Analysis of the Bipartisan American Affordability and Jobs Act

Written by Devin Hartman, Kent Chandler, and Philip Rossetti

The Bipartisan American Affordability and Jobs Act of 2026 (BAAJA) is a comprehensive permitting reform bill proposed in the U.S. Senate of the 119th Congress. Permitting and transmission reforms have been a significant policy issue in recent years, as they constitute major barriers to production. Other organizations have provided more comprehensive descriptions of BAAJA. Our analysis focuses on applied effects of the legislation, contextualizes the intent of the provisions relative to the body of scholarship and practitioner insights, and identifies adjustments that would achieve better outcomes ahead of BAAJA’s amendment phase.

Our major takeaways include:

  • In aggregate, we assess that the initial version of BAAJA would result in strong net economic benefits alongside greenhouse gas emissions reductions, while some localized environmental effects may occur, as a result of accelerated energy infrastructure deployment.
  • BAAJA makes substantial changes to the issuance of federal permits, as well as modifications to how those permits may be challenged or rescinded after issuance. Primarily, BAAJA modifies compliance with the National Environmental Policy Act (NEPA), Clean Water Act (CWA), Endangered Species Act (ESA), and National Historic Preservation Act (NHPA) to narrow the conditions under which their statutes apply. Some of the changes to relevant permitting statutes include limiting standing for litigants against issued permits to ones that were sufficiently involved in public proceedings, and ensuring that issued permits remain in effect even if challenged. These changes would provide certainty to permit holders, as well as set predictable, enforceable timelines for completing permit requirements under federal statutes.
  • BAAJA’s major transmission provisions are all likely to have substantially positive net economic benefits, except for its transmission cost allocation provision. The provisions on transmission planning, competition, advanced transmission technologies, and permitting and siting could yield hundreds of billions of dollars in energy cost savings by 2050, if implemented well. This would occur primarily by shifting capital towards economies of scale, applying more economic planning and competitive procurement methods, leveraging low-cost upgrade technologies, and greater cost-of-service regulatory scrutiny of inefficient local projects. The provision on interconnection should assist in adoption of best practices that substantially accelerate timelines for new power plants.
  • Some of BAAJA’s provisions could, however, introduce new complications for permit applicants. Targeted amendments would improve net benefits. They include clarifying various definitions, refining implementation mechanisms, limiting court-awarded damages for permitting certainty, limiting potentially discriminatory permitting practices, avoiding explicit transmission cross-subsidies, and giving large loads direct wholesale market access.

Overall, we view BAAJA as likely to have a major policy impact, with significant energy cost savings in multiple industries. The effects of BAAJA, however, are dependent on the quality of regulatory implementation, which makes it impossible to definitively estimate cost savings. Separate approximations of some individual BAAJA topic provisions approach or exceed $100 billion by 2050, suggesting that the best order of magnitude estimate places BAAJA’s energy cost savings in the range of hundreds of billions of dollars by 2050. This is roughly consistent with a recent BAAJA modeling exercise conducted by Resources for the Future. Energy cost savings would increase further by addressing some targeted flaws in several provisions. By contrast, improper implementation of BAAJA’s provisions would prevent consumers from receiving the benefits of private sector infrastructure investments.

The following assessment provides a breakdown of concepts, effects, and improvement opportunities for the majority of BAAJA provisions.

In This Analysis

Transmission Overview

Transmission refers to high-voltage facilities that connect centralized power plants to consumer hubs. The need for cost-effective transmission investment is growing, driven by aging transmission facilities, load growth, and turnover in the generation fleet. Saturation of the transmission system is inducing upgrade requirements to interconnect new power plants and large load facilities, contributing to years-long backlogs.

Transmission facility owners are predominantly cost-of-service utilities with exclusive retail franchises to serve specific geographies. This incentivizes utilities to overcapitalize local transmission assets, avoid adoption of lower-cost technologies, and suppress broad transmission development that enables third-party-owned generation from displacing their own generation. Upon recognizing this, regulators developed rules to counteract the perverse incentives of transmission providers and improve the cost-effectiveness of grid expansion. These rules have been partially effective, at best.

