Alongside your irregularly-scheduled Green Tape programming, we will also be posting Right of Way episodes and transcripts here. If you prefer to listen on Spotify or Apple Podcasts, click the links here or here.
In this episode, we discuss:
How transmission fits into the broader power system
The “3 P’s” that make transmission buildout difficult
Past efforts at reform and why they came up short
The politics of transmission reform today
Right of Way Ep. 3: The 3 P’s
w/ Daniel Palken
Thomas: Welcome to Right-of-Way, a podcast about energy policy, energy politics, and above all the upcoming permitting reform negotiations. I’m Thomas Hochman, director of infrastructure policy at the Foundation for American Innovation, and I’m joined by Pavan Venkatakrishnan, an infrastructure fellow at the Institute for Progress.
Pavan: During this episode, we’re going to be talking about transmission. Everyone knows that the grid is important: It’s the way that we move electricity around the country, and thus it’s critical to energy reliability, industrial competitiveness, and definitely the AI arms race. And as most people working in energy policy know, the US is really, really bad at building out the grid.
Last year, we built out just 322 miles of interstate transmission capacity. For context, DOE’s conservative estimates say we need to be building out 5000 miles a year – so we’re about 94% short of where we need to be.
Practically, this now means that a, say, geothermal developer can run through the permitting gauntlet, build out a project, and still have to wait through a multi-year interconnection queue to actually begin delivering electricity to consumers. That’s in the context of a moment where the risk of brownouts and rolling blackouts is rising, including in DC, where just earlier this year government buildings were forced to limit AC usage due to a lack of electric capacity. And in the context of our national competitiveness, hyperscalers, struggling to find a spot on the grid for their gigawatt-scale data centers, are already starting to look abroad to build their cutting edge AI infrastructure.
Thomas: So, it’s clear that we need to change something. But, in the already-complicated world of energy policy, grid and transmission policy stands out as some of the most arcane. To quote journalist Robinson Meyer, “In energy circles, the people who work on transmission are feared and respected in the same way a shriveled and reputable local mage might be. They are sorcerers who understand one of the most powerful, corrupted bodies of knowledge in existence—American electricity law—but it has prematurely aged them and led them to scuttle around, muttering incoherent spells: “Ferck and nerck, ferck and nerck, ferck purpa noper.” Strange—lunatic, even? No question. Yet the town would surely be overrun without their protection.”
Thankfully, we are fortunate enough to have one of those feared and respected transmission experts with us today in Daniel Palken. Daniel is the Director of Infrastructure for Energy and Permitting at Arnold Ventures, where he works to address barriers to achieving a lower cost, more reliable, and more sustainable US energy system. Prior to his role at Arnold, Daniel worked as a Professional Staff Member on the Senate Energy and Natural Resources Committee primarily covering electricity sector issues. He has been a lead negotiator on several high-profile bipartisan energy packages, and most recently was the leading voice on transmission during the Energy Permitting Reform Act of 2024 negotiations.
Daniel, welcome to Right-of-Way.
Daniel: Thank you, Thomas and Pavan, and it's great to be on the program.
Pavan: Thanks for coming on. So, that quote from Rob Meyer speaks to just how complicated transmission can be, even for those of us in energy policy. So let's do an overview: How does electricity get delivered from, let's say, a wind farm in the middle of the desert to a household? Who are the different players involved in getting that electricity to the end consumer?
Daniel: Yeah, it's a good place to start. The power system that we have breaks down into three components – of which transmission is the middle child. So you have generation – for example, that wind farm you referenced or a nuclear plant or a gas plant. We really have six or seven generating resources that are at scale on the U.S. grid today. Then you have transmission, which are the big power lines. A transmission line is just a wire. It just is a piece of metal that conveys energy in the form of electricity from where it's generated to near where it's consumed. And then those last miles are taken care of by the distribution system, which are lower voltage, smaller wires that kind of go from the substations to your houses and businesses within cities. So those are the three parts of the system. We have a bit of a hybrid system from a regulatory perspective where generation and distribution – the two ends of the sandwich – are the domain of the states to regulate and govern.
In transmission, this middle part of the system is separate from that. It's the domain of the federal government, primarily regulated by the Federal Energy Regulatory Commission, or FERC, an independent five-member agency that is based in Washington, D.C., and has jurisdiction over transmission across the entire country – other than Alaska, Hawaii, and Texas, which mostly sits on an electrical island of its own.
Thomas: So how did we get to this system – this disaggregated system where there are different levels of control and authority over different parts of the grid? Was it planned to be this way, or did it happen more organically over time?
Daniel: It grew up somewhat organically, then there were big laws and big policies that had major influences. In the 1880s, you had Edison and the invention of electric generation at scale in the United States. You had the Pearl Street station, and you had low voltage direct current wires piping electricity to people's homes and businesses – or really just businesses at that point. Then over time, there was a fight between AC and DC power, and the system we ended up developing was primarily based on AC – alternating current – which is beneficial because it allows you to step up and down voltages more easily. I can get into why that's an important feature of the grid. And over time, the grid grew out and it was decided, for very good reason, that you didn't want this to be a fully competitive space. It was viewed as a natural monopoly.
