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How we benefit from transmission competition | Factor This Policycast · Factor This

• 0:04
  Paul Cicio: You're seeing a pancaking of costs every year that gets built into the rate base that consumers, captive consumers, have no idea what's happening, and a lot of policy makers on Capitol Hill and in state houses don't understand that either.
• 0:22
  Paul Gerke: Hello, everybody.
• 0:22
  Paul Gerke: Welcome to the premiere edition of The Factor This Policycast, a brand new podcast partnership with National Industry Association Advanced Energy United, tackling the legislation, rulemaking, and market design that matter to clean energy leaders. Congrats, listener, you're coming in on the ground floor. Great to have you aboard. I'm Factor This Content Director Paul Gerke. You can expect to find me moderating this series of discussions, which will feature voices from across the energy policy landscape and spotlight issues shaping the evolution of our electric grid. We're beginning with a topic you may have
• 0:57
  spotted in recent headlines: competitive transmission solicitation. It's no secret that large scale critical electrical infrastructure projects like high voltage transmission lines cost a lot to build, and they take some time to come online. After all, we're not ordering private taxis for our burritos here. This is complicated stuff, and not many companies can really do the work. About 15 years ago, the Federal Energy Regulatory Commission, or FERC, mandated that utilities competitively bid out such projects, but that mandate really isn't being enforced, for reasons we'll get into shortly. New data points to tremendous benefits from competitive transmission, though, including billions of dollars ultimately saved by ratepayers, detractors argue the bidding process delays timelines, sometimes up to years, and subjects projects to hidden costs. A group of Midwest utilities has even gone as far as asking FERC to halt the bidding process in MISO and SPP territories. On this episode of the podcast, I'm joined by Caitlin Markey, managing director at Advanced Energy United, and Paul Sisio, chair of the Electricity Transmission Competition Coalition, both are strong advocates for competitive transmission, and they'll share findings that back them up.
• 2:13
  spotted in recent headlines: We'll discuss that utility request to ban competition outright, talk about FERC's role in all of this and explore the finer points complicating broader transmission build out at a time we really need it.
• 2:27
  spotted in recent headlines: Welcome to the Factor This Policycast, Paul. I'd love to start with you. One of the first things you mentioned when I touch base with you about being on the show, was the affordability crisis.
• 2:42
  spotted in recent headlines: Everybody's talking about how expensive energy is right now.
• 2:45
  spotted in recent headlines: How does competitive transmission bidding play a role in the affordability crisis, and how much of the affordability issue can we really pin on the cost of transmission?
• 2:57
  Paul Cicio: Yeah, yeah. Well, thank you for that question, and thank you for the invitation.
• 2:59
  Paul Cicio: You know, as you have said, we have a serious reliability crisis, of, you know, because of multiple multiplicity of things like the Iran crisis, but here today we're talking about specifically the electricity affordability crisis, the cost of electricity is way outweighing the consumer price index. How much can we pin on it? Let me just back up a minute and tell you that about four years ago we started looking at electricity prices starting to increase and demand was flat. We started asking questions, why are we seeing these higher electricity bills, and when we did, we found out that electricity, the transmission costs were exceedingly growing at a much faster rate than generation and distribution costs, and when we looked at it, we found out that order 1000 that was a 2011 rule that FERC issued, said that it was in the public interest that these large transmission regionally planned projects be competitively bid, in other words, using competition, unleashing competition to drive down costs, but we also found out real quick, we looked at a Brattle study report that said that about only 5% of all the transmission projects in the United States were being competitively bid, and as we started investigating this, we came down to the conclusion that, in a way, second FERC order 1000 is the law of the land, but FERC was not enforcing it, and so we started asking questions about how can the utilities, how can they get around this law of the land. And in order 1000 they had a small caveat that said look, if you, if a transmission, if a company needs a transmission project for reliability purposes, in other words, you know, okay, an emergency, you need to build this really, really quick, then it does not have to be competitively bid. Well, guess what? That loophole became from a small loophole to a large loophole that the utilities have been using ever since to escape competition and the affordability crisis. Building transmission lines is extremely profitable. The utilities for every dollar that they spend will receive lucrative transmission incentives from FERC. There's 10 of them, and that results in a return on equity that is between often 10 to 12% for the entire life of the project, but getting more to the heart of the issue, a lot of people don't understand, policy makers included, is that the initial cost plus the incentives, and then they have to finance that, so there's the cost of financing when you take the original cost of capital plus the ROEs plus the financing, it literally quadruples the cost of that transmission line for the life of the project, so you see you're seeing a pancaking of costs every year that gets built into the rate base that consumers, captive consumers, have no idea what's happening, and a lot of policy makers on Capitol Hill and in state houses don't understand that either, but it is a big deal, and we're seeing a cascade of costs. The rate that Edison Electric Institute is forecasting for transmission spending is at a rate three times higher than the 10 year average that we saw. So, do we have an electricity transmission affordability crisis? Yes, sir, we do.