Over 90% of transmission projects are initiated by utilities to meet reliability criteria without economic justification, such as cost-benefit analysis, or other cost-disciplinary measures like competitive bidding or effectively evaluating alternative technologies. Overall, the status quo results in transmission development patterns exhibiting patchwork diseconomies of scale, underutilization of lower-cost technologies, suppressed competition and market-driven investment, and some misalignment between transmission beneficiaries and mandatory cost allocation. Such poor economic performance reflects deficiencies in transmission planning, cost allocation, permitting, siting, and interconnection.

BAAJA addresses these categorical deficiencies and generally aligns with the priorities of national transmission consumer groups and consumer-first reform principles. This analysis specifically evaluates BAAJA’s transmission provisions on permitting and siting, regional and interregional planning, local transmission oversight, advanced transmission technologies, cost allocation, and generator interconnection.

Transmission Permitting and Siting

Governmental authorities require transmission developers to obtain permitting and siting approvals to construct new transmission facilities.

Current Law

Transmission projects require permitting and siting authorization from relevant federal, state, local, tribal, and private authorities. The Federal Energy Regulatory Commission (FERC) holds limited backstop authority to approve transmission projects within defined “national interest” corridors. This contrasts with most other forms of interstate infrastructure, where Congress instilled exclusive and preemptive federal siting and permitting authority. States instead have primary jurisdiction over interstate and intrastate transmission siting and applicable permitting, while local authorities retain a pronounced role.

What BAAJA Changes

  • Simplifies the backstop mechanism by removing the designation of “national interest” corridors by the Department of Energy as a prerequisite for FERC to act.
  • Strengthens FERC backstop authority for lines over 230 kilovolts (kV) that are deemed to be in the public interest, benefit customers, improve reliability, or meet other criteria. This clarifies regulatory timelines and frameworks for developers and regulators.
  • Enables FERC to review permit applications in parallel with state applications for transmission projects at or above 345 kV.
  • Establishes cost allocation criteria for transmission permitted by FERC.
  • Requires FERC to hold a public comment period of at least 45 days, consider a state’s record, and account for input from affected landowners.
  • Makes FERC the lead agency for environmental reviews for transmission projects it permits.
  • Exempts transmission upgrades from environmental and historic preservation reviews in existing rights-of-way.

Expected Effects

BAAJA makes FERC siting and permitting authority more usable for long-distance interstate transmission. However, it is unlikely that FERC would need to exercise such newfound siting authority much, if at all. Rather, BAAJA’s expected effect is to motivate more efficient state siting behavior by deterring state denials of economical siting applications and incentivizing updates to state statutory siting regimes. Cases of uneconomic denial have been more prominent in “pass-through” states where a state perceives it does not benefit from the facility, including where a facility does not directly connect to intrastate resources.

BAAJA would improve interstate coordination incentives on qualifying transmission siting, and it may induce modernization of state siting practices across a broader mix of transmission projects. For example, some state permitting and siting processes are confined to only consider intrastate effects, resulting in some states denying projects based on the determination that they are unneeded, even if they are the most economical regional option. Conversely, some states allow siting processes for non-utility developers to consider interstate benefits of the facilities but place those developers on unequal footing compared to incumbent utilities by not giving them eminent domain for their projects.

These BAAJA provisions are projected to increase the speed and amount of long-distance interstate transmission development. These types of projects are generally far more cost-effective than the smaller, piecemeal transmission projects that are predominant today. Expected effects include reduced energy costs, avoided high-cost generation investment in import-constrained areas of the grid, and more low-cost generation investment in export-constrained areas. The expected uptick in long-distance projects would boost overall transmission headroom, with knock-on benefits including opening up transmission system headroom that accelerates new generation and customer interconnection. Overall, BAAJA’s transmission permitting and siting provisions are generally aligned with delivering cost savings and more efficient outcomes consistent with electricity customer group assessments.