You didn't want dozens of duplicating wires. You can look at photos from the 1900s where there are dozens of wires strung up practically on top of each other from all the competing companies. That was not viewed as an environmentally or economically desirable outcome. So utilities established territories of their own, and they all sat adjacent to each other all over the country. They grew up that way across the whole country. Some of them were better interconnected than others.
Right now in the US, we have a situation where we really have three distinct grids, which are nominally but not really connected to each other by any significant amount of power flow. So there's the Western Interconnection – picture a line down the middle of the country at roughly the longitude of Colorado, the eastern border of Colorado. You have the Texas Interconnection, which I already mentioned, ERCOT as it's called. And then you have the Eastern Interconnection, which is by far the biggest of the three.
And there's only about a gigawatt or less of power that can flow mutually between each of those three. Then within those, there are regions that also tend to have pretty limited power flow between each other. The system really changed and morphed in the way it was regulated over the course of the late 1900s and early 2000s, where you had these organized market structures called RTOs. This gets into some of the arcane knowledge that Rob was mentioning in his piece. We don't need to get deep into that for the context of this discussion. But now you have a really diverse set of actors. You have independent developers of power. You have transmission that is built by still vertically structured monopoly utilities, and then other transmission that has been bid out competitively. And then these upstart merchant actors that try to come in and voluntarily subscribe people to transmission. So you have all sorts of different business models, all sorts of different regulation.
It varies by parts of the country. We already mentioned the interplay of the states and the federal government – who regulates different overlapping parts of the system. And it all works. I mean, we have a system that provides power 99.9-whatever percent of the time that we need it. It keeps the lights on. America still has some of the lowest cost, most reliable power in the world. And that's something to be very proud of.
But it is simultaneously true that as we seek to grow our power grid because of economic growth – in the form of the AI revolution, in the form of new manufacturing, in the form of electrification, in the form of just population growth – you are going to need to grow out that power system: the generation, the transmission, and the distribution. Transmission is one of these things that we've forgotten how to build in this country.
We have this problem oftentimes in the generation space too. It's become very hard to build plants like nuclear plants. At least when you forget how to build a generation technology, you can relearn to build that generation technology while still building other generation technologies. There is no substitute for transmission. There is just one technology. It is just transmission. It comes in different flavors. So if we forget how to build large-scale transmission, we're really – I think the technical term is hosed – from the perspective that we just can't get the power from where it's generated to where it's needed, whatever the source of generation and whatever the source of need.
Pavan: Right, so we've established that we're pretty bad at building this now. But was there a point in time where the US was pretty good at building transmission? What were the key ingredients there, if so?
Daniel: Yeah, I mean, there was an earlier era where America was better at building a lot of large-scale infrastructure projects. I don't think transmission is unique. You look at everything from the large hydroelectric dams we used to build to nuclear plants – really impressive monuments to man's ability to undertake and build massive complex projects. There was an era in the 1900s when we were churning out the transmission lines that today you can drive all around the country and see everywhere. They're evidence of the fact that we were able to build them.
Transmission lines last 50, 70, 100 years depending on where they're located and how well they were built and designed. So we still have a lot of that first generation of transmission lines around the country. But part of what's driving the need – in addition to the load growth and demand growth we talked briefly about – is the fact that a lot of the transmission infrastructure we have is aging and is going to need to be updated and replaced. So we have a falling off of the stuff we have on the system today and we have an increase in need for new stuff that is coming exogenously. That's creating this perfect storm where transmission is really in the spotlight as something that is an energy imperative for the US to get its act together on.
Thomas: Yeah, so it's obvious we need to build a lot more transmission, but it also seems like we did in fact used to build it faster. So I'm trying to drill down into: have there been policy changes that have made it more difficult to build transmission? Are there economic conditions that have changed? What is it that makes us so bad at building it now?
Daniel: Yeah, so in that earlier era – both of you are very expert on this – we had a simpler system of environmental regulations. NEPA reports, for example, once famously 20 pages, can now span orders of magnitude more than that. There are good reasons for the environmental laws we have, but it's about striking an appropriate balance.
And then there are other barriers that have come into the field of view in transmission. Remember I said earlier that in the simpler times – and I'm simplifying here slightly – you had a bunch of vertically integrated utilities siloed next to each other, tessellating the country. In that system, it's not hard to imagine who builds the transmission lines. It's whichever utility the line is situated in.
Now we live in a much more complicated world where those actors are still there, but some of them are not vertically integrated anymore. Some of them have been required by various state laws or policies to spin out their generation assets. So you have utilities that own transmission, or own transmission and distribution but not generation. Then you have these competitor businesses – these people that come in and try to bid competitively on transmission lines where there's regulatory and market frameworks that support that. And then you have these actors that are the merchants that come in and try to build things on their own initiative.
The fact that there are all these competing factions makes everybody look around and be a little nervous that somebody else might eat the lunch that they want to eat. This is just the reality of competing business models. I think this is a good thing. It's good to have multiple business models constantly contesting with each other for who can deliver the best and lowest cost power. My personal view is: I don't think we would want to collapse into a system where we only have one type of provider of transmission.
But what it also means is that, especially in the era we were just coming out of, which is this era of 20 years of flat load where we had economic growth, but the electricity demand increases were really offset by somewhat miraculous gains in energy efficiency. Think of the switch to LEDs in lighting, which use almost an order of magnitude less power than previous generations of incandescent and fluorescent lighting.