• 7:13
  Paul Gerke: Caitlin, I'd love to hear you weigh in on this. It sounds like there's a real opportunity here to leverage competitive bidding to save some money. Your thoughts?
• 7:21
  Caitlin Marquis: Yeah, and thanks for having me on the podcast. So, I work from where I sit at Advanced Energy United.
• 7:28
  Caitlin Marquis: We, we are a trade association that works nationally, and we represent companies that are developing competitive transmission, as well as a lot of other companies across the energy sector, from competitive generation developers, grid side technologies, distributed energy resources, sort of whole range of technologies, and and thinking about how transmission intersects with affordability. I think it's also really important to step back and recognize transmission costs have gone up, but transmission, if it's well planned, if we're building the right transmission, has a lot of consumer benefits, and so it can, it can unlock more affordable generation resources that were that lower the cost of electricity and can result in net cost savings for customers if we're building the right kinds of transmission or planning it regionally and independently, and that's what what Paul is highlighting is that we, we really haven't been doing that in a lot of cases, and the transmission that we've been building since order 1000 was was approved by FERC in 2011 roughly 90% of the billions of dollars we spent on transmission lines has been on lower voltage reliability upgrades, which is not to say that we don't need to be investing in those projects, but has all of that spending been prudent, and have have we been taking advantage of the competitive process as much as we could be? I think the answer is pretty clearly no, and so we've seen where competition has been enabled, that it's resulted in all sorts of consumer benefits, cost savings, innovation, but it hasn't. There are barriers to realizing those benefits based on the way that transmission has been has been planned and built, so I think keeping it there can be this sort of, you know, as we're thinking about affordability, thinking about ways that we can save consumers money, we also don't want to kind of overcorrect and say, oh, we should be turning away from transmission, we very much need transmission, but we need to be really careful and thoughtful about what we're building and how we're building it.
• 9:49
  Paul Cicio: Yeah, that's a great point. Building the right transmission reduces congestion and reduces consumer costs, and we like that.
• 9:56
  Paul Gerke: And congestion can get pretty pricey. There's been some reports recently. Recently, about how much congestion on the PJM grid alone was costing, I think it was north of a billion dollars in the month of May, according to 1/3-party person looking at the data. Pretty wild stuff. I feel like it's been a minute since I've been in the batting cages, but both of you were tossing me a softball, and I'm not going to just stand here, I'm going to take a cut at it. You were teeing up the data, and there is a lot of data that looks at projects that were competitively bid and not competitively bid, what their timelines looked like, what their costs look like. Paul, do you want to start with what your organization that you chair, etc. looked at? And then, Caitlin, if you want to talk a little bit about what the think tank R Street just put out recently, as well as any other data points that you wanted to touch on, Paul, but let's start with your organization. What did you guys find when you really looked at these projects?
• 10:48
  Paul Cicio: Yeah, well, like in PJM, for example, 10 years ago transmission costs were around 4% Okay, and now it's around 27% of the total cost of transmission, that total cost of electricity, but we looked at, for example, 19 projects that were not competitive, other words, the incumbent utility built them, and we found that there was an average cost overrun of 84% so not only did they not deliver the project at the original or estimated or approved cost, but they did not have any cost containment provisions in these agreements, and there were cost overruns.
• 11:46
  Paul Cicio: Just those projects cost consumers an increase of $4.8 billion Now we looked at 19 relatively recent projects that were competitive, and we saw an average cost reduction of 38% for those 19 projects. It saved consumers $4.9 billion So, these are this is real money.
• 12:16
  Paul Gerke: Caitlin, how does that stack up to what our street found and what you and your organization have learned about the role of competitive bidding.
• 12:24
  Caitlin Marquis: Yeah, so first of all, I'll note that there's unfortunately not a ton of data available, because, like, we talked about, there's there's barriers to competition, and also the data is just spotty, but but our street looked at projects that went into service across, let me make sure I get my, my years right here.