LEI Analysis

BAAJA addresses an inefficient status quo. Transmission permitting and siting is currently piecemeal, haphazard, and in major need of reform to improve economic performance. Developers currently navigate individual states’ siting processes, which are typically uncoordinated and create well-documented barriers to entry, especially over the past decade. State siting rejections of economical transmission projects have resulted in lawsuits and delays, with a prominent recent court decision narrowing state discretion. Legal scholars suggest dormant commerce clause jurisprudence might eventually require state authorities to consider benefits beyond their jurisdictional borders.

The transmission status quo is similar to the inefficient state-by-state patchwork of oil pipeline laws. By contrast, BAAJA does not go as far as granting FERC primary permitting and siting authority as it currently holds for natural gas pipelines. Considering the interstate nature of transmission lines, BAAJA’s proposal to retain states’ primary siting authority and strengthen FERC backstop authority is compatible with federalist principles. Former states-rights FERC commissioners have called for stronger FERC backstop siting authority to induce states to work better together. Some state officials have requested it as well upon realizing the adverse impact of other states’ transmission siting denials on their own state.

BAAJA would be a true backstop; it does not federalize transmission siting. It only applies when states fail to grant a construction certificate to qualifying transmission facilities that benefit consumers. This encourages states to update their processes to give due consideration to regional and interregional transmission projects, and to reasonably modify routing and scenic considerations to address public concerns. The voltage thresholds ensure only projects with interstate benefits qualify for federal backstop siting. The determination of benefits-to-costs and cost allocation of these projects generally occurs in separate regional processes, which include states, and precede the siting phase. Generally, states’ customers only pay for transmission to the extent that they benefit from it, and in some regions state regulators control proposing regional cost allocation methodologies.

BAAJA’s creation of parallel FERC and state permit applications review raises some implementation questions. It may be a candidate for further refinement as the bill progresses. Parallel processing may limit a state regulator, as the most knowledgeable state entity on the issue, from engaging in the applicant’s FERC prefiling process or the FERC proceeding itself, because a similar case would be pending before the state regulator. In this case, the state attorney general, consumer advocate, or another state party may need to represent the state before FERC. This could limit the effectiveness of direct state participation given various states regulators’ ex parte communication restrictions.

BAAJA separately allows FERC to consider the record of the state proceeding in determining whether to grant an approval, such that if a state had a legitimate rationale to deny the project it could be incorporated into FERC’s decision made on the same basis. Thus, indirect state participation may increase under BAAJA. Effectively implementing BAAJA as-is may necessitate updating state laws to accommodate the process shift. Ideally, states would express concerns with federal planning processes through more effective mechanisms like complaints in lieu of arbitrarily denying siting for economical projects, which increases costs for other states and risk premiums for infrastructure generally. As such, BAAJA would not federalize permitting and siting, but strengthen the incentive for cooperative federalism to protect consumers beyond the borders of one state.

In contrast to interstate natural gas pipeline authority, BAAJA’s retention of the lead role for states is valuable because state processes are typically more responsive to landowner concerns, such as strategic route reconfiguration, than federal processes. BAAJA’s landowner input considerations into the federal process are similar to state processes, including specifying the degree to which affected landowners must be consulted upfront and how they interact with FERC. Statutory landowner rights and responsibilities ensure continuity and consistency in implementation. BAAJA’s landowner definitions and protections are an improvement relative to the Energy Permitting Reform Act of 2024 (EPRA).

Regional and Interregional Transmission Planning

FERC rules require jurisdictional entities to plan region-wide transmission expansion. This is conducted by groups of individual utilities or regional transmission organizations (RTOs).

Current Law

In 2011, FERC issued Order 1000 to establish a framework for regional transmission planning. After implementation challenges, FERC adjusted this regional rule under Order 1920 in 2024. FERC never pursued an interregional planning rule, instead relying on voluntary coordination processes between regions.