We're coming out of this era where the pie was not really growing. So especially in that era – and right as we went into that era in the early 2000s – was when we made a lot of big regulatory shifts that introduced all kinds of new flavors of competition, not primarily even in the development of transmission, but in generation and in how markets were run in the transmission space.
Thomas: It sounds like the summary here is that there are a few things. One, we have the conventional permitting laws that we've heard a lot about, right? The NEPAs and the Endangered Species Act and the like. Two, there's market liberalization, where in a sense, the vertically integrated utilities had the benefit of just being able to have total control over their domain and thus, in some senses, that actually made the building out of transmission in those areas easier. And then the third piece, of course, is load growth.
Wonks like to refer to the three P's when characterizing the regulatory process and barriers facing transmission. So what are these three P's? Why do they matter? And what's the state of the conversation about how to improve them?
Daniel: Yeah, the three P's that famously stand in the way of transmission development are permitting, paying, and planning. I'll discuss each of them in turn, because they're each pretty distinct barriers. I think to realistically achieve the transmission buildout we're going to need, you're going to have to make sure each of them are addressed in a way that is mutually satisfactory to all parties involved in the sector.
So permitting, to start with, is probably the most familiar to a lot of your audience. It comprises a lot of the conventional types of permitting that you're used to talking about on this show. That's everything from going through NEPA, which a lot of transmission lines, especially in the Western Interconnection where there's a lot of federal land, have to deal with. It comprises all the other environmental laws and land use laws that you're going to have to comply with. And it also comprises state and local permitting. Then often lumped in with this P is the problem of siting transmission lines, which is somewhat distinct from permitting – determining where they go and securing the land rights and all of that.
So that on its own is a big barrier. You have some really famous examples of transmission lines that have stumbled on the permitting hurdle. Many, but not all of them are, again, as I mentioned, in the West. So you have lines like the SunZia line, which famously, if it were a person, would have been old enough to vote by the time this happened to it. It got hit with a National Historic Preservation Act case that has yet again tied this line up in litigation and red tape. You have lines like TransWest, which are about as old as that – verging on two decades or a little more at this point – that only recently got their final permits from the Bureau of Land Management to proceed across the checkerboard that is the West. You have countless examples in the West.
In the East, the way I would put it is that permitting as a whole, especially federal permitting, which is what we're talking about when we're talking about federal permitting reform – laws like NEPA – a significant amount of their burden falls on technologies like transmission. There was a study out of Stanford that looked at every NEPA EIS that was completed from 2010 to 2018. It found that of every EIS – every environmental impact statement – completed by any energy project, fully 33% of them were on transmission. And about 20% of the litigation on all the EISs completed over that nearly decade-long period were on transmission. And about 20% of the project cancellations were transmission.
So that is a high burden of environmental laws falling on transmission. But it is also true that in the Eastern Interconnect – only 20% of our electrical demand is in the Western Interconnect, and Texas is not really germane to the transmission conversation – most of the problem and most of the opportunity falls within the Eastern Interconnect. In the Eastern Interconnect, it is simultaneously true that a lot of the burden of NEPA falls on transmission, but it is not the case that NEPA is the primary thing that is burdening transmission. Those two statements might seem contradictory, but if we're good Bayesians, we'll remember that the opposites of the conditional probabilities do not imply one another.
Thomas: Let me ask one quick question there, Daniel. So obviously the vast majority of the load is in the East, and thus when we talk about transmission challenges, we should be thinking quite a bit about the challenges of building transmission on the East Coast or in the Eastern Interconnect. Maybe this is a naive question, but isn't it also true, though, that a huge amount of our energy potential is out West? And thus if we want to be able to move that energy across the country or deliver it to the Eastern Interconnect, then there is this outsized role of making sure that we can actually build the transmission through federal lands?
Daniel: Yes, I think that's exactly right. I'm not saying anything to dismiss the role of the West and the role of environmental permitting in holding back transmission. I think that's very real. But if you take cases from the East itself – and by the East I mean half of the country geographically, so not just the East Coast – you have the famous MISO multivalue projects, which are probably the most successful example to date of a large-scale portfolio of transmission lines built out by one of the FERC-regulated markets. MISO in the 2000s decided it was going to spend several billion dollars building what ended up being a portfolio of 17 transmission lines. As of 2023, which is the last time I saw a formal cost estimate for those lines, they were originally proposed to cost $6.573 billion, and at the time they were on pace to be completed at $6.570 billion. All of them were on time and on budget on average, except for one, the famous Cardinal-Hickory Creek line, which was tied up in Clean Water Act and NEPA litigation.
So it would definitely have been a better outcome if we had a more rational permitting system where that line could have gotten to the finish line quicker. But at the same time, you have this dynamic, especially in the Eastern Interconnection, of these charismatic megafauna that attract a lot of the attention but are not the full story. The full story is actually not even really exemplified by MISO-MVP. This gets into these other two barriers of planning and paying. The full story is really that – I've heard you refer to the dark matter of NEPA. I did my PhD on dark matter, I love that nomenclature.