• 12:45
  Caitlin Marquis: Projects that went in service after January 2018 with costs above 50 million, and they looked at both cost and timelines, because I'm sure we'll get into a recent complaint that was filed, that's alleging that competition adds time to the process, and they found on both, on both fronts, that competition does deliver benefits, so on a cost basis, that on average in the Misone SPP regions, that competition delivers 30% cost savings relative to incumbent projects on an on a sort of average basis, and that even when you count the time for competitive solicitation, that competitively big projects actually come in service faster, which means from the time that the need is identified to the time that the line is delivering electricity and is in service, that that timeline is faster, and I think if you think about the way that competition works, this makes sense, because there's an incentive, and there's actually in the bidding process built into that opportunities for competitive developers as they're trying to win a project to include cost guarantees and schedule guarantees that then they're held to, and so they have a clear incentive to come in on time and on budget, because they're not going to, you know, maybe they've agreed to an ROE reduction, and so they have, they have a financial incentive as well as a reputational incentive to come in on time and on budget, and that's what we've seen, you know, of course, there are different projects that that run into different hurdles, but on at, on an average basis, and that happens to incumbent projects as well. All of these projects face the same permitting and and and supply chain challenges, but we've seen the competitive projects often coming in ahead of schedule, despite those challenges, and at or under budget, and when they are over budget, the competitive developers often sort of eating those costs and not passing them body to rate payers.
• 14:58
  Paul Cicio: Yeah, I'd like to emphasize something to Kate. And touched on is that when you run through a competitive process, you have utilities that want the business competing, so they sharpen their pencil and they put cost containment provisions in their bid quite often, instead of asking for a, for example, a 12% ROE, they'll ask for except 11 or accept a 10, and as Caitlin points out, many of these competitive bidders will say, okay, I'm going to deliver this project on time, and if I don't, I will take a cost penalty, if you're a monopoly incumbent utility without competition, you have zero incentive to reduce costs.
• 15:47
  Paul Cicio: You have zero incentive to put in writing these cost containment and penalties, and that's that is why we are seeing it's contributing to hire much higher cause, I
• 16:02
  Paul Gerke: had a conversation with my wife this morning when we brought our daughter to daycare about this very topic, and her initial response, someone completely removed from the energy industry, or any part of this conversation, is just, yeah, of course, wouldn't competition be better, and everything, it's like, you know, if Walmart and Kmart were both going to offer you the same item, and one of them was going to price it differently. I mean, it's just like anything, right?
• 16:24
  Paul Gerke: It seems like common sense.
• 16:24
  Paul Gerke: There are nuances to that, of course, but the big sticking point seems to be, you know, what are the real savings here?
• 16:31
  Paul Gerke: How does that 30% that our street found, Paul, how does that square with what etc see found in terms of like average cost, you know, saved per project,
• 16:43
  Paul Cicio: very similar.
• 16:44
  Paul Gerke: Yeah,
• 16:44
  Paul Cicio: very similar. Yeah, and also there was a Brattle report that was done, what, four or five years ago, that came up with the same estimate, up to 40% reductions. So, yes, very consistent numbers.
• 16:58
  Paul Gerke: And for those who don't follow this space, we're not talking about a $10 million project here. I mean, Caitlin referenced projects north of 50 million, and a lot of these are in the 10s or hundreds of millions, if not billions of dollars.
• 17:10
  Paul Cicio: We're talking billions, most of these in billions. Yes,
• 17:14
  Paul Gerke: yeah, big, big, big, big, big, big projects, and that means big savings. One of the other things that our street pointed out that I wanted to bring up is that according to their findings they saw no evidence that competitive transmission actually added time to the timelines. We've seen some data that pushes back at that, and I'll get into that in a minute, but I would love to get your opinions, both of you, about the idea that competition does or doesn't add time, and I know that you're going to team me up for that utility conversation. We're going to get there in just a second about how some Midwest utilities are pushing back against competitive bidding, but your thoughts on our streets findings first.
• 17:54
  Paul Gerke: Yeah,
• 17:54
  Caitlin Marquis: I'm happy to jump in. I mean, similar to cost, developers are building in, in the comp, in the competitive process, they're building in schedule guarantees too, so they're they're committing to delivering something on schedule. I also think to the conversation that you had with your wife, at just the sort of the logic of competition, if you have this competitive, if you know that you could lose a future project, or you're competing to to be able to build these projects, you are incentivized to meet those, those requirements, and to be in this competitive bidding process, to, you know, sharp, as Paul said, sharpen your pencil and say, what is the best that I can offer in terms of a schedule guarantee, and what we hear from our member companies that are competitive transmission developers is this, these guarantees are kind of table stakes now, and so developers are are getting creative on what are what are we willing to offer in terms of what we can, what we can commit to, and like I said, all all of these projects are going to face the same challenges with permitting and supply chains, that's not unique to the competitive process or the the incumbent process, that's something we need to address as a challenge to transmission development across the board, but if we're sort of isolating the issue of competition, there are some real benefits that it can provide in terms of just the incentive to deliver on or ahead of schedule.
