The Trojan horse of electric power transmission line siting authority.

• Author: Rossi, Jim
• Position: Greening the Grid Building a Legal Framework for Carbon Neutrality

1. INTRODUCTION II. THE PROBLEM WITH THE STATUS QUO OF STATE TRANSMISSION SITING LAWS A. Need Determinations B. Environmental Concerns C. Market and Environmental Trends Challenging the Status Quo of State Transmission Siting Laws 1. Developments in Wholesale Power Markets 2. Heightened Attention to Climate Change III. THE MOVEMENT TO EXPAND FEDERAL AUTHORITY OVER TRANSMISSION LINE SITING A. Existing Federal Law B. Proposed Reforms IV. THE TROJAN HORSE OF TRANSMISSION LINE SITING AUTHORITY A. Weakening Political Accountability B. Undermining Climate Change Goals 1. Overreliance on Transmission 2. The Need for Carbon Neutral Transmission Pricing V. CONCLUSION I. INTRODUCTION

   Heightened attention to climate change has highlighted the need for substantial growth in new, non-fossil fuel sources of electric power generation. It is well recognized that a growth in renewable resources of electricity, such as wind turbines, biomass, and large-scale solar, will be a major component of any solution to the greenhouse gas problem. (1) One barrier, however, is the relative isolation of many of the nation's renewable energy resource riches; many opportunities for large-scale development of renewable energy resources are located in areas that are geographically remote and distant from large metropolitan areas in which the demand for electricity is greatest. (2) Existing transmission infrastructure is not adequate to accommodate new renewable resources in many parts of the United States, and existing efforts to expand transmission are also not sufficient. (3)

   For these reasons, the Obama Administration and leaders in Congress have given new attention to expanding transmission infrastructure for purposes of serving a new phase of development of renewable power sources. (4) A common metaphor used to describe such proposals is to invoke the comparison to a superhighway road transportation system, such as the interstate highway system that was financed and built by the federal government in the twentieth century. (5) With the interstate highway system, at the outset federal regulators had a clear sense of where highways would be located and could exercise the power of eminent domain where necessary to acquire the property rights to build them. (6) In a similar manner, most attention in the debates over building transmission lines has focused on the issue of the legal authority for siting transmissions. (7) The determination of siting--or the location of a line and its approval, including eminent domain authority--remains largely within the hands of state regulators. (8) Major bills pending in Congress would increase federal and regional power to preempt states in siting transmission lines. (9) To date, the largest debate surrounding these proposals is between federal authorities, who see a need for expanding federal power to preempt states, and state and local officials, who wish to preserve their historical role in siting transmission lines. (10)

   In this Article, I recognize the inadequacy of existing state law, but take a skeptical approach to expanding federal siting jurisdiction as a solution to the problem and argue that the over-attention to transmission line siting authority is a bit of a Trojan horse in the climate change debate. Specifically, because existing state laws ignore the more difficult issues of how the costs and benefits of transmission are balanced in the interstate market, and how new transmission will be paid for, siting jurisdiction alone will not remove barriers to transmission infrastructure and may present some hidden problems of its own. The Article proceeds in three parts. Part II discusses how state siting statutes can serve as a barrier to siting new transmission lines for wholesale power markets and renewable sources, and discusses the need for some legal solution to this problem. Part III discusses existing federal law on the matter, highlighting how there is already substantial authority at the federal level that remains underutilized and highlighting pending reforms. The political rhetoric surrounding these reforms is highly polarized between advocates for expanding federal authority to preempt state eminent domain powers and advocates for retaining states' rights. Part IV argues that continued legislative attention on enhancing federal authority over transmission lines has confused responsibility for this issue, further delaying federal administrators and regional bodies from taking proactive approaches that they currently possess authority to implement. Further, as Part IV highlights, transmission siting authority reforms can actually undermine climate change goals if reforms do not contemplate regulators' consideration of the full costs and benefits associated with a project. They must also assess how the costs of transmission will be allocated and priced. Part V concludes with the cautionary note that a failure to do these things can make transmission siting authority a Trojan horse in the climate change debate masking fundamental issues that could harm the climate and keeping reformers from focusing on the more serious barriers faced by the large-scale development of renewable resources.

2. THE PROBLEM WITH THE STATUS QUO OF STATE TRANSMISSION SITING LAWS

   In the twentieth century, the U.S. transmission grid was largely planned, financed, and built by privately owned, vertically integrated utilities. (11) As a single firm that produced generation and owned transmission--and which was regulated based on cost of service--the vertically integrated firm faced little incentive to expand transmission for any purpose other than to serve its own customers. (12) A firm owning transmission and expanding capacity could be opening up its own power generation assets to new supply competitors. Transmission congestion thus may have helped the firm to maximize its monopoly power. Moreover, given that the "line loss" associated with early generation, high-voltage transmission lines was fairly significant, most utilities saw it as most economical to locate generation facilities fairly close to customer demand, rather than hundreds of miles away. (13)

   The infrastructure decisions of the vertically integrated utility, including whether and where to build transmission lines, were regulated by state and local authorities. Today, about thirty states have "siting statutes" or something approaching a state siting law, while many other states continue to rely entirely on local land use, along with utility eminent domain powers, to site transmission lines. (14) State siting laws have historically focused on two distinct sets of issues: 1) regulators' determination of operational and economic "need" for a transmission line, and 2) an assessment of the environmental impacts of building a power line. (15) This Part describes how states addressed these two issues and highlights how existing state authority has not been sufficient to address either competitive wholesale markets or broader climate change goals.

   1. Need Determinations

      Historically, state and local regulators have focused on determining the "need" for a power line before giving siting approval and extending the power of eminent domain to an "applicant. (16) The need determination at the state level has historically balanced various interests within individual states, with the primary motivation of protecting in-state customers and ensuring that any new transmission line that was approved would benefit them. (17) On the one hand, customers did not want to see utilities invest in wasteful projects, and the need determination served to ensure that the need for power transmitting over a new line was justified in light of alternatives, including conservation and improved efficiency at the local level. On the other hand, customers had an interest in seeing facilities expand in order to enhance the reliability of the system serving the customers within that state.

      New York's "need" determination statute provides an example of the narrow historical scope of state need determinations. Persons preparing to construct a major utility transmission facility are required to obtain a certificate of environmental compatibility and public need issued by the Public Service Commission (PSC). (18) PSC may not grant a certificate unless it has found and determined several factors, including "the basis of the need for the facility." (19) Need is not explicitly defined, and other factors to be considered by PSC include the "nature of the probable environmental impact," (20) the project's conformity with other state and local laws and regulations, (21) and "public interest, convenience, and necessity." (22)

      Since such statutes were adopted in an era in which the vertically integrated utility with a duty to serve customers was the norm, (23) state regulators commonly face a variety of limitations, including statutory limitations, in what they consider in determining the need for a plant. Need assessment is typically approached from the perspective of ratepayer benefits, with an emphasis on native customers. (24) Many states limit applicants for "need" to incumbent utilities or firms possessing contracts with incumbent utilities. (25) Even where nonutilities can submit an application to build a transmission line, many states do not extend the power of eminent domain to nonutilities. For example, in Colorado only utilities are expressly granted the ability to exercise condemnation rights; (26) New Mexico similarly permits only public utilities to exercise eminent domain powers; (27) and in Wyoming only utilities that obtained a certificate of convenience and necessity (CPCN), may use condemnation. (28)

      This state system for making an independent need determination for transmission line siting may have worked well under vertical integration and rate regulation. In this context, however, it also may have served little purpose apart from allowing for an eminent domain...