Thomas: My work on dark matter is of course far more complicated than whatever you're doing in the field of physics, but...
Daniel: Yeah, so what you have is that when a paradigm gets bad enough for infrastructure development, you have a situation where it is a deterrent to infrastructure coming online in the first instance. The MISO MVP lines, as successful as they were, are the exception, not the rule. Very few other regions have managed to build portfolios of lines on that scale. And what is often the case – and this gets to the second of those barriers, the planning barrier – is that there is not a credible mechanism for developers or utilities to systematically propose transmission lines, have them evaluated by regulators or some mechanism to say, "Are these going to be good for the customers of the electric system?" and then have them built.
So I really think planning connotes a top-down approach – you have some organized system that's doing the planning. I think that is one very good and effective way to generate and propose and approve transmission lines. But I would generalize the planning problem into what I would call proposing – so a different P. There is just not a credible pathway to propose transmission lines in the first instance, whether it is top-down or whether it is industry actors bottom-up. We just really don't have it in much of a systematic way that has proven successful nationwide.
And then paying is: every transmission line that gets built has to be paid for, full stop. It's always paid for by definition by the customers of the electric system, and the customers are who the system exists to serve. We should be doing everything we're thinking about in the electricity space with the ultimate customers in mind. What is going to lower costs for them? What is going to improve reliability and improve the resilience of the system for those customers? So you build these transmission lines, you plan these transmission lines, they come with a dollar figure. Those dollar figures can be in the millions, tens of millions, hundreds of millions, billions of dollars, depending on the scale of the project or portfolio of projects.
Then somebody has to pay for it. For the bigger lines, these are lines that often traverse multiple service territories. So there's an open-ended question of: how do you do the math and how do you calculate who pays and who gets to build the line and charge the people who have to pay?
The system has evolved around that, starting with – it really evolved out of case law. This isn't governed by the existing Federal Power Act; it's governed by court decisions. There's a really seminal one called Illinois Commerce Commission that happened around 2007. Judge Posner, quite prolific at the time, an appellate judge, set up the standard that the costs of these transmission lines have to be allocated roughly commensurate with the benefits. So if you are benefiting from the transmission line, you are the one who is responsible for paying the cost. Not only that, you are responsible in proportion to how much you are benefiting. And not only that, if you don't benefit – as a corollary – or if you benefit by a trivial or very little amount, you shall not be made to pay. So these are the governing principles today around transmission cost allocation.
My view is that those are good principles. We would not want to abandon a principle of essentially user fees, where whoever is benefiting is responsible for paying. That, I think, incentivizes greater accountability. But because we lack a mechanism for transmission lines to get proposed and approved in the first place, we therefore also lack a mechanism that has been systematically and robustly deployed for actually cost-allocating large amounts of these projects. So there's a discussion that crops up around cost allocation. I think it's an often somewhat poorly understood discussion in Congress that you have to address almost necessarily as part of any transmission proposal that is going to, soup to nuts, create a new mechanism or improve an existing mechanism for transmission to get proposed, approved, and ultimately built in a way that is fair and just to ratepayers.
Thomas: So I count myself among the people who don't understand cost allocation that well. Is one of the challenges here that – for the lines that cross different service territories – because maybe within service territories they have their own methodology for doing cost allocation? Does this sort of work at a local level, or is it just broken across the board? Even within an individual service territory, can they do cost allocation or can't they do it?
Daniel: So yeah, the answer is it's complicated. Even within service territories, if it can be shown that a transmission line has significant benefits outside of that service territory, there is case law that indicates that the people who are benefiting by a non-trivial amount from those transmission upgrades are made to pay for that. Democratic and Republican appointed judges are actually in fairly good agreement – actually very good agreement – across multiple circuit courts about that. The cost allocation problem, I think, is often talked about as something that is new in the context of transmission.
At its core, it is a tragedy of the commons problem. We're going to build these transmission lines, everybody acting in their own fiduciary interests to their constituencies has an incentive to minimize the amount that they benefit on paper so that they pay less of the cost. There's nothing wrong or malicious about that. But it's recognizing that we need a system that does that with legal clarity and does that fairly. I think the right answer is honestly to just stick with the guiding principles we have rather than to try to open up the debate about "should we change those principles to something new?"
Because I just don't think the principles we have are broken. I think the beneficiary-pays principle or the cost-causation principle, which have been interwoven in the context of cost allocation, are the right ones. It applies to lines that are built locally. It applies to lines that are built regionally and interregionally. We don't need to go around changing a bunch of that, but it is better to have it clearly spelled out in statute than to have it just existing in case law across dozens of appellate court cases spanning a decade or two.
Pavan: So there was a point where Congress actually realized that our buildout of the grid was not commensurate with need, and that was in the Energy Policy Act of 2005, right? So it provides for these National Interest Electric Transmission Corridors – NIETCs. I see why they came up with the acronym. It's a mouthful. So what are they, are they working, and if not, why?
Daniel: Yeah, so the NIETC corridors as they're called were created in 2005. They were actually one of three policies that were created in EPAct. We can circle back to that point. And they have not been successful to date. So what these corridors are is – they were designed as part of a two-step system that Congress cleverly architected in order to solve the problem that even at the time we were doing a poor job at building out the large-scale transmission system commensurate with what was needed.