• 19:25
  Paul Cicio: Yeah, etc. is very grateful for our street, you know. Our street started this report more than about a year ago, is when they started investigating this, and so the timing of them coming forward with the report, the data that Caitlin's talking about was just really wonderful because of the complaint by the nine SPP and MISO utilities, but one of the things that I want to get to with R Street, why it took them so long. Is the the non transparency of the process the this say public policy issue all of this data transmission costs should be very transparent because I mean after all policymakers are are interested in affordability, and rate payers automatically getting these costs passed on to them.
• 20:25
  Paul Cicio: Shouldn't there be a form of accountability? Well, what our street confirms is that there's really a lack of transparency, and that's one of the policy issues that I know my organization is pushing, so that it's easy to see what is happening with these projects,
• 20:43
  Paul Gerke: I'm glad you brought that up, Paul, because that is a big part of this conversation, right, where it seems like a no-brainer to us, and where it's like, well, shouldn't people know about what it is that their money is being, but as you mentioned, with the loophole you mentioned at the very top, there are inner workings to the underbelly of the machine that we're not privy to, and I'm glad that you, you're sort of flagging them. We've talked about this complaint now, like three different times in passing, and haven't fully addressed it, so I got to just dive into that pool. So, back in April, Entergy, Excel, and seven other utilities, the group of nine that Paul mentioned, lobbied to FERC to stop putting bids in MISO and SBP regions saying competitive transmission adds 16 to 20 months to timelines, and we know what a soft spot timeliness is right now, and if you were just looking at the executive summary of that report and said 16 to 20 months added, forget competitive transmission. No way, we're looking at that as an option.
• 21:43
  Paul Gerke: However, lawmakers in those states are pushing back at this and saying, wait a second, something stinks in Denmark, Illinois, Iowa, Kansas, Montana, Oklahoma, all of them saying no, no, no, no, we think there's value in competitive transmission, let's tackle this.
• 22:01
  Paul Gerke: What is the utility's real complaint here? Do they have a leg to stand on, and is there any validity to that 16 to 20 month timeline edition? Because that doesn't really seem to jive with the other data we just talked about.
• 22:12
  Paul Cicio: If it's okay, let me jump in first. If you're
• 22:15
  Paul Gerke: chopping at the bit, get in there.
• 22:16
  Paul Cicio: I am, I mean, these nine incumbent monopoly utilities that filed the complaint. What they're really asking FERC to do is to protect them from having to compete.
• 22:33
  Paul Cicio: It's asking FERC to protect their future profits. This is a group of utilities that are I'm going to use the word colluding to increase electricity prices on unsuspecting, unknowing captive ratepayers, you know, and the Federal Power Act is the law of the land, and FERC has a responsibility to deliver just and reasonable rates to protect the consumer, and I will be shocked if FERC doesn't step up and see this for what it
• 23:10
  Paul Gerke: is. Caitlin, your thoughts?
• 23:11
  Caitlin Marquis: Yeah, I mean, I think, as we've talked about in various different ways since FERC mandated competition in order 1000 there have been efforts, whether it's by passing state right of first refusal laws that give utilities the right, the first right to develop a project, or by finding other ways to circumvent the competitive process. I think this is another example of utilities, you know, really much easier to just get to build everything and not have to compete for it. Their argument in the complaint is this 16 to 20 month. They're they're focused on the solicitation process, so the process of of going out to bid and selecting a project that is unique to the competitive process, they're arguing that that window of time that they say is 16 to 20 months, that that is untenable in this era of speed to power, they don't tackle, and why I think the R Street data is really important here, and that the actual track record that shows that on average competitive projects, even if you count that solicitation window, still come in faster than incumbent projects, and there's also, you know, I think even MISO pushed back. MISO is sort of neutral in this, they're the independent planner, they pushed back on the 16 to 20 month window that that does not comport with their sense of how their solicitation process has operated, so I think you know we would take issue with the time that they say that solicitation process. Critiques, but then they haven't, they haven't, they don't deal with the, the overall in-service timeline, which is really what you care about, if you care about speed to power, and one thing, Advanced Energy United, along with many others, submitted a protest in response to this complaint, and one of the things that we pointed out is we disagree with, with what, what they're, the case that they're making, that that it's a 16 to 20 month process, that competition slows things down, but if FERC agrees that speed to power is imperative, and that we need to be doing more to speed up competition, let's shrink that, we don't think it's 16 or 20 months, but let's shrink that solicitation process rather than saying we're going to get rid of competition, because we already know competition, even when you count that, that slice of the overall development window, that it speeds things up, so we can, we could speed that up, the competitive process would be even that much faster than the incumbent process, so it's, it's both sort of, I think, a misguided interpretation of what's happening, that that competition is slowing things down by just focusing on the time it takes for solicitation, and then if you want to solve that, you're focused on the solicitation timeline. Let's shrink the solicitation timeline and improve that, rather than getting rid of competition and losing both the schedule and the cost benefits that that that delivers.
