U.S. Electricity Regulator Grapples with Barriers to a Clean Grid

Much of the United States’ fossil fuel generation fleet will be replaced by renewable energy resources as the country’s electricity system is decarbonized. Yet it remains unclear how the vast network of high-voltage transmission lines that will be needed to connect clean energy resources will be planned and paid for. 

Marc Montalvo, President and CEO of Daymark Energy Advisors and former director of risk management and market development at ISO New England, looks at why existing means of planning electric transmission are not up to the task of delivering a low-carbon grid. He also discusses recent action by the Federal Energy Regulatory Commission, the nation’s electric grid regulator, to explore means to incentivize the construction of new transmission and support the expansion of renewable energy. 

Full Transcript

Andy Stone: Welcome to the Energy Policy Now podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone. Earlier this year, the Biden administration set the goal of decarbonizing the United States’s electricity system by the year 2035. To achieve this goal, much of the nation’s existing fossil fuel power generation fleet will need to be replaced with renewable energy resources. Foremost among them, solar and wind generation.

But swapping fossil fuel generation for clean energy is only part of the challenge on the road to a net zero carbon electricity system. The renewable energy projects that will generate power in the future will frequently be located in remote areas that are rich in wind and solar potential, yet lack existing electric transmission lines to transport clean energy over great distances to market.

What remains to be seen is whether a vastly expanded electric transmission system capable of reliably moving vast amounts of clean power will, in fact, be built in time to reach clean energy targets. And the simple fact is that the way electric transmission is planned and paid for today is not up to the task of delivering our clean energy goals.

On today’s podcast, we’ll take a look at the regulatory and market realities that keep our electric grid locked in the past. And we’ll look at recent action by the Federal Energy Regulatory Commission, the nation’s electric grid regulator, to explore changes to the way transmission is planned and paid for to build a low carbon grid of the future.

Here to talk about the regulatory and market challenges that need to be overcome on the way to a low carbon electric grid is my guest, Marc Montalvo. Marc is president and CEO of Day Mark Energy Advisors. He has 25 years of market and regulatory experience in the electricity industry, including in senior roles at ISO New England. Marc, welcome to the podcast.

Marc Montalvo: Thank you very much, it’s a pleasure to be here.

Stone: So the challenge that we’re going to be talking about today is that of building an electric transmission system to support clean energy. And in broad strokes, I wanted to ask, what new demands does clean energy bring to the electric grid, and what would a transmission system that maximizes the potential of clean energy look like?

Montalvo: That’s a great question. So I think it’s important to consider that question in two parts. First is, how does it differ, that grid differ from the grid we have today, and why are those differences important. And that’s speaking to the physical infrastructure, that is the wires, where the wires are located, how the system is laid out, and how that’s different. And then other part of the answer to that question I think is really how is that system operated in a way that might be different from how it’s been operated in the past.

So those are the two pieces. So I’ll take them in part. So the first piece is important to remember how we got to where we are. So the electric transmission system, the grid broadly described, really is a network of transmission facilities, high voltage lines, transformers, substations, that connects generators which supply electric power to loads, that is customers. And that’s its function. It’s a pretty straightforward function, but it requires a lot of integration and a lot of coordination.

And the reason why it requires a lot of coordination is that electricity is unique in a lot of ways, that all of the power that is created must be consumed essentially simultaneously. So we have a system that’s designed to allow for the production, transportation, and consumption of power in that way. And it’s coordinated in that way. And it’s also designed to be reliable, in that if there are elements of the system that fail, generators or transmission facilities that fail, go out of service, need to be repaired, there is no interruption of electricity.

So that’s how it was built historically, and in broad strokes that’s actually the planing paradigm that will continue into the future, independent and irrespective of the kinds of sources. What’s important and what really has changed is the nature of those sources. So if you think about where we got our electricity in the past, it’s been primarily from fossil fuel-fired resources, burning coal, burning natural gas, many nuclear plants.