The first step in that two-step dance was that the Department of Energy would designate these areas, so-called corridors, where they're national interest corridors. They're areas where there's a lot of congestion or where there's a lot of need to bring on new supply and demand. Then once those corridors were designated, a developer could apply to FERC, the Federal Energy Regulators, and FERC could approve or deny based on a national interest test – whether the transmission line was in fact in the national interest and should be sited in that corridor.
So immediately, you can probably see some problems here. You're involving multiple agencies in a complicated sequence. There's a third actor who I haven't even mentioned at this point, which is that in order to even be able to go to these corridors – and this was a crucial piece – the developer first had to apply to a state for a permit. And only if the state withheld approval – those were the words used in the 2005 law – could the developer then try to access the FERC authority. That's why it's called a backstop authority. It was only there for use in the case where a state said no, but there was a good reason to think that the transmission line would be broadly beneficial in any case.
So this was passed in 2005. In, I'm going to say 2007 – or maybe it was 2009 – a case was decided by the Fourth Circuit that litigated what was actually meant by "withheld approval." You might hear those words and think, "oh, that means to deny a transmission line." But it was actually decided that withholding approval meant not giving an answer. If a state gave an answer and that answer was no, that was not viewed as withholding approval – that was viewed as denial, which is something different according to that Fourth Circuit ruling in 2009. So the NIETC authority was essentially made moot. To add insult to injury, the Department of Energy then stepped in and had proposed to designate two NIETCs. One was like the entire state of New Jersey, another one was like Los Angeles down to Tijuana, the border with Mexico.
The Ninth Circuit, in a case where a bunch of environmental groups and National Historic Preservation groups and state agencies had litigated the designation of the specific NIETCs, nullified those and said, "Actually, Department of Energy, you asserted that you don't have to do a second NEPA review because FERC is going to do a NEPA review on any specific transmission line. But you do have to do a NEPA review just for designating the corridor, even though you're not building any infrastructure in it." So this created the infamous double NEPA problem with the NIETCs. Aside from the fact that they didn't even work legally, you had a problem where if they ever were made to work, you were going to have to do not one, but two whole NEPA reports, which were very likely to be EISs, given the large scale and potential impact of what was being discussed, for a single transmission line. I don't know of any other single piece of infrastructure where just to build the same piece of infrastructure, you have to do not one, but two NEPA EISs.
So in 2021, we revisit this issue as Congress does, and fix the problem by taking out the words "withhold approval," which the court had said wasn't going to count denials, and very clearly put in something to the effect of "does not respond within a year or denies the application." So then that fixed the problem that the Fourth Circuit had identified. The DOE went back to the drawing board on proposing new NIETCs and doing whole NEPA environmental analyses. But as you can see, if you actually game out the full process that exists in statute, it's a nine-year process start to finish: there's a three-year study cycle, there's a year at the states, there's two years apiece for two separate EISs, there's a second year, there's another year buried in there. So you have this very long process, and that's been the history of the NIETCs to date. So that's 20 years since 2005.
I mentioned that there were two other policies in EPACT 2005. There was the section that came right after the NIETCs, which was Section 1222 of EPACT, which created an authority through the power marketing administrations, the PMAs, to site, develop – pretty much every verb you could use in conjunction with a transmission line – those transmission lines, even find ways to help finance them. That authority was once almost used and then through a complicated bureaucratic rigmarole was essentially cast aside on a transmission line in the 2010s. So that authority: also 20 years, also zero transmission lines.
And then the third policy was a permitting policy, which is Section 216H of the Federal Power Act. It's a consolidated environmental review authority, where what was supposed to happen was you were supposed to have nine different agencies that are involved in one form or fashion – not on every transmission line, but on any transmission line – sign a memorandum of understanding, and FERC or DOE to be the lead agency in getting these lines permitted.
There's this whole saga with that authority where in 2006, there was a Bush administration MOU that kind of missed the mark. Then there was another MOU from the Obama administration in 2009. Then there was an executive order in 2013 on it and an RFI in 2016. It was kind of set aside for the first Trump administration. Then the Biden administration did some more RFIs and a new MOU. Finally, it is up and running as what's called the SITEC program. So that's also been 20 years. Also hasn't seen a single transmission line permitted to completion to date. So three policies, 20 years apiece. That's 60 policy years, zero transmission lines was the result of EPACT '05.
This is what I call the "round down to zero" problem. It's when you pass transmission policy, you often pass something that looks good on paper, looks like it moves the ball forward on paper, but in the presence of real-world factors, rounds down to getting zero actual transmission lines built. I think that is the thing – and this has also happened with FERC regulation that has tried to drive more transmission planning and buildout – this is the thing that policymakers need to be most cognizant of: are we passing policy that will look good on paper, but in the real world will round down to zero new transmission lines getting built?
Thomas: Yeah, it's funny, I'm always struck by how much of the world that we're living in, at least with regards to energy policy, was created by the 2005 Energy Policy Act, whether it's the things that were functional, the Loan Programs Office being one example, or the things that are dysfunctional, like basically all of the provisions relating to transmission. But that's great history.