• 26:23
  Paul Cicio: Yeah, don't throw the baby out with the bathwater.
• 26:25
  Unknown: Exactly,
• 26:26
  Paul Cicio: yeah, yeah. Well, Caitlin is exactly right. FERC has a toolbox. Well, that's that's their job. If things don't work, fix it. Now, what I'm saying is the process is working, but can the competitive process is working. It's not really delaying delivery of the actual projects. It is resulting in cost reductions, but if in their judgment, if in FERC's judgment, they feel that for speed to power that they want to speed things up, well, fine, they go back into the policy toolbox and tune things up. I know a number of companies who compete to build these transmission lines, and I asked them the question, Can the process at MISO, SPP, and these other regions be improved? Of course, yeah, can they be faster? Yes. So you know, FERC has that toolbox. It's their responsibility for delivering just and reasonable rates, and and they have the tools to fix it, if they fix it, if they feel that they, it needs to be fixed.
• 27:40
  Paul Gerke: Yeah, to me that's the low hanging fruit is shortening solicitation processes to sort of appease both sides, and if the utilities at that point say, well, it's not short enough, then then you really know what the impetus behind their complaint was in the first place. I think that there's an important part of this issue that you just, you just sort of mentioned Paul that I had when I was digging into this initially. One of my first questions was, how many companies actually do this?
• 28:06
  Paul Gerke: Like, it's not - we're not talking about a huge list of people lining up to do massive billion dollar transmission projects. There's just a handful, and we're talking about the large independent power producers, the next eras of the world types, so when we're talking about, you know, solicitation windows that might last close to two years, that seems, it seems a little silly from an outsider's perspective to think that a handful of companies bidding on a project are really going to take that long. Am I wrong in thinking that the
• 28:37
  Paul Cicio: companies that are competing to build these projects are other utilities?
• 28:39
  Paul Cicio: They're not fly-by-night organizations. They are highly qualified. They have built transmission. They have operated transmission, and so they are professionals of what they do.
• 28:54
  Paul Cicio: And I personally don't know how many of them are out there. I know probably there's at least you can count as many on one hand, but maybe Caitlin can add a little color to that
• 29:11
  Caitlin Marquis: total number.
• 29:11
  Caitlin Marquis: But yeah, it's companies like it's non-incumbents, like, you know, Nextera Electricity Transmission, Ellis Power, as well as, as Paul said, some of the, you know, the transmission owners compete as well, and sometimes have affiliates from other regions. So, there's, there's, there are companies with long track records of doing this. It does take time, because they're complex projects, so there is there's going to be time required to design them, and part of the benefit of the competitive process is that you're inviting alternative solutions to, so you've identified a problem, and and then there does need to be a process of checking that from the RTO and verifying that it's it's going to be reliable and.
• 29:58
  Caitlin Marquis: Going to work, and it's going to solve the problem, but all of that, there's there's various stages along the process, and each one of those can sort of be shortened, and actually, ironically, one of the stages is sometimes there's information needed from the incumbent transmission owner, if there's a, if there's some component of the project that needs to connect the system, or that includes a non-competitive element, and sometimes that can be a lag in the process, where you're just waiting for information from the incumbent transmission developer, so lots of lots of places along the process where things can be tightened. There, there is inherently some time needed for these companies to develop highly sophisticated, you know, as we're talking about huge projects that can be quite complex, but also can be tightened up.
