plan that evaluates the transmission needs over this 20-year time frame and that will be reevaluated every five years. The plan has to look at different scenarios to account for the changing landscape and factoring in criteria set out by the commission using the best available data, and take into account the risks associated with extreme weather and the effect that it has on the grid. You know, I think something great that they did here was incorporating, as part of the planning process, taking into account some of these new technologies like dynamic line ratings, the advanced power flow control devices, advanced conductors and transmission switching, because these are important aspects to take into consideration with the rapid advancement of technology and the benefit they can provide to the grid as a whole and in a cost effective manner. And throughout the process of developing this plan, there were a lot of questions relating to what's the state role going to be in this whole transmission planning process. And first and foremost, there's an engagement period before any compliance filings are made to bring in these relevant state agencies into the process, which I think helps provide a forum for the cost allocation methodology and an opportunity for these relevant agencies to participate. It's important to note that these transmission providers are not necessarily required to adopt the results, but I think what it does is it provides a common ground, a common starting point for these negotiations, to have all parties at the table. The order sets out an evaluation process, kind of laying out the specific criteria or benefits that need to be considered, leading to a result that tries to be as transparent as possible and not, you know, being unduly discriminatory, and provides an efficient mechanism for planning a long-term and cost-effective transmission plan. The next piece of this rule is the cost allocation piece, which basically requires the transmission providers to provide methods to allocate the costs of transmission facilities selected under the evaluation process that generally follow, you know, the foundations that I described earlier that were put in place by Order No. 1000 with the regional cost allocation principles. It also provides an opportunity for states or interconnection customers to voluntarily fund all or a portion of the costs that might not be included, because they might not have met the selection criteria in the evaluation process. So that's a long-winded summary of saying what's in the transmission cost allocation and planning order.

And the other one that came out was the siting rule or Order No. 1977, which adopts a backstop siting authority. This order implements a voluntary applicant code of conduct needing additional recordkeeping and engagement requirements between the applicant and affected landowners. It requires the applicant to show that it's made good faith efforts to engage with landowners and other stakeholders in the process, which is required under the IIJA. That siting order also requires developments to develop an environmental justice and public engagement plan, and requires an air quality and environmental report, tribal resources report and an environmental justice report that will be part of the NEPA review process. So if you want to read those orders themselves and really dig into some of the specifics contained in the rules, feel free to read them. I think between the two orders you might be looking at about 2,000 pages, or we have a good summary and analysis upon the HK website that, that we put together. That might be a little bit more digestible. 

Elizabeth Noll: Yeah, that's a great point, Nic. And we do have folks here at Holland & Knight that can help advise as you're trying to unpack these rules, because there's a lot in there. But these rules are final now. So I guess the question is what comes next? Right. Like the final rule does not mean we're done. So what does this mean for RTOs, for utilities. You know, what comes next? 

Nic Martell: So the next step is going to be compliance filings. You know that FERC has put out the rule. And now everyone needs to go back and put together these compliance filings. So the only thing that might put a stop in that process is, at times, there can be clarifications needed, especially with rules of this size. So there could be rehearing, as was in the Order 2023, the rehearing to create 2023-A. Sometimes there's clarifications that are needed. So there might be a rehearing to clarify some issues in the orders themselves. But right now we are waiting on compliance filings. It is important to note that, you know, there were some things in the NPRM that did not make it to the final rule, specifically with transmission incentives, the construction work in progress incentive, as well as the right of first refusal for incumbent transmission owners. So the commission might be taking up these issues in the near future. So keep an eye out for that. But as far as the compliance filings, as kind of in conjunction with the compliance filings, the transmission providers will undergo that six month engagement period I kind of described earlier. So they'll be working with the states to get these compliance filings put together. And as for a time frame for these compliance filings, they have 12 months to submit the compliance for the interregional transmission coordination requirements and 10 months for all of the other requirements. So each transmission provider will be filing to basically show that they've adopted the pro forma language in the Order 1920. Also, just so people are aware, a year might sound like a long time, but these are major rules. There's a lot of stuff in there. So it could come up to you'll see a year and people might ask for an extension at FERC, which is not uncommon. You know, I know people will try their best. This is something that people have known is coming down. They're going to try to get these out within the year. But extensions do happen and they are granted at FERC. So we might see it pushed beyond a year. It's also important to note, with the backstop siting authority, that there could be significant litigation on that front. The last time this happened, it was struck down by the Fourth Circuit in 2009. So that's something to keep an eye out on as well. And with the backstop siting authority, it's important to note that even with the commission's support and this new rule, you know, a project developer will not be able to condemn state-owned land currently because the commission lacks authority without Congress amending the current rules to the FPA to provide specifically for an eminent domain authority over state-owned lands. So, you know, there's a lot of things to work out. There's a lot of stakeholders involved, and there's going to be a lot of coordination, but we'll see what comes out of these compliance violence in the next year. So with that, we've walked through it. But we've got to be honest about this. It's not just FERC that's acting on transmission. These rules were great, and it was a great step. But you were a DOE. You can say a little bit about what DOE is doing in parallel to help work with it and advance this buildout of transmission. 