So you played a key role in negotiating transmission provisions during the EPRA negotiations – the Energy Permitting Reform Act of 2024. I think the thing that might be helpful to do is take a step back here and think about the different buckets of transmission reforms that we have on the table, or at least we've had on the table in recent years. The ones that stand out in my mind are interregional planning – we've talked a little bit about where the challenges are right now. A FERC backstop for siting or some form of backstop. And cost allocation reforms – maybe adding clarity to the cost allocation process or just adding additional detail. It would be helpful to run through these. We've talked about what's broken; it would also be helpful to talk about what the reforms or what the shape of the reforms have been like thus far. And also, are there any categories that I'm missing there beyond the three that I just mentioned?
Daniel: There is another category, which is minimum transfer policies. Those have been discussed – when I was a staffer for Senator Hickenlooper, I worked on a proposal that had to do with that. They were not what was moved forward in a bipartisan fashion in the Energy Permitting Reform Act, but that is a bucket that has come under recent attention as well. But the categories you broke down – I would just make a slight distinction, which is that cost allocation is not like a separate policy that one enacts. It is something that one provides legal clarification on: who is going to get to file the tariff, the costs are going to be allocated in a way that needs to protect ratepayers and make sure that the costs are allocated in accordance with benefits – that standard we were talking about from Judge Posner earlier.
But I don't view it as something that is set up separately outside of a policy framework. It is something that, whether you're doing planning, whether you're doing a backstop authority or an applicant-driven process, is clarified in a way that is at its core designed to avoid the "round down to zero" problem, avoid creating some new legal ambiguity that will delay us for another 20 years, and engineered in a way to first and foremost protect ratepayers.
That leaves the two policies you mentioned, which are planning and a backstop authority or applicant-driven process. Those were what were at the core of the Energy Permitting Reform Act (EPRA), which was from Senator Manchin of West Virginia and Senator Barrasso of Wyoming. The bill was very successful within the Energy and Natural Resources Committee. It received in July of last year a vote of 15 in support and four opposed and passed out of committee, but the clock ran out on the end of the last Congress and it was never taken up for full consideration by the Senate or the House. So it was left off where it was.
I want you to think about those two policies – planning and the applicant-driven process. One is a top-down and the other is a bottom-up policy. The top-down process of planning is: each of these regions of the country – there's about 10 of them – get together and collaborate with each other on transmission lines or portfolios of transmission lines, where the instruction of the bill is to prioritize meeting the reliability and affordability needs essentially of the nation. This is all the more relevant in the presence of the load growth we're seeing today. We can talk about that.
This is really the engine of the EPRA bill, right? You have a lot of things happening in parallel. You have a lot of regions planning portfolios of lines in parallel. They're doing so under all these best practices. They're repeating the process every four years. They're considering a set of reliability and affordability benefits which capture the benefits of transmission to the electrical system and leave aside things that the two parties don't agree on politically with respect to what we're looking to get out of transmission. But then, supporting that is this revised backstop authority, which solves this double NEPA problem I was talking about earlier in the existing backstop.
Remember I said that transmission is the only class of infrastructure where if the federal government permits it, it needs to do two NEPA EISs, right? That's because it does one for the NIETC. These NIETCs in practice, the way they're designated today, is they're just wide enough to be useless for considering the environmental impacts of a specific transmission line that goes through them. They might be 5, 10, 15, 20 miles wide. That's not going to narrow it down enough to know where you're going to be placing the towers and structures and disturbing land and water and what have you. So they're just wide enough that you're covering a large area and you're going to have to do this big comprehensive analysis and frighten a lot of people in the process who don't know: is this going to be built in my neck of the woods or in that neck of the woods? So it's kind of a worst of all worlds. The bill solves that in a really elegant way by just taking the Department of Energy – who doesn't really belong in the space in other respects – out of the process and leaving it just to the states and to FERC.
So you then have a backstop authority that actually works. In the design of EPRA, we tried to design it intelligently so that the planning was the engine of getting transmission built, but the backstop authority was a check on that. If the planning was becoming a paper exercise that people repeated every four years, the backstop authority was meant as a recourse for the utilities, for the developers who were struggling to get their lines approved and built, who could then have an independent third party – FERC – they could go to and say, "Hey, take a look at this line. Is it helping the reliability of the grid? Is it helping lower costs for ratepayers? If so, go ahead and approve it and we'll build it."
Thomas: Got it. Yeah, so in short, EPRA gets rid of the NIETC model altogether, right? And it replaces it with: DOE is not involved, it's FERC and the states.
Daniel: Yeah, it's FERC looking at whether transmission lines themselves are in the national interest, not whether they fit into some ill-defined corridor that nobody has really liked and hasn't been really workable.
Thomas: Okay, so let's talk about the politics of this a little bit. We're in the midst of – at least at the beginnings of – permitting reform negotiations, sort of what's shaping up to hopefully be a broader package that will include transmission, it'll include NEPA reform, it may include some other things as well. I think to start here, you mentioned that cost allocation is not really a separate policy bucket. It's sort of an adding of clarity to an existing policy. But at the same time, when I talk to folks, it seems like cost allocation often ends up being a sorely contested discussion when it comes to legislation. Who are the people getting implicated broadly in these transmission reforms, right? Who are the people who come out in support? Who are the industry interests who come out against? And what did we learn from EPRA on that front?
