The Law and Economics of Transmission Planning and Cost Allocation

This Article considers how to allocate the costs of transmission when states, utilities, or other classes of customers adopt different clean energy policies. It explains that the beneficiary pays approach to cost allocation does not result in some customers being forced to pay for their neighbors’ benefits and is therefore consistent with the Federal Power Act’s (FPA) prohibition on undue discrimination. In fact, beneficiary pays is likely the only approach to cost allocation that does not result in some customers free riding off their neighbors’ transmission investments. For that reason, every federal court that has reviewed methods for allocating the costs of regionally planned transmission lines has required FERC and transmission planners to use the beneficiary pays approach. The Article also summarizes the last hundred years of federal interventions in transmission and natural gas markets to demonstrate that this view is consistent with decades of judicial, congressional, and regulatory policy, and it explains how beneficiary pays can be implemented when different states and classes of customers adopt different energy policies.