• 30:56
  Paul Gerke: Wanted to get into FERC Order 1000 just a little more. We've been talking about it as if it's this albatross in the room around since 2011 FERC is supposed to be enforcing this. Paul mentioned at the top of the show the loophole that utilities are using to circumvent FERC Order 1000 How can FERC better enforce that rule? And should, should there be more of a conversation about them busting out that toolkit, as you put it, Paul, and applying it to this problem before it gets way worse? I mean, I write all the time about how we need two times the grid we have, three times the grid we have, four times the grid we have, whatever it is, whatever the pie in the sky demand growth projection, you're looking at that day of the week, says, and it sounds like a lot of work that we're not doing yet. There was a report not that long ago that said that we need something around 5000 miles of new transmission lines every year through 2050 in order to meet load growth goals. Well, guess what, we've built 4000 miles of transmission lines like once in the last 20 years, so that's not happening anytime soon. Forgive me if I screwed those facts up a little bit, but back to the question originally, FERC order 1000 how do we better legislate, mandate, encourage competition for these big projects, and in a timely manner?
• 32:15
  Paul Cicio: Yeah, you know something, I'm going to repeat something that I already said, the Federal Power Act is a lot of the land. FERC has the responsibility, the authority to deliver just and reasonable rates for consumers. In our view, rates cannot be just and reasonable unless these transmission projects face competition to reduce costs.
• 32:43
  Paul Cicio: FERC needs to close that loophole. This, I mean, we utilities need a reliability project label, but it's too loose, and when it gets to, for example, at MISO and SPP, they're not always abiding by that three year rule, for example, SPP just awarded very large projects that were labeled as reliability, but they know they're going to take six seven years to build, and they're like 360 5k These are the big ones.
• 33:30
  Paul Cicio: Does that qualify to escape competition in our view? No, no, it doesn't. So they need to tighten this down. They know that they are being gained, that the consumers are being gained, and these rates are not just and reasonable, and they need to act.
• 33:47
  Paul Gerke: Caitlin, your thoughts?
• 33:48
  Caitlin Marquis: Yeah, another, another point to bring in here is these, this set of projects that aren't planned regionally that are subject to very little oversight, and there's this could be a role for FERC and for poor independent RTOS to play in that, there can also be a role for states to exercise a little bit more oversight, or so this category of spending on projects that are planned locally but recovered through FERC formula rates that get very little oversight. One interesting development in New England, the region is working on creating an asset condition reviewer for these asset condition projects, projects that are sort of end of life replacement facilities that basically generally just kind of get rubber stamped. The region is now developing an independent entity within house within the ISO to review those projects to give states and consumer advocates a little bit more transparency and information going back to our conversation about sort of data transparency, so this is one way to make sort of paired with with good.
• 35:00
  Caitlin Marquis: Regional planning to make sure that we're also we're looking at all parts of the transmission planning and transmission spending to exercise good oversight over all of those processes, so that's that's something that we're watching, it's going through the process, it's it's it's related but not quite the same as there's been discussion of independent transmission monitors having having sort of independent entities at the regional level to checking the homework on these planning processes and making sure that that that everything's being being followed and done correctly, but we think it's a, you know, a useful step to provide a little bit more transparency around one element of the transmission transmission spend that's currently just not getting well, it's getting a lot, it's being talked about, but there's not a lot of transparency and data and accountability and sort of oversight there,
• 36:01
  Paul Cicio: there's some fundamental problems in it. Was a technical conference about 18 maybe two years ago now at FERC, and so there were all these state public service commissioners sitting around the FERC table, and everybody was talking about the need for transmission, but the challenges, and it was astonishing, because you had state commissioners saying either I don't have the time to evaluate the quality, and whether the estimate of that project, or whether we need that, whether there's more benefits than costs, or they don't have the authority, they don't have the staff, and so I mean, then you get to the art, the RTOS, that's a different can of worms, you know, there are these RTOs, but they don't have any responsibility or accountability for the cost of power, they don't have to worry about determining just and reasonable rates, that's FERC, and those entities are paid for by the utilities, and they, the decision makers at the RTOS, in a large part, are influenced by utilities. Consumers have very little ability to influence the decision making at these RTOs.
• 37:27
  Paul Cicio: So, getting back, all of it comes back to FERC. FERC has the ability to manage this and fix this, and in our view, FERC needs to, in essence, stop protecting the monopoly electric utilities and start protecting their ratepayer. Everybody knows competition works. It's common sense. It's in the American DNA.
