Certain kinds of projects can lead to easy money for utility companies, while others require a long and difficult approval process.
So it shouldn’t be surprising when the companies choose the easy path, which in this case means construction and maintenance of local transmission lines.
At the same time, the companies are focusing less on building large interstate transmission lines, which are essential for the transition away from fossil fuels, but also a challenge to get built because of rigorous vetting and a high likelihood of community opposition.
This is a problem, and customers pick up the costs through their electricity bills.
Claire Wayner of RMI, the energy research and advocacy group, says there is a regulatory gap in which neither federal nor regional nor state regulators are doing enough to scrutinize spending on local transmission. She is the lead author of a recent report, “Mind the Regulatory Gap,” which describes the shortcomings of the current system.
“We wanted to sound the alarm that ratepayers are seeing increasing bills,” Wayner said. “They’re seeing more and more transmission charges on their bills, and yet more and more dollars are going toward these smaller local projects that may not be addressing regional needs in the most efficient way possible.”
Regulators need to do something about this issue, which worsened during the first Trump administration and the Biden administration, and shows no signs of abating as we head into the second Trump administration.
Some definitions: Transmission lines are the large wires that act as the grid’s highways, including local projects within a utility’s territory and regional projects that may cross state lines and into other utilities’ territories. Distribution lines act as the grid’s local roads, and deliver electricity from transmission lines to homes and businesses.
In the report, Wayner cites data from her colleagues showing that the combination of transmission and distribution charges have soared as a share of U.S. household electricity bills, going from 10 percent of the total average bill in 2005 to more than 24 percent in 2020.
This shift has coincided with utilities focusing more on small transmission projects. From 2010 to 2021, companies’ investments in the large projects peaked at 72 percent of total transmission spending in 2014, and fell to 34 percent in 2021, according to federal data RMI cited. (The percentages refer to the share of spending on projects with voltages of more than 230 kilovolts.)
The report builds on work of other researchers and advocates who have talked about aspects of the same problems. For example, the nonprofit interest group Americans for a Clean Energy Grid said in July that transmission spending reached an all-time high in 2023, but almost none of the money went to the largest high-voltage lines.
I see many possible explanations for the trends in spending. One is that demand for electricity has been close to flat for more than a decade, so utilities couldn’t rely on increases in sales to provide the growth in profits that they needed to satisfy investors. Companies sought ways to increase their earnings, and some did it by spending more on transmission projects with the fewest obstacles to regulatory approval.
Utilities receive a guaranteed profit from regulators on transmission and distribution investments. The Federal Energy Regulatory Commission has jurisdiction on transmission projects and can review whether a proposal is in the public interest. But local projects often pass through with little scrutiny unless some outside party, such as a consumer advocate, raises concerns.
Regional authorities, such as grid operators, usually defer to FERC on questions of whether a local project is needed.
State regulatory agencies have jurisdiction on distribution projects, but often do little to regulate local transmission projects.
Wayner argues that some—or maybe a lot—of the investment in local transmission should be redirected to projects that maximize the public benefit. This would mean more regional projects, which help with reliability and provide grid connections for new power plants that are waiting to come online.
But regional projects are difficult. Companies that propose the largest regional projects know to expect scrutiny from regulators and the potential for years of litigation if anybody in the path of the project wants to stop it. An example is the Artificial Island transmission project in New Jersey and Delaware, which had a long and contentious process before breaking ground in 2019.
The RMI report has several recommendations, including that FERC require “regional-first planning.” This means transmission planners would start by looking at the needs across the regions and determine which projects would most effectively meet those needs, including potentially increasing the size of local projects to meet regional needs in a process known as “right-sizing.” Local projects could still happen, but only after the selection of regional ones, and local projects would be held to a higher standard of review than they are now.
FERC took steps toward regional planning last year with Order 1920, which requires utilities and grid operators to work together on long-term planning, but it doesn’t address local projects in short-term planning or some of the other problems the report identifies.
I reached out to the Edison Electric Institute, a trade group for investor-owned electricity utilities, to respond to the report. Phil Moeller, an EEI vice president, offered this statement.
“America’s electric companies work with planners, stakeholders and regulators to identify efficient and cost-effective transmission projects that meet a variety of customer needs and demands,” he said. “Transmission planning is always a coordinated, open and transparent process at both the local and regional levels.”
He added that some of the recommendations in the RMI report would duplicate existing functions at FERC and may delay a process that already can be too time consuming. EEI also cited examples of grid operators that are working to encourage regional transmission projects, including more than $20 billion in regional projects being planned by Midcontinent Independent System Operator, which operates the grid in much of the Midwest.
But RMI is far from the only organization or analyst raising concerns about local transmission spending.
Kent Chandler, a former chairman for the Kentucky Public Service Commission, told me he agrees that there is a regulatory gap. He is a senior resident fellow at R Street Institute, a think tank that promotes open markets, and will be part of a panel discussing the RMI report next month.
“We’ve just got really perverse incentives,” he said.
By that, he means that current rules encourage utilities to make investments that may not be in the public interest because they can do it without having to endure a time-consuming review process.