What BAAJA Changes

  • Requires an interregional planning process using common assumptions, timelines, and models.
  • Codifies regional planning requirements, for which compliance with Order 1920 suffices.
  • Adopts a list of reliability and cost savings transmission benefits for planning and cost allocation purposes.
  • Establishes that projects in approved plans would automatically meet the criteria for a FERC backstop permit.
  • Requires updates to regional and interregional planning processes every four years.
  • Disallows a federal right of first refusal (ROFR) for incumbent utilities for regional and interregionally planned projects.
  • Requires the Department of Energy to study transmission congestion every three years, identify congestion areas and consumer harms, and consult states and tribes.

Expected Effects

Combined with the permitting and siting provisions, the regional and interregional planning provision projects to yield large increases in economically based interregional transmission development, and potentially increase regional development as well. Most transmission planning today is localized with projects initiated by utilities, without economic justification, and pursued under perverse cost management incentives. This suppresses economical regional and interregional transmission as some regions have not built such projects in decades despite their superior economies of scale. Current U.S. transmission development largely reflects diseconomies of scale, dominated by inefficient incremental reliability-needs projects, and under 10% of investment is based on economic planning criteria and subject to competitive bidding.

This makes the potential reliability and net cost savings of BAAJA high. BAAJA should pivot transmission investment towards economies of scale, greater reliability-value projects during severe weather, a higher share of projects planned with economic criteria, and more extensive use of competitive bidding. BAAJA could induce interregional transmission expansion levels that researchers have separately calculated would lead to hundreds of billions of dollars in cost savings by 2050. A new study supported by the Electricity Customer Alliance found that transmission expansion with interregional projects can increase cost savings by multiples. In addition to direct cost savings, such as reduced congestion and capital costs, interregional expansion would increase transmission headroom and subsequently mitigate interconnection backlogs and associated costs.

BAAJA’s transmission competition component would be impactful. New estimates for competitive transmission bidding place cost savings at around 30% as compared to incumbent utility driven projects. Applying this savings rate to 25% of expected 2026 transmission spending levels would yield roughly $75 billion in savings by 2050. This would likely climb well above $100 billion after factoring in a threefold transmission capacity expansion rate increase to meet load growth.

LEI Analysis

BAAJA would address the major gap in the transmission planning framework today: interregional. In the 2000s, FERC commissioners were split on whether to first establish interregional or regional rules. FERC elected to establish regional planning rules and later return to interregional. It never did. Interregional transmission development has since been minuscule, instead of an economical approach that would plan at the largest scale first with lesser scales used to fill in gaps. Voluntary engagement between regions is rarely fruitful.

BAAJA’s disallowance of all federal ROFR versions is significant because Order 1000 and Order 1920 permitted limited ROFRs. However, these competition carveouts have become the norm, not the exception, resulting in consumer complaints and modest levels of regional transmission expansion subject to competitive bidding. If BAAJA’s regional ROFR disallowance language is narrowed in the amendment phase, it would reduce the expected cost savings of the bill.

BAAJA’s codification and standardization of transmission benefits may reduce cost allocation disputes, where costs are determined based on the “beneficiary pays” principle. BAAJA does not inhibit adjustments to cost allocation, even under Order 1920 compliance. This could include adjustments for addressing the effects of state policy on transmission costs. Notably, in some regions, state public utility commissions (PUCs) control proposed cost allocation methodologies for regional transmission, ensuring a material say in how costs get reflected in retail electric bills.

The extent of BAAJA’s effect on regional and interregional project development will depend on the quality of implementation. Current regional planning processes have a wide variance in implementation quality because FERC grants regions ample latitude for compliance. This has resulted in a wide range of regional planning practices and stark performance differences across regions.

Low FERC transmission expertise capacity to complete the requisite rulemakings will pose a challenge to quality implementation. Compounding this is that FERC already lost a significant number of staff over the past two years. Some of this is negated by BAAJA’s provisions exempting FERC from personnel limitations in setting expert staff salaries, but the reality is that the market for transmission expertise is thin, expensive, and will take well over a year to properly amass. BAAJA adjustments that provide additional FERC timeline flexibility may improve the outlook for quality FERC implementation.