Elizabeth Noll: Yeah, that's exactly right, Nic. There's been, you know, a lot of activity over the last few years and, more specifically, even just the last few months, from the Department of Energy and from the Biden Administration on transmission. Clearly, this is a priority, and it recognizes the need. And this is happening both from a perspective of, you know, how do we squeeze out as much as we can from the existing system in the near term, while we also try to facilitate and advance and accelerate the long distance and the broader transmission capacity to keep up with growing demand. And just double click on what you said, Nic, on this order that FERC just issued, you know, is now requiring folks to take a look at things like dynamic line rating and advanced reconductoring and those technologies, you know, that's exactly what we need to be doing to squeeze as much as we can out of the existing system. There are quite a bit of incentives for folks that are looking to make those investments. Grid Deployment Office, which was established, you know, on the heels of IIJA at DOE, they have $10.5 billion for investments in grid resilience and innovation. They call it their GRIP Program. And in round one, we saw, you know, the selections were made last year, round two of those funding opportunities just recently closed. And there was a significant emphasis on, you know, technologies like advanced reconductoring, dynamic line rating. So it's really exciting to see that. And I'm hopeful that we see, you know, more investments in that area in round two. So we're really upgrading the system with these new technologies. DOE issued what they call their liftoff reports on innovative grid deployment and have highlighted a lot of these technologies that could be easily deployed and deployed cost effectively in a lot of areas. And then on the transmission side, you know, the Grid Deployment Office, again, it's been very busy. They got new authority and new funding opportunities for what they call the Transmission Facilitation Program. This was also in IIJA. This is basically like a revolving fund where the federal government is an anchor customer. This is basically going to ensure that there is going to be offtake. So you don't have to worry about the pesky problem of if we build it, will they come? But, you know, the federal government is going to step up to be that anchor tenant for transmission lines that are going to be built. And then as the federal government steps away and offtake is sold, you know, then that money is then freed up for future projects. So, you know, we've seen three projects selected. You've seen the Department of Energy issue a second round for this program. And I know this is a really big priority for folks over at the Department of Energy. And then just in the last few weeks, the flurry of actions by DOE building on, in conjunction with the Order 1977 on kind of the backstop authority and the transmission siting, DOE issued its first 10, I'm going to say this, the long name, of the National Interest Electric Transmission Corridors, or the NIETC designations. These are designations of areas where there lacks adequate transmission. So DOE has now designated these corridors in the Inflation Reduction Act. They got $2 billion for direct loans to transmission lines that are going to be built in these corridors that have been designated, this is the Transmission Facility Financing Program or the TFF. So that was recently announced. We'll see finalization of the NIETC corridors and NIETC designations in coming months. And in that financing will help to make those and further those investments. And then finally we saw DOE announce the Coordinated Interagency Transmission Authorization and Permits Program. DOE loves its long titles. But that's the side tap, which is really meant to help expedite the permitting process. It designates the Department of Energy as the lead agency for coordination of federal environmental reviews for qualifying electric transmission facilities. I think, you know, you see the administration both through financing, through grants, through loans and through, you know, trying to expedite through their existing authorities. You know, how can we make it as easy as possible to really make these investments in the transmission system and in the grid, which is just really incredible to see. It's been a lot of hard work and effort. Another shoutout to all the folks over at DOE that have been working on these programs, because we're really seeing them come to fruition in a really positive way. 

Nic Martell: That's great. Really, really good to hear that there is such good support and the ability to have these grants and all this money being put forward to help push this agenda forward, because that's really important. But, you know, this is just within the administration and FERC's existing authority. Is that enough? What's next? What else do we need? 

Elizabeth Noll: Well, I think, I think you know as well as I do, Nic, we could do a whole second podcast just talking about what else is needed. I mean, obviously, and you said it, you know, within the transmission siting rule, you know, there's still a need for congressional action there, clarifying authorities there. So I think, you know, really the short answer is no, this is not enough. You know, we do need congressional action to really deliver at the scale, at the level that we need to fully build out the electric grid. My personal opinion is I think it was a missed opportunity not to get the transmission investment tax credit as part of the Inflation Reduction Act. We've seen a lot of interest from, you know, Senator Manchin and others on the broader permitting reform, trying to get that, you know, advanced through other proposals that have been floating around. You know, Holland & Knight has definitely been engaged in this space on behalf of clients. And I think we will continue to do so, both from the legislative perspective and our Public Policy & Regulatory Group. But also, you know, we have many clients that we're working with on the transaction side to help get these deals done to really help advance, you know, be it in the negotiations of loans or in grants, but also, you know, just in the transaction of getting these deals executed. So there's so much more work to do, so much more work to be done. And you can be sure that, you know, the team here at Holland & Knight is paying attention to this. If you have questions, if you are interested in exploring opportunities, you know, please don't hesitate to reach out to the team. Nic and myself, we're supported by many others that are really engaging in this space across the board and really excited to see where we can continue to advance the conversation. But with that, I just thank you, Nic, for hopping on this podcast and helping to unpack this really important rule. And thanks to all of our clients and others that are listening to this podcast in our Energized Exchange. And, look for more on the Holland & Knight podcast series and more opportunities to come. 

Nic Martell: Couldn't have said it better myself. Thanks, Elizabeth, happy to join and looking forward to working with everyone on these important transmission initiatives. everyone on these important transmission initiatives.