These are large projects, generally located close to a couple of things. Sources of cooling water, so on large bodies of water. And close to sources of their fuel, either mines or along gas pipelines. So that’s how the system has been laid out. As we consider going forward, moving, as you described, to a situation where we want to take carbon out of the system, so we no longer want to burn coal or natural gas, but rather use wind or solar, now we have to site our wind plants where it’s windy, and our solar plants where it’s sunny. And those locations aren’t necessarily where the coal plants and the gas plants and the nuclear plants were located.

So there’s different types of geographic constraints. And the other thing that I think it important to keep in mind is that those locations are generally fairly remote from the load. So there has been no reason, historically, to build a lot of transmission into the locations where you might have a very strong wind resource, for example, or a very strong solar resource. These are, you know, the plains of the Midwest, or offshore for wind, or the desert Southwest. These are not places where there are people.

And so there’s a lot of transmission then that needs to be built just to interconnect these resources. So I think on the planning side, on the design side, what do you need to build, we are looking at it from those two different perspectives. It’s location of the sources are different, and so you need to build transmission where transmission wasn’t needed before. But also the facilities that you have in place to serve the generators that you’ve used historically aren’t necessarily useful in the same way. And so you have to reconfigure the system also.

Stone: So to sum up what the situation is, the planning construct or lack thereof that’s used to plan new transmission for the electric grid doesn’t really set us up, or put us in the situation where we can build transmission to these areas where a lot of this new generation doesn’t even exist yet. We don’t know when it’s coming, how much of it’s going to be coming.

We don’t know exactly where it’s going to be, which is very different from the way the grid is planned today, which you have a defined need, it’s a short term problem that needs to be resolved. There may be a shortage of transmission to serve a certain area. We know what that shortage has to serve, and the transmission is built. My understanding is that when we’re looking at renewable energy, that is much less clear. Is that correct?

Montalvo: Yeah, that is correct, I think as a kind of overall statement of the problem. So the current planning regime that we operate under, the FERC, that is the Federal Energy Regulatory Commission, which I usually refer to and most folks refer to as The Commission, considers three things. Reliability, infrastructure needs, so called economic infrastructure needs, or what’s referred to a public policy infrastructure needs.

And all of this comes out of a ruling from several years back called Order 1000, this construct. And the idea is if you have a need to build facilities or to maintain the reliability of the system, that is to ensure that you can deliver power to customers under the preponderance of conditions consistent with standards, okay, you will build those transmission facilities. And that’s what you referred to as the near term need, you know, cause for transmission, for sure.

The other one is this idea of economic, that is if you could build facilities that would allow the system to be more efficient, right? And would reduce inefficiencies in a couple of different ways, increase the utilization of existing facilities, reduce congestion on existing facilities, that there should be a mechanism for those to get built. Economic transmission as a general matter is a bit more complicated, and there hasn’t been as much economic transmission built. And largely it comes down to questions of economic for whom and how do you allocate the costs.

And so it’s not nearly as cut and dry as reliability, right? Reliability is easy, it’s either the system is reliable, here’s a standard, it’s an engineering assessment, or it’s not. When you start dealing with economic assessments, and cost benefits, there’s a lot more room for debate and discussion, and that can cause issues.

And that leads us to the third area, which I think is extremely relevant to this conversation, which is the so called public policy idea, where the commission came up with a rule that said, you know, if a state has a policy that requires the building of transmission, or transmission needs to be built in order to support the realization of a policy, say the building of renewable resources, then the state should be able to forward projects that support those policy needs, and there would be a certain way of paying for those regionally and those could go forward.

Public policy transmission, again, is complicated by a couple of factors. And these are factors I think that complicate a lot of the things that we deal with more broadly as regards infrastructure in our economy. One of them is that the impacts and effects of transmission generally rarely just fall within one state. So there’s multi-state impacts.

So now how do you share the costs and benefits when one state may have a policy and another state may not have a policy. And it may even be the case where the resource that you really want to connect to load is in another state, right? And so who’s the beneficiary of transmission built to connect those wind resources or those solar resources to the loads in my state, for example, where my policy is to have those resources here.

It ends up you end up with a lot of complications, and there have been very few instances where we’ve actually had public policy transmission development, and the majority of that has happened within the context under Order 1000. And the majority of that has happened within the context of single state ISOs such as New York ISO.