Local Transmission Oversight

Local transmission refers to utility-initiated transmission projects located entirely within the service territory or footprint of a single utility. This applies to new, upgraded, and replacement power lines.

Current Law

FERC has jurisdiction over transmission, even at the local level, which should not be confused with the distribution system that falls under state jurisdiction. In 2007, FERC issued Order 890 to advance competition by remedying undue discrimination from the “black box” of vertically integrated local utility transmission practices. In 2011, FERC Order 1000 created opportunities for expanded local transmission exemptions to regional planning, and subsequently half of transmission spending migrated to local planning processes driven by incumbent utilities. Local projects hold a presumption of prudence, receive formula rates, and face negligible economic regulatory oversight. In 2022, FERC held a transmission cost management technical conference with state regulators, identifying a “regulatory gap” between FERC and states. States, consumer groups, and other entities filed comments to remedy the situation. FERC took no action, and states and consumer groups began filing successive complaints at FERC. The issue remains unresolved.

What BAAJA Changes

  • Requires FERC to establish a new process for states to refer a utility’s local transmission planning and development to FERC for investigation to determine if the utility action was uneconomic or undermined efficient regional planning.
  • Specifies the FERC investigative team include the Office of Enforcement and Regulatory Accounting (OERA).
  • Enables remedies to FERC, including ordering utility-specific changes to local planning processes, lowering the return on equity on local transmission facilities, eliminating the presumption of prudence for local transmission, or imposing fines up to $5 million for imprudent or financially harmful investment per facility.

Expected Effects

The provision’s desired effect of deterring uneconomic local transmission spending depends on an effective investigations process and states being motivated to initiate referrals. Utility behavior is likely to follow a risk calculus; penalties multiplied by the implied probability of incurring them. As such, relatively few successful referrals may markedly shift utility behavior. Motivated states could signal their willingness to employ the mechanism as a proactive deterrent. Coordinated state efforts would improve the efficacy of the mechanism, such as bolstering state regulatory transmission expertise, ensuring reasonable load forecasts, requiring insight into local transmission planning criteria, and withholding eminent domain when processes are not followed.

To the extent the provision achieves its desired effect, it would result in expected cost savings. Utilities engage in strategic behavior consistent with their incentive to expand regulated transmission rate base, such as inducing more short-term reliability projects than RTO economically-based projects, while vertically integrated utilities have added motive to invest in local transmission over regional transmission to insulate their own generation from third-party competition. Overall, the data show transmission spending composition trending toward lower-voltage, higher-cost local projects since early last decade.

LEI Analysis

BAAJA creates a mechanism to address a legitimate economic regulatory flaw that states can use to address an issue they are concerned with. This is responsive and deferential to states and provides an avenue for coordinated state and federal oversight. It does not presume utilities’ local planning practices are imprudent, unjust, or unreasonable; it provides an accountability mechanism that is clearly lacking.

That said, modifications to this provision could improve the efficacy of the investigative process. The definition of local transmission warrants updating to reflect existing regulatory definitions, especially Order 1000. Specifying who at the state-level qualifies to make the referral and establishing timing limitations would also improve the process. For example, specifying that an investigation must begin within a month of referral, investigation must be completed in a year or two, and that FERC must respond to complaints within a certain timeframe would overcome the risk of languishing complaints, which are commonplace at FERC.

Stakeholders have expressed concerns about FERC’s OERA engaging in this manner, which is partially warranted. The issue is not well suited to OERA’s function of civil enforcement action. Further, OERA does not have the personnel or orientation to best execute the criteria the provision specifies for the investigation; identifying if more efficient or cost-effective local transmission was not selected or if the utility’s local planning interfered with the regional transmission planning process. Modifying the provision to designate FERC’s Office of Energy Market Regulation or Office of Administrative Litigation as lead would result in better functional assignment and staff that are better qualified to evaluate the economic prudence of local transmission. Local transmission oversight could be improved further if FERC initiated investigations on its own.

