My new paper explores how investor-owned utilities came to dominate transmission, FERC’s efforts to wrest it from IOU control, how IOUs evaded competition in transmission development, and what comes next -
It offers a perspective on IOU transmission ownership that suggests IOU dominance is incompatible with development of large-scale projects designed to integrate new wind and solar and deployment of advanced technologies that can obviate additional local transmission.
FERC’s market regulation gets the attention, but its transmission oversight is what makes any sort of competition possible. FERC’s fundamental task is to restrain IOUs’ incentives and abilities to dominate the industry to the detriment of consumers.

[Here comes a thread...]
Paper summary: Transmission is the industry’s medium for coordinating supply and demand that enables it to unlock short and long run efficiencies through trading and joint planning. IOUs gained strategic control, essentially, by accident.
IOUs were approved by states 100+ yrs ago as local monopolists. They built links to each other and to nearby non-profits to improve industry performance. No doubt those links did. But they also transformed IOUs from local providers to interstate system operators.
With control, IOUs exploited transmission-dependent utilities (mostly munis/co-ops) and colluded with each other to cartelize infrastructure development, reinforcing their dominance over the power industry. This is ancient history but it’s necessary context for FERC’s reforms.
In 1996, FERC changed its approach from encouraging ad-hoc voluntary IOU coordination to reining it in and defining permissible standard forms of coordination.

FERC found that anti-competitive IOU behavior was systemic and ordered industry-wide remedies, for the first time.
In four orders issued from 1996 to 2011 – 888*, 2000, 890, 1000 – FERC attempted to reshape the industry. It was guided by two key principles: comparability and transparency.

(*889, a companion order to 888, was also important)
FERC requires IOUs to offer comparable transmission service to all, and in planning expansion to consider the needs of customers and their own goals on a comparable basis. FERC has also tried to liberate information from utility control by compelling IOUs to share data and models
Structural reforms that separate IOUs from transmission operations and planning by placing an “independent” entity (RTOs) between IOUs and decisionmaking aim to improve the effectiveness of FERC’s rules and further neutralize IOUs’ incentives to restrain competition.
At best, FERC’s agenda has stalled since 2011. At worst, IOUs have reasserted control over transmission development.

So....How does this all relate to building twenty-first century interstate networks?
There has been much attention on siting challenges faced by developers like Clean Line (paging @russellgold) that seek to build large-scale projects for renewables. Such merchant developers finance projects through negotiated rates with generators or offtakers.
Merchant developers operate outside of the FERC-regulated planning processes, which are controlled by IOUs for local projects within their state-granted service territories and regional planners (such as RTOs) for regional projects.
The IOU model has been to build planned projects through cost-of-service rates within their state-granted service territories and w/o competition. Nearly all transmission is still financed w CoS rates (in part bc IOUs have thwarted merchant projects).
Cost-of-service rates were only for IOUs…until 2011. In Order No. 1000, FERC aimed to unlock CoS rates for non-IOU transmission developers by requiring that regional projects (those that benefit consumers across the region) be developed competitively in open processes.
IOUs had always developed transmission solitarily or collusively, not competitively. They opposed FERC’s competition mandate. Once they lost (at FERC and in courts) they evaded competition by shifting transmission spending to local projects, whose planning they control.
The result – dramatic reductions in regional projects over the past decade. The two shining examples of RTO regional planning processes that developed projects for wind/solar happened to prior to Order No. 1000. (btw CREZ in TX isn’t FERC-regulated.)
See the debate in PJM about aging infrastructure. Should IOUs be able to replace their assets as they see fit, or should those decisions be in PJM planning process? Easiest path forward for IOUs is to rebuild last century’s grid. (Docket ER20-2308)
So how should FERC motivate regional planners to develop the transmission that numerous studies show is necessary to meet renewable/CO2 goals?

One path forward is to impose on planners various technical analyses designed to select the “right” projects.
Such new planning methods may be necessary, but I suggest FERC must also separate IOUs from transmission planning. These entitlement-claiming century-old companies are frustrating FERC’s efforts to bring competitive discipline and innovation to transmission development.
IOUs are driven to maintain the status quo, in part by capitalizing on FERC’s rules that allow them to build projects within their state-granted territories without competitive pressures and on the backs of their captive retail ratepayers.
This local focus is at odds with FERC’s decades-long push for regionalization, and the IOUs’ defensive approach to transmission development has no place in a technologically dynamic industry.
Rather than intervene directly in IOU-controlled planning processes, I propose that FERC induce IOUs to accept third-party controlled planning by scrutinizing their local spending. Otherwise FERC should mandate that all transmission be planned “independently” of IOUs.
There’s no silver bullet here. This is a complex institutional problem. Perhaps the easiest path forward to getting transmission built is to ditch competition entirely and let IOUs carve up profitable transmission investment opportunities for themselves.
My concern is that IOU collusion leads to stasis rather than innovation. I see no basis for bestowing upon local monopolists the collective responsibility of shepherding the development of our interstate power networks.
I apologize for starting this thread with an 80-page document.

If you’d like the footnote-less 45-page version (+35 pages of bonus endnotes) --

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