There has been a little bit of activity in PJM, but that’s been largely contested, and some things in California. Texas, which is not regulated by the commission, has seen success under a different model. And there has been some work done in MISO, which covers the Midwest. But all of that actually was done before Order 1000, and proceeded under a different kind of paradigm.

Stone: It sounds like there’s — on the planning front, transmission is planned reactively in many cases these days, whereas when you’re looking at public policy goals, a state wants to decarbonize year x in the future, as President Biden as proposed, a completely decarbonized electric grid in another 15 years or so. We’re talking about kind of a proactive look at the future. How do we create an electric grid, build a transmission that we need to support all of that clean energy that we’re going to be having to look at.

So that’s one of the issues. You also talked about the jurisdictional issues between the states, and I think there’s a very interesting case that happened recently in the state of Maine, where there is a high voltage line that’s proposed to be built that would bring electricity from hydro resources up in Quebec down to Massachusetts.

And recently there was a vote in Maine on this line, because the line would pass through Maine, but not necessarily provide that much benefit to Maine, depending on who you ask, the voters in that state said no. So you’ve got to herd the cats, which is all the states, to kind of make these things happen.

So it’s interesting. So FERC, which we’ve talked about, which is the electricity market regulator, recognizes that we don’t have the market or regulatory framework today really to deliver the grid of the future. And under Richard Glick, who is the current FERC chairman, the commission is starting to take some action, or look at what actions it needs to take to get us to where we need to be in terms of new transmission.

As you mentioned, in July it released a document called an Advance Notice Of Proposed Rulemaking, or an ANOPR, which considers how to address the challenge of planning transmission to meet the demands of clean energy and climate change. So I wonder if you could tell us a little bit more about what the ANOPR is, and how does FERC frame the challenge that we face with the grid going forward?

Montalvo: The ANOPR is a really interesting exercise. So the commission really has been wrestling with this issue for several years, and they had several technical conferences prior to the release of the ANOPR ,trying to gain some understanding into some of the major moving parts, right? So I think you alluded to some of those questions. You know, is it appropriate to be more proactive in our planning, or is reactive planning sufficient.

Is it appropriate to have the majority of transmission projects built in response to identified needs of who are taking service now. Or is it appropriate to think about what customers who might take service years from now might need, and actually build a transmission in anticipation, right? That’s the general thrust of those questions.

And historically, as you say, the way that the transmission planning process has been structured, and the way the transmission towers have worked is transmission companies will evaluate requests for incremental service, that is the needs of new load customers or the needs of interconnecting generators, and assess the ability of their systems to accommodate those needs, and then build additional transmission, what we refer to as transmission upgrades in order to interconnect and integrate those loads and generators.

So that’s how it’s been done. And there was a lot of conversation through those technical conferences around whether or not that paradigm continues to make sense. And there were a couple of things that were revealed in those technical conferences. One was just the sheer scope and scale of upgrades is really accelerating. That is, historically, when you interconnected a generator you had to make some modest modifications to the system in order to interconnect.

But now generators, even small generators that are requesting interconnection are very frequently finding themselves in a situation where they have to pay for fairly substantial upgrades to the network. So not just interconnection facilities, but broader network facilities. So the commission is asking the question in the ANOPR, does that continue to make sense. Does it really make sense to have interconnecting customers pay for network upgrades, when arguably network upgrades by their very nature benefit more than one party.

And given the economies of scale of a system, it may be sensible to scale upgrades to the network in a manner that purposefully serves more than one customer going forward so that you can have just better cost and performance overall. So they’re revisiting in the ANOPR, this idea that you kind of pay for and upgrade the system as you go on an incremental basis. And in the ANOPR, testing that premise.

They’re also testing the idea around the public policy proposals that they included in Order 1000. And really exploring the sufficiency of that paradigm. Say, okay well many, many states are looking to decarbonize, and the states are using a shared infrastructure, right? Which is this transmission grid. Does it make sense for the states to move public policy projects individually, or perhaps it makes more sense for there to be a more coordinated transmission planning process that looks across all of multiple states in a region, and thinks about what are the expectations of need several years out. Five, ten, fifteen, twenty years out.