Daniel: So when it comes to the sorts of reforms we're seeing, there's a bunch of different actors in the space and the answer is not a simple one. At a high level, what we saw with EPRA was a lot of customer groups – groups like the Electricity Customer Alliance, CEBA, the data center folks, and a lot of individual companies in the business of consuming large amounts of electricity – send letters of support and voice their support for the sorts of transmission policy being put forward. That to me is a very positive indication because at the end of the day, transmission policy exists to support the customers and they are the ultimate litmus test because they are the ones who are either going to pay more or pay less, depending on everything else. Then you have the developer landscape and you have the utility landscape.
A utility is also a developer, right? The utilities also generally develop transmission lines, but there are ones who might do so on a different model or who might also have a regulated service territory. The short answer is that the sorts of reforms being put forward in EPRA divide to different degrees both of those communities. The secret about permitting reform is we talk about it for political purposes as if it's one thing.
But really it's about a thousand different problems faced by a hundred different industries, and in any given permitting reform bill – and this was certainly true of EPRA – you're going to solve 50 of those problems. Then it's incumbent upon you to figure out a politics that gives assurance to the other 950 problems and the actors behind them that their solutions – that the train is not leaving the station without them. And in fact, that there will be more efforts to fix in fair ways the problems they are dealing with.
So there were some developers who came to the table and said, "Hey, this isn't fixing the specific problem we're dealing with with our transmission line or with the transmission line we were considering building. So we don't want this and we're going to quietly say it's not our thing." And then in the utility space, there were some utilities who had big lines that they're building, particularly in the West, where they saw this as a big advantage. And about a dozen or so large, mostly investor-owned utilities came out in support while others were more skeptical.
The fear – which I think is understandable – is that these are big expensive transmission lines. It is a change in how we do things in a country where we haven't been able to build large numbers of these lines recently. The costs are going to ultimately be allocated to those who benefit. And if their systems are found to benefit, you can have a situation where somebody else is building a line and your ratepayers are ultimately going to be on the hook for it. You want to make sure that they are getting an absolutely fair shake. That is something that we worked really hard to put in – in five or six different ways – to the language of EPRA. And I think we were making progress in building an understanding around that.
But I think especially in the world we were in at the time, which was the world where we were just seeing the early glimmers of load growth on the horizon, was a world where that sort of more zero-sum thinking could take hold. Now we're in a very different world. We're in a world where demand is growing. And I think there's a pretty clear case that if we enact reforms that will get more transmission built, every business model that's out there will have a meaningful increase in opportunities – not decrease – to build more transmission lines, to get more infrastructure on the system, and to do so in a way that helps customers. So I think the politics is improving and has improved even in the short time since that bill was under consideration last Congress in a favorable way for these sorts of discussions.
Pavan: That makes sense. I mean, I'm curious here because we were talking about bottom-up versus top-down approaches. It seems to implicate many of the basic disagreements between the two political parties about what is the role of government in doing a wide variety of things, right? Republicans traditionally would like a more limited government role for national government here. Is that a part of why you see Republicans being less willing to talk about transmission policy? Is it related to – and I think it's an unfair characterization that it's just a renewable problem, right? Like transmission's important for clean firm assets as well – but is it a perception maybe that this is just for renewables? Or are there other problems at play here?
Daniel: Yeah, I think there has been that perception. And I think it's important to unpack that because I think that is an inaccurate perception. But I think it has dogged the transmission debate. I mean, to be clear, transmission is going to help primarily the resources that are getting built. So when you have new resources coming online, almost by definition, those are the resources helped by transmission. Transmission really helps new resources in three ways.
This is going to sound really simple: it connects stuff. So when you systematically upgrade the transmission grid, it's not just that you have a new transmission line that can go access a piece of generation. It's that you are systematically upgrading the transformers, the substations, whatever else that is needed to bring things online. And you are doing so in a systematic rather than a serial way. If every transmission line you build is a one-off project, and then you realize you need something bigger the next time, and then you have to go back out to the transformer – which may cost you millions of dollars – and replace it with a slightly bigger one, you're paying an incredibly inefficient overhead to do the same thing you could have done by building it systematically in the first instance. So this is the first thing transmission does. It systematically upgrades – transmission here being shorthand for policy that systematically upgrades the transmission grid. It allows you to connect more stuff by making a grid that is larger and more robust.
Second of all, it smooths out the idiosyncrasies of the grid. In the case of the variable resources like wind and solar, they're variable. They're on when the wind is blowing and the sun is shining, and over larger areas you can make them behave more smoothly. They're never going to be as smooth as a perfectly baseload nuclear plant, but it's a question of degree. They also do this though for the baseload resources, because if you think of it – in a world where demand were perfectly flat, then you could just meet it with perfectly flat supply.
But demand is actually quite spiky throughout the day, throughout months, throughout the year, seasonally, certainly. So storage is a very analogous technology to transmission. If you look at the storage that came on the grid through the 1900s and most of the 2000s, it was all pumped hydro. And a lot of it was built for large baseload nuclear plants because those large baseload nuclear plants were very well equipped to supply the nearby cities and industries with power during the day. But they didn't want to have to ramp down to 20 or 40% of their output when everything was off overnight. So you would power up a storage facility and shift it there. Transmission does the same thing for space that storage does for time. It allows you to move the power to other places. So that's the second thing. And there's a story with gas too, where gas is uniquely vulnerable to these extreme hot or cold events.