• 37:50
  Paul Cicio: It is one of the foundational aspects that has made our country successful. Competition, FERC knows that, and they have a toolbox of policies that they can make, they can, they can make things happen if they want to, and they just got to do
• 38:12
  Paul Gerke: it. Caitlin, one of the other negatives that gets brought up when people push back against the idea of broader competition is hidden costs like afterwards there's going to be some element of cost recovery, or we're going to promise that there's going to be a cap on costs, but actually there isn't, and we're going to have to come back and ask for more money later, and it's going to inflate all of everyone's numbers and make the data that we're looking at even more messy and untrustworthy in your research and in conversations with the organizations that Advanced Energy United represents, do you find there to be some, some merit to that, that there is some black box element to cost overruns when we're talking about competitive transmission?
• 38:58
  Caitlin Marquis: I mean, I think, aside from that, we've talked about general data transparency, and so having poor data, you know, means that that's a
• 39:05
  Paul Gerke: problem projects.
• 39:08
  Caitlin Marquis: I think everything that we've been talking about with these, these cost containment measures, are there can be pre-negotiated exceptions to that when there's something like force majeure or or input costs that, that like the cost of steel skyrockets, those are going to be things that are going to apply to non-competitive transmission projects too. So, can costs still go up? Yes, but is that going to be something that is meaningfully different for competitive projects, and then you still have the benefits, that's a, that's a sort of pre-negotiated exemption to a cost cap, you still have the sort of overall benefits of the cost containment measure, so I think still overall you see benefits from the competitive.
• 39:57
  Caitlin Marquis: Of process,
• 40:03
  Paul Gerke: we're running out of time here. Got a few minutes left on the podcast. Would love to get into any other part of this conversation that we feel like hasn't received the light of day that it necessarily deserves. Is there a part of this issue that we're glossing over or ignoring?
• 40:19
  Caitlin Marquis: I can't believe we've been talking about transmission for 40 minutes, and we haven't talked about order 1920 Okay,
• 40:24
  Paul Gerke: here we go. More FERC stuff. Let's do it. Just
• 40:26
  Caitlin Marquis: FERC sort of said, okay, order order 1000 has been on the books for a while, but but we need to make some improvements. We need real long-term multi-value planning that looks across multiple dimensions and looks out over a longer time horizon, and and that really improve builds upon and improves the regional transmission planning process.
• 40:53
  Caitlin Marquis: One thing that relates to competition in that is FERC recognized when they were developing Order 1920 and where we are on 1920 if anyone hasn't been following it, FERC issued the order a couple years ago.
• 41:03
  Caitlin Marquis: Regions are currently going through compliance. PJM filed last year, a bunch of MISO SPP and a few others just filed this past Friday. A few other ISO New England hasn't even started working on theirs, because they're working on a separate process, so we're very much in the messy middle of compliance with Order 1920 but one thing that FERC recognized was that what we've been talking about here, that Order 1000 and the competitive process did drive incentives and resulted in more transmission spend outside of the competitive regional process. Unfortunately, one of the things that FERC did in 1920 to address that was to create a new, limited, but a new federal right of first refusal for right sizing projects, so they were trying to create the incentive for utilities to identify places where, instead of replacing a line, they could maybe increase the voltage and therefore meet a regional need. We're concerned that this just creates a new loophole for for escaping competition, and that a preferred approach would be to to enforce the the requirement for competition and to play a bigger enforcement role and to make sure that there is greater oversight. We are we are strongly supportive of Order 1920 and think that it will bring a lot of benefits, but we would like to see that element of it improved in by the courts, and so that's that's one thing to watch, I think, in order 1920 is both, is that something that the courts take a look at, but then also, as this is, as compliance is going on, what are the sort of rules around right sizing, how, how, how much are the RTOS sort of taking a close look at those right sizing projects and requirements? How are they being evaluated, and sort of, how is that that ultimately implemented? And does that become a new loophole, and the way that we're building a lot of our, of our, of our transmission going forward, because of this new federal right of first refusal that that 1920 created.
• 43:36
  Paul Cicio: Yeah, I agree with Caitlin. We are also worried about right sizing being used as a loophole, we were not a fan of the right sizing provision, so we are worried about that.
• 43:50
  Paul Cicio: Instead of going in the right direction, it's the wrong direction. I might also add that
• 43:56
  Caitlin Marquis: mentioned it's it's trying to address a real issue, and right sizing can can have no benefits, but yeah, concerns about how it ultimately gets kind of implemented and what impacts
• 44:09
  Paul Cicio: a 1920 The other thing that I will add, we were there was not a single cost containment provision in 1920 Again, FERC had an opportunity.
• 44:19
  Paul Cicio: This is the last FERC had an opportunity to correct a ROM, and they didn't act, so we're very unhappy with that.