Given that, you know, the states are moving at different paces, but there seems to be a general push amongst all of the — the majority of the states, anyway, it’s too strong to say all, but the majority of the states, towards a highly decarbonized power system. And everyone’s moving — if everyone’s moving in that direction, or the majority is moving in that direction, well, why don’t we just roll up our sleeves and plan for that, right? Plan the system to accommodate that, and make those changes in a proactive way.

And so FERC is exploring that in the ANOPR. And they asked numerous questions around that. And then they asked several additional questions around, well, and if we do those kinds of things, how do we determine who pays for what. And the who pays for what really is important, Andy, because FERC’s fundamental authority is over rates. It’s over what folks pay for transmission service. It’s not fundamentally over the way the — what gets built, or where it gets sited. It’s how it gets paid for.

And so ultimately, the commission is very much concerned that they have a structure that is consistent with their obligations under the Federal Power Act, which is their enabling law, and all of the precedent, that what gets paid for is consistent with their cost recovery principles, what’s referred to cost causation or beneficiary pays principles. And what that means, simply put, is that those who benefit from the transmission service should pay for the transmission service.

So if I take a transmission service and it requires upgrades to be made, I’m the beneficiary, I should be paying for those upgrades. That’s the simple case. It gets much more complicated if transmission is being built for customers who don’t really exist yet 20 years in the future, right?

So FERC is asking these hard questions of, well if we’re planning the system and building the system that way, who are the beneficiaries, how do we identify the beneficiaries, how do we allocate the cost out in a fair way so that we are actually charging rates that, let’s be plain, are legal, right? I mean, that’s the fundamental question. And so a fair amount of the ANOPR is taken up asking questions around that.

Stone: It’s so important, what you’re getting at here. And just to add a little bit of extra perspective, transmission lines are generally planned and built to serve relatively local need. And again, we’re talking about building out a robust grid, dependent largely on renewables that are going to be located far, far away from the cities where much of that electricity that’s going to be generated will be consumed.

So we’re talking about a completely new paradigm, where electric lines may have to cross hundreds, potentially I guess even thousands of miles, or maybe that’s an extreme, but to bring electricity from far away locations to, again, where the electricity is to be used. And there is not a clear structure in place in this country, there’s no overarching agency, government body, regulator that says, you have to build this line to serve this need.

As you pointed out, the FERC is an economic regulator, it cannot mandate anything. But to get closer to what you were talking about, it can determine the criteria under which lines may be built. You know, what are the benefits defined as, who are the beneficiaries. And I think also the FERC has been looking at, well do we expand what qualifies as a benefit. It used to be reliability, economic benefits, but now we have climate considerations, other benefits that all go in.

And I wonder if you could tell us a little bit more how — a broader understanding of the benefits to new transmission lines brings may create an opening for the FERC to not mandate anything, but create the rules under which everybody understands electric lines in the future may need to be built.

Montalvo: Yeah, that’s a great question. So benefits is tricky. You know, it is typically the case, whenever you’re building any public work and you’re expending the people’s money, right? That you’ll do a cost benefit analysis. And the benefits that are assessed are all the benefits that accrue to society from the building of the public work, right? And that will include direct benefits, and in the case of transmission it’s the ability to actually transmit power.

It’s impacts on costs, that is if there’s a reduction in energy costs because you’re dealing with lower cost sources. Any reliability benefits that may accrue, these kinds of things. And then there’s also consideration of what’s referred to, and I think this is what you were alluding to, so called economic externalities, right? And what that is — an economic externality, simply put, is a cost or a benefit that is not captured through market mechanisms inside of the price, but it something that is valued by the folks who are consuming or producing the product, right?

And so here we have a situation where a set of benefits may accrue from the efficient interconnection of, say, wind resources to loads. And those might include the ability to reduce carbon emissions, so carbon footprint reductions. So that’s beneficial. It might also include, it might also be important to include such things as tax benefits and other kinds of benefits to the communities where those wind projects get located, right?

So you have land that was perhaps seen as of lesser value, now it’s of higher value because it’s been improved in some sort of way. So that’s good. So you enable the building of wind by building transmission. So do the benefits associated, those kind of tax benefits, do those accrue to the transmission, or do those accrue to the wind. It’s a question, right? It needs to be sorted out.

