01/26/2021 - Electricity Law Initiative - Legal Analysis

Is the Utility Transmission Syndicate Forever?

In his new paper, Electricity Law Initiative Director Ari Peskoe explores the history of FERC’s oversight of transmission operations and planning and argues that FERC should reclaim its aggressive pro-competition agenda. Entitled “Is the Utility Transmission Syndicate Forever,” Ari’s paper explains how investor-owned utilities (IOUs) came to dominate transmission, details FERC’s efforts to wrest transmission from IOU control, reveals how IOUs have evaded competition in transmission development, and proposes that FERC subject IOU transmission spending to greater scrutiny.

Transmission is the nervous system of our interstate electric power systems that allows the industry to unlock short- and long-run efficiencies through trading and joint planning. Historically, its strategic importance enabled IOUs, which owned most of the transmission, to exploit smaller non-profit utilities and regionalize their control through collusive agreements that with each other that obstructed competition and cartelized infrastructure development. With four orders it issued from 1996 to 2011, FERC aimed to wrest the nation’s high-voltage electric delivery systems from IOU control and open interstate power systems to competition.

In telling this history, Ari provides context for ongoing debates about transmission planning. In 2011, FERC ordered utilities to engage in regional planning, and required that regional projects be developed through competitive processes. Yet, FERC’s order has not spurred development of regional projects. He argues that IOUs are at the heart of the problem. They have evaded regional development, in part by capitalizing on FERC’s rules that allow them to build local projects within their state-granted territories without competitive pressures and on the backs of their captive retail ratepayers. This defensive approach to transmission development has no place in a technologically dynamic industry.

Is the Utility Transmission Syndicate Forever? was published in the spring issue of the Energy Law Journal.