Transmission Cost Allocation: A Threat to Grid Reliability and Public Support

Strategic Insights -

The Federal Energy Regulatory Commission (FERC) is facing a mounting crisis as states and members of Congress urge the agency to address unfair transmission cost allocations, which threaten grid reliability and public support. The Midcontinent Independent System Operator (MISO) region has become a focal point of contention, with 19 states, including North Dakota, protesting FERC's Order No. 1920 on regional transmission planning and cost allocation. The complaint filed by North Dakota's Public Service Commission highlights the issue of socialized cost sharing, where states with aggressive renewable energy mandates shift the costs of transmission needed to meet those goals onto states with different policies and values.

Key Takeaways:

  • The current transmission cost allocation policy in MISO is criticized for creating a subsidy scheme that allows states with aggressive renewable energy mandates to shift costs onto other states' ratepayers.
  • The $22 billion MISO Tranche 2.1 portfolio is a case in point, with its primary purpose being to support remote wind and solar resources for states with aggressive climate mandates, but with costs spread to all states.
  • The benefits of the transmission build-out were overstated by an order of magnitude in MISO's modeling assumptions, with corrected estimates suggesting the project should never have qualified as beneficial enough to be regionally socialized.
  • The North Dakota Public Service Commission calculated that North Dakotans would pay $5 per month per customer, for decades, to cover these lines, with little to no local benefit.
  • The FERC complaint was supported by 18 other states, including Montana, Mississippi, Louisiana, and Arkansas, which are concerned that the precedent could shift costs their way.
  • The Energy Permitting Reform Act (EPRA) of 2024 contains provisions to standardize the definition of "transmission benefits" for cost allocation, excluding state-specific climate policy benefits.
  • If FERC fails to act decisively, Congress may step in to legislatively rebalance how transmission costs are allocated, which could lead to a patchwork of dissatisfied states or a collapse in public confidence.

Statistics:

  • 122,000 MW of dispatchable generation is slated to retire over the next decade, even as electricity demand surges due to data centers, electrification, and industrial growth.
  • MISO is the only transmission region at high risk of electricity shortfalls, with NERC warning that two-thirds of the grid is at elevated or high risk of electricity shortfalls.
  • The costs of the $22 billion MISO Tranche 2.1 portfolio are spread across all states, with North Dakota's ratepayers potentially facing $5 per month per customer, for decades, with little to no local benefit.
  • 19 states, including North Dakota, have protested FERC's Order No. 1920 on regional transmission planning and cost allocation.

Sources:

  • North Dakota Public Service Commission complaint to FERC
  • Energy Permitting Reform Act (EPRA) of 2024
  • Federal Energy Regulatory Commission (FERC) Order No. 1920
  • North American Electric Reliability Corporation (NERC) warnings on grid reliability
  • FERC complaint by 19 states, including North Dakota, Montana, Mississippi, Louisiana, and Arkansas
  • Potomac Economics analysis of MISO's modeling assumptions