“I don’t blame the utilities for doing it,” he said. “I blame legislators and regulators for letting them do it to the detriment of consumers.”
He specified that many local transmission projects would probably be deemed prudent if they went through a robust review process. The problem, he said, is that there’s no way to know in the absence of such a process.
This story is funded by readers like you.
Our nonprofit newsroom provides award-winning climate coverage free of charge and advertising. We rely on donations from readers like you to keep going. Please donate now to support our work.
Asked if he disagrees with any part of the report, he pointed to a recommendation that FERC establish an “independent transmission monitor,” which would be an office that provides information to state and regional regulators to help them review spending requests from utilities. He doesn’t think there’s enough of a consensus on how this should function, which would limit its workability.
But he said any quibbles he has are minor, and he agrees with the report’s assessment of the underlying problem, which he views as serious and underappreciated.
I agree with him. RMI’s work here is helping us to understand complex factors that contribute to a rise in electricity bills.
This is important because bills are poised to increase even more because of other reasons, such as the growth of electricity demand from data centers. When bills go up, utilities can place some of the blame on data centers, but part of the problem is that this new demand is being placed on a system that is inefficient and has too little oversight.
Other stories about the energy transition to take note of this week:
From the Amazon Rainforest, Biden Declares Nobody Can Reverse U.S. Progress on Clean Energy: President Joe Biden says there is no going back on the United States’ “clean energy revolution” even as the incoming Trump administration plans to scale back efforts against climate change. He made the comments from the Amazon rainforest in one of his final international trips as president, as Gabriela Sa Pessoa, Aamer Madhani and Colleen Long report for the Associated Press. Biden will leave behind a legacy of accomplishment on climate and clean energy, but its long-term benefit depends on how much survives the Trump administration.
Biden Inks Billion-Dollar Climate Deals to Foil Trump Rollbacks: The Department of Energy is racing to close $25 billion in pending loans to businesses building major clean energy projects across the country as President Biden tries to cement his legacy before Donald Trump takes office. The department’s Loan Programs Office has made deals to restart a nuclear power plant in Michigan, fund lithium mining in Nevada and build factories for electric vehicle components in Ohio and Tennessee, as Benjamin Storrow, Kelsey Tamborrino, Brian Dabbs and Jessie Blaeser report for E&E News.
These Are the Environmental Rules That Will Likely Outlive Trump: The Biden administration has set new energy efficiency standards for two dozen appliances, from air conditioners to microwaves. The rules have substantial climate benefits and will be difficult for the incoming Trump administration to undo, as Nicolás Rivero reports for The Washington Post.
Trump’s ‘EV Mandate’ Message May Have Helped Him Win Michigan: Donald Trump warned Michigan voters that EVs would ruin the auto industry. This message may have helped to sway public opinion, contributing to Trump’s victory in the crucial swing state, as my colleague Kristoffer Tigue reports for ICN.
Google Nest Spinout Picks Texas for 1GW Virtual Power Plant: Renew Home and NRG Energy have announced plans to create a 1-gigawatt virtual power plant in Texas by 2035, as Jeff St. John reports for Canary Media. A virtual power plant uses a network of customer-owned resources such as smart thermostats, solar panels and batteries, and then uses software to support the grid by exporting customer-generated power or reducing customers’ electricity use, or both. Customers receive compensation for participating, and the network of resources functions on the grid like a power plant. This is the largest virtual power plant to be announced in the United States.
Inside Clean Energy is ICN’s weekly bulletin of news and analysis about the energy transition. Send news tips and questions to [email protected].
About This Story
Perhaps you noticed: This story, like all the news we publish, is free to read. That’s because Inside Climate News is a 501c3 nonprofit organization. We do not charge a subscription fee, lock our news behind a paywall, or clutter our website with ads. We make our news on climate and the environment freely available to you and anyone who wants it.
That’s not all. We also share our news for free with scores of other media organizations around the country. Many of them can’t afford to do environmental journalism of their own. We’ve built bureaus from coast to coast to report local stories, collaborate with local newsrooms and co-publish articles so that this vital work is shared as widely as possible.
Two of us launched ICN in 2007. Six years later we earned a Pulitzer Prize for National Reporting, and now we run the oldest and largest dedicated climate newsroom in the nation. We tell the story in all its complexity. We hold polluters accountable. We expose environmental injustice. We debunk misinformation. We scrutinize solutions and inspire action.
Donations from readers like you fund every aspect of what we do. If you don’t already, will you support our ongoing work, our reporting on the biggest crisis facing our planet, and help us reach even more readers in more places?
Please take a moment to make a tax-deductible donation. Every one of them makes a difference.
Thank you,
Reporter, Clean Energy
Dan Gearino covers the midwestern United States, part of ICN’s National Environment Reporting Network. His coverage deals with the business side of the clean-energy transition and he writes ICN’s Inside Clean Energy newsletter. He came to ICN in 2018 after a nine-year tenure at The Columbus Dispatch, where he covered the business of energy. Before that, he covered politics and business in Iowa and in New Hampshire. He grew up in Warren County, Iowa, just south of Des Moines, and lives in Columbus, Ohio.