Utility capitalization bias appears to only be part of the local transmission overbuild problem. Most states exempt many local transmission facilities from siting requirements, creating a large siting discrepancy compared to regional and interregional lines. Local transmission is also quicker to construct. This makes it the reactive investment choice when the underdeveloped transmission system triggers reliability criteria, which resulted from a lack of proactive regional and interregional transmission planning. BAAJA’s emphasis on establishing interregional planning should markedly help mitigate the local transmission problem long term, if thoroughly implemented.

Advanced Transmission Technologies

Advanced transmission technologies (ATTs) refer to a suite of grid software and hardware technologies that increases the capacity, efficiency, or reliability of a transmission facility. They are typically deployed in an operating context, such as expanding the real-time capacity ratings of power lines based on weather conditions. Some applications, like reconductoring lines, are relevant in a planning context.

Current Law

The Energy Policy Act of 2005 defined and mandated the encouragement of ATTs. FERC rules have encouraged or required evaluation of ATTs. Recent successive FERC action on ATTs has gotten more aggressive. From 2023-2026, FERC has gone from requiring grid planners to evaluate ATTs, to requiring them to consider implementing some ATTs, to requiring them to consider some ATTs, and finally to explain why they are not using them. Only one FERC action, Order 881 in 2021, required adoption of a single ATT: temperature-adjusted line ratings.

What BAAJA Changes

  • Directs FERC to establish a method for identifying the best-available conductor.
  • Directs FERC to require utilities to use ATTs, including best-available transmission conductors, for new or modified, upgraded, replaced, or reconducted transmission projects. Utilities must conduct recurring benefit-cost evaluations and adopt an ATT if the benefit-cost ratio exceeds 1. Noncompliant utilities are subject to penalties, including a reduction of the return on equity.
  • Requires FERC to presume that ATTs are prudent, with ATT costs deemed recoverable for covered projects as just and reasonable.
  • Exempts ATT upgrades in existing rights-of-way from NEPA review.
  • Updates definitions of ATTs, including adding dynamic line rating, advanced power flow control, high-performance conductors, and topology optimization.

Expected Effects

Unlocking ATTs holds well over $100 billion in direct cost savings potential by 2050. The indirect benefits include cost savings and reliability benefits of accelerated generation interconnection. ATTs would also accelerate load interconnection and its attendant costs and benefits. Regulatory attention to operating challenges and the pace of integration is likely capable of mitigating adverse reliability effects.

The effects of the ATT provision are highly sensitive to the definition of covered projects and the quality of FERC implementation, especially the degree of ongoing compliance oversight. ATTs hold the most potential to upgrade the existing transmission system, which has been a priority of consumer groups. However, it is unclear if BAAJA’s definition of covered projects includes existing lines.

LEI Analysis

Whether this provision affects existing projects is pivotal. BAAJA’s intent appears to include existing projects. However, the language needs improvement to make that clear.

This provision targets a major defect in economic regulation with appropriate policy instruments. ATTs are chronically underutilized because of the perverse incentives of cost-of-service transmission utilities. Their engineering and operational complexities often induce adoption resistance from system planners and operators.

Various policy tools have been evaluated for ATTs, and voluntary measures have been largely ineffective. The textbook approach is “good utility practice” requirements through proper cost-of-service regulation, such as Order 881. BAAJA’s primary tool—a presumption of prudence subject to benefit-cost test—has been evaluated before. This occurred in comments on a proposed FERC rulemaking on dynamic line ratings that was a potential successor to Order 881 but never reached fruition.

Order 881 identified one type of ATT as a uniform best practice, which makes regulatory oversight straightforward. The economic merits of other ATTs vary by line or even individual line segments. There are over 600,000 miles of transmission lines domestically. To implement oversight effectively, in the context BAAJA provides, will require substantial FERC staff expansion. This includes expertise in reviewing utility planning and operating decisions and judging the prudency of those decisions. This type of review is imperative to ensure utilities are properly conducting benefit-cost analyses to determine appropriate ATT opportunities or implementing least-cost solutions in lieu of less efficient investment opportunities. FERC use of threshold classifications, such as prioritizing persistently congested line segments, may make oversight feasible by demarcating clear evaluation criteria for ATT implementation. It would also help safeguard against cases where ATTs have costs exceeding benefits.

