Making beneficiaries pay for new power lines is a fair strategy

ITHACA, N.Y. – The nation’s aging electrical grid crosses state lines, jurisdictions and ideologies, but the costs for new power lines should be borne by those who benefit from them, according to new Cornell University research.

Failure to upgrade the grid leads to unreliability and higher electricity bills, in part because it remains tough to get cheap wind and solar to market. From a policy perspective, tensions swirl around affordability, reliability and achieving decarbonization commitments.

“What this has become is a fight about cost allocation,” said Jacob Mays, assistant professor at Cornell’s School of Civil and Environmental Engineering and co-author of the study, published in the Energy Law Journal.

“Half of the country wants to decarbonize and half doesn’t. The allegation on one side is that transmission expansion is just a ploy to get people to pay to serve the policy goals of the states that are aiming to decarbonize. Our paper is trying to help clarify and resolve those disagreements.”

Mays examined the history of Federal Energy Regulatory Commission regulation, touching on court cases that show that passing cost of new power transmission lines specifically to those who benefit works best to build investment in the grid.

It’s a hot and complicated topic because the White House and Federal Energy Regulatory Commission (FERC) are introducing new laws about planning and cost allocation, much of it focused on renewable energy and climate change resiliency. And while many states and providers focus on the logistics of expanding access to energy services and keeping costs down for customers, others concentrate more on the imperative to reduce emissions of greenhouse gases.

Mays concluded that the “beneficiary pays” approach to cost allocation is consistent with decades of judicial precedent and adopts the cost allocation that courts have required for decades.

This means that people or companies who directly benefit from new power lines, the “beneficiaries,” should be the ones who pay for them, preventing situations where residents in one state are unfairly charged for power lines that only benefit people in a neighboring state. Without the “beneficiary pays” system, they say, some groups might get a free ride on others’ investments in new transmission lines, enjoying the benefits of expanded power access without contributing to the cost.

To explain the utility of the “beneficiary pays” strategy, Mays used New Jersey and Ohio as case studies, the former with strong clean energy goals and the latter without. 

If a line provides economic benefits to Ohio while facilitating emissions reductions in New Jersey, then Ohio pays for its economic benefits, but only New Jersey pays for the environmental benefits.

The reality of an interconnected transmission system is that essentially every new power line produces some economic benefits, some reliability benefits and some climate benefits. The “beneficiary pays” principle, the authors said, is not only the fairest approach but also the one most likely to encourage investment without causing disputes over cost-sharing.

For additional information, see this Cornell Chronicle story.

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