• 44:33
  Paul Gerke: FERC 1920 for those that don't follow the space, mandating long-term planning. I think Caitlin had mentioned it a little bit offhand there, but there might be somebody listening that's like, wait, 1920 does what exactly, but I think I think long-term planning, just on its face, is a good thing, whether or not some of the provisions are well-intentioned, clearly up for debate. Is there any other maneuver in that, you know, toolbox that FERC could, could, you know, a tool that FERC could pull on? That toolbox that might also improve this process. Paul and Caitlin, I know I'm putting you on the spot a little bit here, but is there another glaring issue with the larger transmission process that sticks out to you?
• 45:12
  Paul Cicio: Yeah, well, I mean, common sense one is that they could say to the RTOS ISOs, okay, a competitive process will only last six months. Get it done now. Your
• 45:26
  Paul Gerke: business,
• 45:27
  Paul Cicio: I've been told that PJM has a process at six months, but the processes in MISO and SPP can be much longer. Kayla,
• 45:38
  Caitlin Marquis: yeah, PJM does have sort of an expedited competitive process that I think is a good model, to you know, you can never copy paste things across regions, but good model to potentially look at, and something that we were looking at in making recommendations in the MISO and SPP complaint, in terms of how could you shrink some of the steps along the way in that solicitation process,
• 46:04
  Paul Gerke: we've already established on the first edition of the Factor This Policy Cast that we do not have a crystal ball handy, disappointingly. So, it would be really nice to be able to just know how this is all going to shake out, but as a sort of bit of parting wisdom for our viewers and listeners, I would love for either of you to sort of weigh in on where you envision the larger scope of this heading as we approach the horizon of some of these quite frankly preposterous load growth projections that are going to put our grid in a real bind if we don't act and act in the right ways now. Paul, I'd love to queue you up first, and then Kate,
• 46:45
  Paul Cicio: for example, that recent complaint by these nine utilities in SPP and MISO to put a moratorium on competitive processes for five years. I mean, I am frankly, I am optimistic that the FERC is going to say is going to reject that. I mean, we have the affordability crisis. You have a president that is on that has that. I mean, that complaint is inconsistent with the president's and the data centers pledge to protect the ratepayers, and it's inconsistent with President Trump's executive order to reduce and get rid of anti-competitive regulatory provisions. Does this sound familiar? Okay, and you have every policy maker, it doesn't matter whether you're at the county, the state, the federal level, is concerned about rising electricity. The time is now for FERC to act. So, I'm optimistic that this is going to be managed very quickly.
• 47:56
  Caitlin Marquis: Yeah, I think sort of looking forward on transmission, even stepping back from the competition question, which we do think, as we've talked about at length here, that competition is an important tool to address both speed and cost, but I think you know keeping greater alignment on the benefits of competition of transmission rather as we face this feed to power and affordability imperatives that transmission delivers significant benefits to consumers in terms of like we talked about at the very beginning congestion unlocking more affordable new generation resources and I think just better alignment on building transmission, but building the right transmission, so that we are, we are reducing costs, increasing net benefits, and not adding to already burdened consumers rates. I think we have a lot of hope that Order 1920 gets us part of the way there. I know I mentioned one piece of that we don't like, but overall think it's a really positive development, and what it really is resting on now is the states being able to agree that that transmission is worth building and paying for and permitting and actually getting getting projects moving forward, so we think transmission is one one important element of that, but there's a lot of other pieces that need to fall into place, and sort of alignment on the goals and the benefits is sort of critical across all of those pieces. It
• 49:37
  Paul Gerke: sounds like there's some uncertainty in some of this issue, but one thing I know for sure, if you made it 50 plus minutes into this podcast and you're still listening about the finer points of competitive transmission, you, my friend, are in the right place. This is the Policy Walk Show for you.
• 49:53
  Paul Gerke: Paul Ciccio, Chair of BTCC, Caitlin Markey, Advanced Energy United. I really appreciate both of you for taking some time out.
• 50:00
  Paul Gerke: Your day to really get into the weeds on this incredibly important issue, and we look forward to producing more shows just like this about critical electricity policy issues moving forward in our partnership with Advanced Energy United. If you enjoyed the conversation, please like, subscribe, leave a little feedback. We would love to know what you think, or maybe share a suggestion for a future episode if you'd like. Until next time on The Policy Cast, I'm Factor This Content Director Paul Gerke. Be good everybody,
• 50:36
  Unknown: you.