The role of DOE for providing ATT technical input on commercial readiness is valuable given ongoing technological advances. BAAJA requires DOE to assist with annual updates to determine the best-available conductor. This DOE role could also apply to other ATTs.

Transmission Cost Allocation

The vast majority of transmission is mandatorily planned and cost allocated by a utility or RTO under rules set by FERC.

Current Law

Multiple FERC orders have addressed cost allocation. Namely, Order 1000 and subsequent court decisions require that the transmission costs assigned to utility service territories must be “roughly commensurate” with the benefits each party receives. This “beneficiary pays” model has permitted substantial variation in cost allocation methods across regions today. Order 1920 refined this approach by clarifying benefits methods, a default approach, and state participation.

What BAAJA Changes

  • Overturns a longstanding transmission pricing practice, where new transmission customers have been charged the larger value of embedded costs or incremental expansion costs, but not both.
  • Directs FERC to adopt a new transmission pricing practice that charges computational loads the embedded cost and incremental cost. Excess revenues would be credited to lower the total transmission revenue requirement.
  • Requires FERC to provide for lower rates for non-firm transmission service.
  • Requires data centers exceeding 20 megawatts to pay all incremental costs and allows FERC to charge in excess of incremental cost and credit that amount to other customers as a rebate or to lower rates, and suggests states do the same in retail rates.
  • Clarifies that states can hold open seasons or competitive solicitations to award retail service to data centers, recovering more than embedded cost or incremental cost, with the revenue above incremental cost used to subsidize other retail customers.
  • Clarifies that states can provision retail service conditioned upon data centers bringing new generation sufficient to serve their demand or adopting flexible demand measures.
  • Makes clear states can offer rates, terms, conditions, and interconnection or service priorities to data centers that “differ from, and that are less favorable than” other business customers.

Expected Effects

Relative to current practices, it is unclear if BAAJA’s cost allocation changes would degrade or improve net benefits. Results would depend on how FERC implements this and whether or how states would exercise this vague authority. It is unclear how subsequent state actions would reconcile with federal jurisdiction and how regulators and courts would navigate definitional flaws. Expected litigation would delay clarity for years.

Depending on implementation, rates may increase markedly for data centers and lower for other customers. One new study estimated that BAAJA’s adoption of “and” pricing—charging for embedded and incremental costs—for data centers may raise their transmission charges by $35 billion over 10 years. The same study notes the state provision may increase data center generation costs by $136 billion over 10 years. This may test the short- and long-run price sensitivity of data centers. Data centers may engage in strategic behavior to avoid the additional cost burdens, such as prioritizing off-grid developments or upsizing on-site generation for grid-connected facilities. Data centers may also adjust their siting criteria to prioritize states that limit implementation of this BAAJA provision. Subsidizing other consumers may accelerate electrification and otherwise increase consumption from other customer classes.

It is hard to quantify the regulatory or political economy effects of departing from prevailing economic principles on cost allocation, but previous experience implies potential resource misallocation. BAAJA’s modifications would codify a precedent of explicit, discriminatory treatment of a specific customer class that risks unknown costs and unintended consequences. The regulatory actions induced by this provision would bifurcate cost allocation methods by customer class for the same planning cycle and project, which complicates regional and interregional planning efforts in ways that might undermine otherwise economic transmission development.

Other aspects of BAAJA’s cost allocation changes could entice differentiated transmission services based on the electricity characteristics of new loads. These include demand flexibility or new generation procurement. This could induce innovative, productive demand-side behavior by data centers and other customers.

It is unclear if these modifications would yield additional open seasons because it would require extensive, voluntary multistate coordination to implement. FERC can already approve open seasons, and it has on a limited basis. BAAJA’s provision creates mechanical and jurisdictional confusion and may complicate other applications of the Federal Power Act.