You may see that there may be environmental justice related issues, right? So there are areas where communities where there have been industrial facilities placed historically, power plants burning coal or oil, are high on that list. And the extent to which the interconnection of wind and solar resources and the use of those resources allow for the shutdown of those kinds of facilities that can be seen as a benefit, right? A health benefit, but also just a remedy, being historical injustices benefit.

And these things are all facilitated by transmission. Because if you can’t connect the resources, then you can’t deliver the source, or we can’t deliver the services. But also more directly in the consideration of the transmission to be built, where you site the transmission, right? Also becomes important. So if you site the transmission in locations that are already used for transmission, existing right of ways, if you’re able to co-locate transmission along rail lines, if you’re able to put certain of the transmission underground.

All of these things may be seen as beneficial, but they also might not be costless. So for example, under grounding transmission, a lot of people would prefer transmission go underground, because now you don’t have to look at it. And it also has some reliability benefits because it’s now less likely to get damaged by storms. But under grounding is generally much more expensive.

So how do you weigh the benefits of under grounding it against the costs of under grounding, and who pays for the difference. So these issues, a lot of them are very local issues. A lot of — they are issues that are very important to the communities that are most directly impacted by the development of the infrastructure, be it the facilitated wind and solar projects or the transmission itself.

There are considerations that are being made clearly by policymakers at the state level. Now, if you’re the commission, there’s nothing good or bad, right or wrong about those differences. But it’s very difficult, I think, for the commission to come up with a common set of benefits that all of these states would necessarily agree to. And so that’s part of their challenge and that’s part of what they’re exploring.

Stone: Let me jump in on this one. It’s interesting, so basically what we’re talking about is very long lines, as you’ve brought up. One long line that crosses a lot of local jurisdictions, and each local jurisdiction has its own concerns, its own demands, its own priorities. And this gets to kind of a crucial point that we’re looking at here. There is so much uncertainty that is involved in planning and building this grid for the future.

Again, to kind of jump back to where we were ten or fifteen minutes ago, much of the transmission planning today is reactive. It’s when a new generator wants to interconnect to the system, the system may need to be upgraded where that interconnection takes place to handle the new load of electricity that comes through it. It’s very, very clear.

Okay, but again we’re looking at a future, we don’t know when the transmission’s going to come, how much — or excuse me, the generation’s going to come, the clean generation, how much of it’s going to be there. And that’s the uncertainty that investors never like, and that’s the type of uncertainty that very much gets in the way of investment coming through, which I want to get to the next point, which is you are an economist, right?

And you have said in the past that markets may be fundamentally the answer to this. Markets may be massaged by what the regulator does. But markets are good at handling uncertainty. I wonder if you could tell us about how markets might provide a solution to getting to the grid that we need.

Montalvo: One of the things that I thought was conspicuously missing from the conversation that was held on the 15th at the technical conference, and really wasn’t discussed at all in the text of the ANOPR, was the role of markets. And so markets were seen as being impacted clearly by whatever gets built, but not necessarily an actor that can help to get the right things built, and manage some of the risks that we’re talking about in a more effective way. And I think that that’s potentially a lost opportunity.

So we have, for many, many years in the United States, looked to markets to coordinate the development of generation, to ensure the efficient production of the resource from the resources that we have. And bring to bear the capital needed to get all of that built. And all of those resources, generating resources, are long lived resources. And so I build a power plant today, I’m making an investment that’s going to pay off over the next 20, 30, 40 years.

And markets are very good at thinking about those risks, and the nature of those risks, and locating those risks appropriately. There’s infrastructure in the markets designed to do that. And they can do that. And I think there’s an opportunity in the context of transmission to really think about how markets can be brought to bear. And markets might be brought to bear in a couple of different ways.

First, there is competition, just bringing competition on the project front. So if you have a public policy problem, and the public policy problem is, hey we really do want to have twice as much wind resource available to the customers in our state or in our region in the next ten years. And then you could go out to the marketplace and you could solicit projects, sets of projects, portfolios of transmission projects, if you will, from the market, that would be facilitating of the delivery of such resource.

