On January 13, 2022, the US Department of Energy (DOE) issued a notice of intent regarding its Building a Better Grid Initiative (Initiative), an effort to encourage the modernization of the nation’s existing electric transmission grid. The Initiative is the beginning of a rulemaking process required by the Infrastructure Investment and Jobs Act (Act), which President Biden signed into law late last year. The Act funds various investments in energy infrastructure, but its energy-related provisions are generally not self-implementing.1 Instead, executive agencies such as DOE are directed to commence implementation rulemaking proceedings to further clarify how the authority and funding provided by the Act will be used and allocated. The DOE notice issued as part of the Initiative is both preliminary and general in nature, and, unlike a formal notice of proposed rulemaking, it does not set forth proposed regulatory text.
These rulemaking proceedings may well occupy a great deal of time, and, in some circumstances, may be subject to appellate review. The Initiative should therefore be viewed as the beginning of a series of significant processes under the Act and not as a business or policy result. DOE must still fill in several important details concerning programs authorized by the Act and discussed in its Initiative. The key programs are summarized here.
Enhancing Grid Resilience
In the Initiative, DOE announced that it plans to issue solicitations for grant applications aimed at improving grid resilience. Grants will be awarded through the “Preventing Outages and Enhancing the Resilience of the Electric Grid” program and the “Program Upgrading Our Electric Grid and Ensuring Reliability and Resiliency,” each established under the Act.
Preventing Outages and Enhancing Resilience of the Electric Grid
This $5 billion program will fund projects to reduce the risks of power lines causing wildfires and to harden the grid against the consequences of disruptive events, including wildfires and natural disasters. The secretary of DOE must establish, within 180 days of the Act’s enactment, a mechanism to expend these funds through grants to eligible entities. Developing the mechanism will require a rulemaking proceeding, which will be subject to formal, public notice-and-comment procedures, and will result in both procedural regulations and substantive grant eligibility criteria. Eligible entities are electric grid and storage operators, electric generators, transmission owners and operators, distribution providers and fuel suppliers. Grants may also be made to states and Indian tribes that, in turn, make grants to eligible entities pursuant to a plan submitted by the state or tribe to DOE.
The secretary of DOE will determine the timeline and criteria for grant applications, which, under the Act, must detail efforts “to reduce the likelihood and consequence of disruptive events.” The DOE secretary is directed to prioritize projects that will generate the greatest benefit in reducing the risk and severity of disruptive events. A minimum of 30 percent of the available funds must go to small utilities with no more than 4 million megawatt hours of electricity sales per year (the same standard that is used in the Federal Power Act to define small electric cooperatives that are exempt from some Federal Energy Regulatory Commission (FERC) regulation). Eligible entities other than small utilities will be required to match 100 percent of the grant funding they receive. Small utilities will only be required to match one third of grant funding received.
The Initiative follows a number of grid improvement efforts that have involved progressively increased regulatory scrutiny of grid reliability. Since the enactment of the Energy Policy Act of 2005, FERC (through its designated electric reliability organization and regional reliability entities) has adopted operational reliability standards, cybersecurity standards and some physical security standards and has conducted numerous investigations into reliability events and transmission service interruptions.2 Texas enacted legislation requiring generator cold-weather readiness testing and reporting in response to 2021’s Winter Storm Uri and its destructive and costly results, among other reliability measures.3 The Initiative reflects continuing policy attention to grid reliability.
Program Upgrading Our Electric Grid and Ensuring Reliability and Resiliency
This program also receives $5 billion and must be established by the DOE secretary within the same 180-day timeframe discussed above. The funding will be distributed on a competitive basis to state, local and tribal governments and public utility commissions to develop transmission, storage and distribution infrastructure that will improve resilience and reliability. The secretary of DOE is authorized to determine the time and manner of, and the information to be provided in, applications for financial assistance under the program. At a minimum, applicants must describe how the assistance will be used, the expected beneficiaries and, for applications submitted jointly by two or more states, regional benefits.
An additional $1 billion is specifically earmarked for projects in rural or remote areas with a population of not more than 10,000. The analytical framework for assessing the reliability and reliance of energy infrastructure will be developed by the DOE secretary in collaboration with the secretary of homeland security, FERC, the North American Electric Reliability Corporation (NERC) and other stakeholders.
The Initiative also announced that DOE intends to establish procedures to administer the $2.5 billion revolving loan fund established by the Act. This fund is intended to support the development of new lines and the replacement or expansion of existing lines. New transmission lines eligible for funding must be capable of transmitting at least 1,000 megawatts, and existing lines being upgraded or constructed in an existing infrastructure corridor must be capable of transmitting at least 500 megawatts. Under the loan program, any entity seeking to carry out an eligible project is an eligible entity.
