Regulatory Barriers to a National Electricity Grid

Executive Summary

Policy makers and energy analysts agree: America's electric grid is inadequate to service our twenty-first century power needs. Despite this consensus, formidable obstacles stand in the way of a national transmission grid capable of delivering power over long distances and across state lines. These obstacles are not technological. They are regulatory.

Today, state and local regulatory entities possess the authority to block urgently needed transmission projects, often for purely parochial reasons. Frustrated by a costly and unpredictable approval process, some transmission firms have simply walked away from plans to extend and upgrade our aging electric grid.

For the United States to remain economically competitive, electricity must remain cheap, abundant, and reliable. Creating a resilient and robust national electricity grid will require federal authorities, in some cases, to supersede the authority of local, state, or regional entities.

Specifically, this paper recommends:

• Giving the Federal Energy Regulatory Commission's (FERC) "backstop" authority to approve the siting of high-voltage transmission facilities within so-called National Interest Electric Transmission Corridors, after state and local authorities are given a chance to make their concerns known;
• Increasing the number and reach of such corridors, which now number only two;
• Establishing a system whereby types of energy are developed and transmitted strictly on the basis of their cost, not their favored status.

At the same time, states and localities have a very real role to play in ensuring that the advancement of national policies and interests does not needlessly trample on legitimate local sensitivities and concerns. Accordingly:

• States should retain jurisdiction over lower-voltage interstate lines, intrastate transmission, and local distribution;
• States and localities should have a right to participate in proceedings examining siting, cost-allocation, and other issues in which they may indicate ways the project under consideration can be made minimally burdensome to the surrounding community and the environment.

If a national grid is to become a reality, private investors in new transmission will need stronger financial incentives and more consistent methods of transmission-cost recovery. However, there is, and should be, no one-size-fits-all method of cost-allocation. Each project should craft its own cost-allocation system, whether it is producer-based, consumer-based, some hybrid of the two, or some as-yet-unforeseen approach, with FERC standing ready to step in if a particular system is discriminatory or sets rates that are not "just and reasonable." In the interest of flexibility and efficiency, FERC should encourage interregional cost-sharing agreements.

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