And then you could select the resource through competitive solicitation. And so that’s using some market forces to encourage the development of efficient portfolios of transmission. And then the way you structure agreements and contracts and these kinds of things can determine for you how the risks get allocated, right? So risks that get allocated by contract. And we can see what the market is willing to bring to bear.

And this is in contrast to having the transmission planned and developed under cost of service regulation, traditionally used by the utilities, where if they build it, then they’re — and it’s deemed prudent to have been built by the regulator, then they can recover the cost through time. So I think there’s an opportunity there, and I think it’s — these kinds of opportunities have been used to a certain extent in some regions. So Texas used it in their KRESS [?] process.

It was used by Massachusetts for the solicitation of transmission projects to bring power from Canada. This idea of just bringing some competitive force, and some competition around the projects that could provide what you’re looking for. New York uses a somewhat similar process in the context of its public policy. You know, it’s — but I think all of that can be strengthened, and you can use more — you can bring more competitive pressure to bear, if you will. And more market creativity around what the projects are, and how the risks get allocated.

But the other area which has been largely ignored is the idea of merchant transmission. And that is, you know, rather than having a planner decide where the needs are, or where the needs might evolve, allow the market itself just on a merchant basis to decide, build projects, and the success of the projects would be at risk. Because if they weren’t needed and they aren’t used, then the costs aren’t recovered, they just — you know, just like anything else, it’s if you build something at risk in the market and you have no customers, well, you go bankrupt. And that’s okay.

And so I think that they’re an opportunity, perhaps not for all of the infrastructure that we’re talking about, but for particularly some of these really long projects, long line projects, much of which may economically be, for example, HVDC projects, or other kinds of really large AC projects, they lend themselves, I think, more towards merchant model. And you could find that there may be investors that are interested.

The infrastructure that we have for planning, the consideration of merchant projects, and the context of the broader planning, and cost recovery of projects, would have to be, I think, carefully reconsidered, because I think right now merchant transmission is not necessarily treated in a way that makes a lot of sense. Most merchant transmission, because it’s such a subset of the total transmission picture, is treated much like generation, and evaluated like generation by the interconnecting transmission companies, or the RTOs. And that may not be appropriate.

Also, the transmission projects themselves that are planned, and that go forward on a planned basis, do receive some preferential treatment under the regulations of the commission as regards cost recovery, rates of return, you know, special treatment for abandonment and other things, that would not accrue or — to merchant projects.

And we would want to make sure that the regulations and the tariffs and everything are aligned in such a way, that if it makes most sense for investors on a merchant basis to go forward with a project that way, and that the most societally beneficial projects are realized through a merchant model, that those projects can go forward, and can efficiently go forward. So those are some of the issues, I think, that bringing market to bear address that I think would be important.

Stone: So let me ask you a final question here, and this may be kind of a key question to bring all of these various nuts and bolts together. How do we get a guiding hand, and maybe it’s from the FERC, or from, I don’t know who, from Congress, I don’t know where it would come from, to create the conditions where, one, we can have more certainty over the kinds of resources that this new transmission is going to have to support, more certainty that those resources, wind, solar, whatever, are going to be built, when they’re going to be built, how much of them will be built.

Number one. Number two, how do we create the construct under which the, as you also said earlier, the additional benefits, the climate, other economic benefits, that these transmission projects would bring, how do we make sure that those are valued so that there is adequate market incentive to allow the markets to do their work?

Montalvo: You know, I don’t know that there’s going to be an Adam Smith of this problem, right? We are dealing with layers of complexity. And layers of complexity that, I think folks need to be cognizant of the complexity but don’t be paralyzed by it, right? And I think that folks are trying t move forward, but they’re very much concerned about the things that they don’t know.

I do believe it’s very important that we all remain humble in the face of uncertainty, and not boldly go like fools into the future without a plan. I do think that the nature of the transformation, right? The scope and scale of the transformation that I think we collectively all agree is big, requires a bit of boldness, and a bit of bold risk-taking, and perhaps proceeding with not nearly as much information as we would hope we had, right?