We've seen two in recent years with Winter Storm Uri and Winter Storm Elliott, where gas wells, gas compressors, gas pipelines and gas plants all had freezing issues, as did wind. This is not one resource's problem or another's. But what transmission does is it diversifies you over space so that you can just have a more reliable, resilient system, whatever your resource mix is. And then the third thing it does – after connecting stuff and smoothing variability – is it accesses remote resources. So this is often talked about in the context of renewables because resources like wind are geographically concentrated and are very high quality in certain parts of the country. But this is equally true with a lot of other resources, right? I mean, shale is famously developed in areas where we have it. You're going to need pipelines or transmission lines to get that power elsewhere.
And again, diversification being the cornerstone of resiliency, the optimal world is probably to have some of both. Geothermal especially – if you look at the potential for hot rock geothermal and enhanced and advanced geothermal in this country, it's all in the West, which as we discussed is 20% of the nation's electrical load. So if you were ever going to have any ambition of having geothermal not be ceilinged at a 20% solution for the US, but really be something that can be an engine of 21st century growth, you're going to need more than the pittance of 1.3 gigawatts that we can currently transfer across the East-West Seam. That's going to be achieved by definition through interregional transmission. Same with nuclear plants – can be hard to site because of all sorts of local opposition. You're going to need transmission to get them from point A to point B and spread out the often large amounts of power they generate over areas. So it's this connecting of stuff – just the raw capacity of the grid. It's the smoothing of variability and it's the accessing of remote resources.
Each one of those, I think in a naive telling, is a story that was imagined to be – and is imagined in some of the popular narrativizing to be – about wind or solar. In actuality, I think the arguments apply across resources, especially as we see the resource mix shifting to something that has more different technologies being built and more potential ones like advanced nuclear and geothermal coming on in the not-so-distant future – something that is going to benefit whatever resource needs to be built. And we need to start building the transmission now in order to be ready, especially for some of those resources like geothermal and nuclear that we really want to start coming on at scale in the next 10, 15 years.
Pavan: Right, I mean what I'm hearing here is obviously what we've talked about – the different political moment you're in even relative to EPRA. And the policy moment: you have increased strain on the grid, people are demanding more power.
The administration, Republicans have outlined an interesting vision which implicates clean firm resources as well as core to their ambitions of what energy needs to look like in the US, and obviously transmission's key for that too. So maybe it avoids or gets around that traditional limited government perception of how the grid needs to be built, which I think is more of a national asset and in the public interest. And obviously the President's AI action plan identifies the need to build out transmission to meet this data center demand to win the AI race. So those are key observations for sure.
Daniel: Yeah, and I think if you look at the rhetoric of the administration, they've been increasingly – they were already being clear on this. I mean, Chris Wright in his confirmation hearings talked about the importance of transmission for resilience and reliability, but it's really coming from the White House as well, where you had Jared Isaacman, who's the director of the NEDC, the National Energy Dominance Council, a few days ago – at the time of recording this – was quoted in Politico saying, "pipelines and transmission lines, those are probably our top two priorities in getting those built." And again, as you mentioned, it features heavily in their AI action plan. I don't think this is a small government or big government question. I don't think transmission is something that, when you really drill into it, neatly tracks along – the fundamentals of the issue don't neatly track along either party's partisan preferences.
And I think that's a good thing. I think this is something where – transmission is not a trade-off-free zone. It's large infrastructure that comes with environmental trade-offs to build and has an upfront cost. But it's also something that we see strong clarity on increasingly from all chambers of government, all branches of government, both parties, that there's going to be a significant need to build more of this stuff. Otherwise we're leaving the generation and the demand side of the picture, which are both so obviously important to everybody involved, stranded – literally stranded from one another.
Thomas: So we like to end our show by asking our guests for an energy policy hot take. So Daniel, what's your energy policy hot take?
Daniel: So I was musing the other day that if you look across the landscape of energy technologies in the generation space, every technology that we actually deploy at scale today is monopartisan and often opposed by the other party. Every technology that we haven't figured out how to deploy at commercial scale today is broadly bipartisan and widely popular. You can probably sense from the way I'm saying this that this is not a good thing. You even have longitudinal case studies, right? Nuclear, back when we used to build it in large quantities, had become a partisan technology. But now that we've gone a while without building it, has become widely adored and broadly bipartisan. So it's not even just a coincidence of what's being built.
Now I do think it is a feature that once things start getting built, they attract controversy. There becomes a natural politics of the two sides wanting to figure out who wants more of it and who wants to pump the brakes a little. But I think that if we're going to achieve an energy system that can really meet the needs of the 21st century and make America competitive and outcompete our peers and rivals, China, we are going to need a system and need a politics where all sides can see technologies that are actually getting deployed at scale and say, "we support that." So I think that is something that transmission helps enable, but it is also my hot take.
Thomas: That is an excellent hot take. We've had a lot of good ones on the show. Okay, we will end it there. Daniel, thanks so much for joining Right of Way.
Daniel: Thank you for having me.