In addition to providing loans in respect of eligible new transmission projects, DOE also has the authority to use the fund to enter capacity contracts on eligible projects. DOE may obtain up to 50 percent of the planned capacity on such a project for up to 40 years without undergoing additional federal environmental study processes, and DOE may then market its capacity under a competitive solicitation after the project attains financial viability (the Initiative does not set forth whether DOE would be required to offer its transmission capacity at FERC-approved rates and terms of service, but nothing in the Initiative nor any related legislation weakens FERC’s exclusive and plenary transmission rate and service jurisdiction). The secretary of DOE is directed to seek capacity contracts that will encourage other buyers to purchase capacity on the same project. DOE may also loan funds to or enter public private partnerships for the development of transmission projects. And when a project is developed, that project will be required to satisfy FERC and applicable independent transmission organization (ISO) tariff, rate, service access and facilities requirements and comply with a litany of requirements, including regarding FERC and ISO reporting, data access and transmission service reservation. The Initiative promotes transmission development, but it provides for no deregulation.
Under the Initiative, DOE intends to establish a process for designating National Interest Electric Transmission Corridors (National Corridors) “on a route-specific, applicant-driven basis.” These National Corridors give rise to FERC’s authority under the Act to permit transmission projects within them. FERC may issue such permits only if the state commission with jurisdiction over a proposed transmission project either rejects or fails to act on the project within one year after either (i) an application is filed or (ii) the secretary of DOE has designated the National Corridor. FERC may also permit projects that have been approved at the state level but conditioned such that “the proposed construction or modification will not significantly reduce transmission capacity constraints or congestion in interstate commerce.”
In effect, FERC action can follow either (i) a state’s inappropriate burdening of, failure to act on or rejection of an application for a given transmission project or (ii) DOE’s affirmative decision. Once permitted, a project that cannot acquire the necessary right-of-way by contract may exercise eminent domain in United States district court.
According to the Initiative, DOE and FERC plan to work together to facilitate efficient use of these interrelated authorities in order to harmonize application processes and expedite reviews under the National Environmental Policy Act (NEPA). However, given that both DOE’s designation of the National Corridors and FERC’s permitting of projects therein will likely trigger NEPA review, it is unclear whether FERC’s expanded permitting authority will meaningfully shorten or simplify the permitting process for transmission projects. The Initiative’s backstop siting authority is not the first time that a backstop federal mechanism has been proposed to allow FERC to provide transmission siting authority. The Energy Policy Act of 2005 authorized DOE to designate transmission corridors and FERC to confer eminent domain authority for eligible transmission projects in those corridors. That authority was widely viewed as legally insufficient and procedurally cumbersome, and it has never once successfully been used—in fact, one reviewing court threw out FERC’s implementing regulations. As of the date of this Legal Update, not a single application or petition under the Energy Policy Act of 2005’s transmission siting provisions is actually pending before FERC.
The Initiative announces that further guidance and solicitations will be forthcoming regarding $3 billion allocated by the Act for the Smart Grid Investment Matching Grant Program, which includes software, devices, communications infrastructure and technology, flow control devices, advanced conductors, network optimization and other tools that increase the operational capacity of a transmission network. Smart Grid investments may also include the ability to react to extreme weather events.
The energy infrastructure investments included in the Act may be supplemented further by the Build Back Better Act, which has been passed by the US House of Representatives but has stalled in the US Senate. The House-passed bill includes $495 billion in climate-related spending programs aimed at speeding the transition to less carbon intensive sources of energy. Those programs are a signature part of the Biden administration’s effort to reduce the nation’s carbon emissions by 50 percent from 2005 levels by 2030.
1 Mayer Brown has previously written about the Act in some detail—including this overview and this discussion of its potential impact on electric vehicles—and has covered the potential for transmission tax credits under the Build Back Better Act.
2 Most recently, regulatory investigations into power failures in Texas and adjacent states were reviewed by FERC and the electric reliability organization and widely reported. This was discussed in Mayer Brown’s December 8, 2021, Legal Update “Making the Grid More Climate-Resilient: Report on February 2021 Cold Weather Outages in Texas and South Central US Highlights the Challenges.”
3 Discussed in Mayer Brown’s August 30, 2021, Legal Update, “Texas Commission Proposes New Generator, Utility Weather Requirements and Opens Fast-Track Rulemaking Proceeding.”