And so that’s — I just want to lay that kind of foundationally. That’s how I think about the problem kind of foundationally from a matter of just perspective that, you know, we’re in an industry that is traditionally very conservative, and for good reason conservative, right? The reliable delivery of electricity is fundamental. It’s fundamental to the health of our citizens, it’s fundamental to the strength of our economy.

So we don’t want to break that. We don’t want to mess that up. At the same time, we want to make really transformational, fundamentally transformational moves along the lines of where does the power come from. And I don’t think you can make fundamental transformation, and at the same time, be as conservative about the changes as one has been historically around how you’ve done the planning.

I think you just, you have to kind of break the shackles and say, okay we’re just going to have to do some things that might seem a little bit outside the box. And so I think what the commission needs to do really in this case is lay out some very basic guidelines around the types of things that should be planned for, that should be examined. Some basic metrics that look at, that allow projects to be compared, and considered in a simple way.

And then leave it to the states and the regions really to kind of get in the scrum and experiment. But I also think what they should do is they should use their position as the national regulator to encourage additional conversation, and sharing of information. You know, we have two types of structures in the United States, right? We have areas of the country which are, we have regional transmission organizations or independent system operators, where there’s the utilities within those regions are coordinated, their operations are coordinated, and the planning is somewhat coordinated.

And then we have other areas of the country where there are no RTOs or ISOs. And so there’s less coordination amongst and between the utilities. It doesn’t mean they don’t talk, but it’s not as formalized. And so I think what would be beneficial is that the commission really do come back and formalize some of that conversation and say, look these are the kinds of information that you need to be sharing, these are the type of analysis that you need to be doing.

It’s really important that you think in a thorough way around expectations of needs out ten to twenty years on an informational basis, if nothing else. And that will allow the states to collectively, if they so choose, decide to build projects. You know, I think one of the models that has been looked at and has been discussed at some length is what they did in MISO, that’s Midwest ISO, around the multi-value projects, where you had several states, and MISO collectively looking at the needs, and how to most efficiently deliver the renewables that the states in the upper parts of MISO had under their individual state renewable portfolio standards.

How to build transmission to support all of that in the most efficient way. And there was a bunch of projects that got built. And that was deemed relatively successful. But again, that was a combination of the states moving, the states seeing kind of the benefit, MISO acting as facilitator, and FERC not getting in the way. I think that the lessons there should be that, you know, the FERC should really be encouraging the states to coordinate with each other, maximizing the types of information that the RTOs and the ISOs can provide given where they sit. And then providing just some clear guidance.

So if there are certain things that are just unacceptable, right? As regards cost recovery, just state that. Have a clear policy and say, look, as regards cost recovery, we cannot allow tariffs to include x, y, z. And so if it’s not x, y, z, it’s on the table, and it allows for that rich experimentation, and we can go forward. I don’t know that there’s any one way to do this. New England doesn’t look like New York, doesn’t look like Eastern PGM, doesn’t look like Western PGM, doesn’t look like — right?

There are a lot of issues in these various parts of the country from a power system perspective, from a grid structure perspective. Never mind from a policy or political perspective. And so I think if the FERC can provide clarity as to what they don’t deem acceptable, quite frankly, and the reverse, and that would allow everyone to go forward and really experiment and try and solve regionally for their problems and their issues going forward, and then the FERC just kind of facilitates and otherwise stays out of the way.

So if the states agree, you know, and it doesn’t fall into the, well we don’t like this bucket, then FERC should be okay with it. And I think that would be a way forward that could be productive and helpful. And it would remove a whole lot of uncertainty around, well will FERC accept this, right? Will we end up in litigation, right? It would provide some clarity around that.

Stone: Marc, thank you very much for talking.

Montalvo: Oh, you’re welcome.

Stone: Today’s guest has been Marc Montalvo, president and CEO of Day Mark Energy Advisors. Subscribe to Energy Policy Now on Apple Podcasts, Spotify, or wherever you get your podcast to make sure you have new episodes delivered to you. And to keep up to date on all the latest research and online events from the Kleinman Center for Energy Policy, subscribe to our newsletter on our website. Thanks for listening to Energy Policy Now and have a great day.