LEI Analysis

The cost allocation changes occur under a section entitled “Ratepayer Protection” for a reason. Congress is clearly concerned with cost shifts from data centers to other customers, popularly embodied by some technology companies signing onto the symbolic Ratepayer Protection Pledge (RPP). However, BAAJA goes beyond avoiding cost shifts and seeks to enable overcharging data centers to cross-subsidize other rate classes. This fundamental departure from economical transmission pricing principles responds to temporary political sentiment, but it may leave lingering adverse economic and institutional consequences. The Ratepayer Protection provision encourages some concepts with beneficial upside, including differentiated transmission services and open seasons, but revisions would be necessary to make them workable.

Modifying FERC’s transmission pricing policy is only economically beneficial if it averts cross-subsidizing data centers or lets them voluntarily cross-subsidize other customers. Although “and” pricing is a deviation from current practice, FERC previously considered its use and chose not to implement it. The standout element of the Ratepayer Protection section is “and” pricing for data centers combined with “surplus” rates used to lower all other customers’ bills, using an expansive definition of incremental cost. This unlimited cost approval is unnecessary for states, which already have authority to charge data center premiums in retail rates. It is unreasonable for FERC to implement a de facto tax to do business beyond their statutory mandate or expertise, where FERC would judge the extra amount certain customers should pay to placate and subsidize other customer classes. Rather, giving FERC discretion on the proper economic-based cost allocation policy while ensuring data centers cover the costs they cause is sufficient to protect ratepayers.

The Ratepayer Protection section would substantially benefit from modifications to address jurisdictional, definitional, and mechanistic issues. Revisions could keep BAAJA’s reformation of FERC’s transmission pricing policy to codify the spirit of the RPP, while not departing from a cost causation approach. Experts have called for revisions to the transmission pricing policy to ensure data centers pay full transmission costs, especially to address the practice of utilities “rolling billions of dollars in data-center-driven transmission upgrades into rates that everyone pays.”

Distinguishing between local and regional projects is important when applying “and” pricing. Data centers could pay partial embedded and incremental costs, such as mechanisms that credit data centers for their incremental cost contributions when calculating embedded cost obligations. This would more accurately align with cost causation and avoid the legal challenges the current BAAJA language would invite. Enabling voluntary pathways for data centers to front-load transmission financing, with crediting mechanisms that later reconcile costs with causation, could harness data centers’ willingness to pay to deliver speedier investments while abiding by sound economic practice. The fact that this type of upfront payment mitigates utilities’ need to fund investments through additional equity offerings might also speed up their provision of service.

BAAJA encourages one promising voluntary transmission mechanism: open seasons. Open seasons hold growing potential because of the increased concentration of beneficiaries of incremental system expansion, including industrials and data centers. BAAJA’s encouragement of open seasons would be more effective if it encouraged or required FERC to prioritize the mechanism, as opposed to hoping states self-organize and overcome jurisdictional ambiguities. A state opt-out likely would yield better participation than an opt-in. Another option is to limit the scope of the open season to only transmission, avoiding distribution applications. This would stay within jurisdictional boundaries and resemble the natural gas open season model that applies to the midstream pipeline segment. Attempting to facilitate an open season from upstream through downstream—generation to end-user—would cross state-FERC jurisdictional lines and may create an uncoordinated, balkanized process without a firm state agreement process.

The cleanest and most efficient approach to ratepayer protection would allow large loads to qualify as direct wholesale transmission customers. This would overcome the franchise utility laws that pose a challenge to implementing the RPP, as utility gatekeeping and financial constraints grow, and limit the bill sponsor’s concerns about wholesale costs being allocated appropriately to data centers in end-use rates. There is currently a large disconnect in retail rules determining how utilities reallocate wholesale costs, which fuels controversies in areas like PJM. Direct wholesale service would alleviate the disputes evident in recent FERC and Department of Energy engagements on large load interconnection, while emerging bulk system reliability standards for computational loads demonstrate large data centers’ direct wholesale transmission system effect.

Direct market access would enable straightforward wholesale cost allocation for transmission and generation to large loads serving as their own load serving entity. It is conducive to letting large loads voluntarily contract for merchant transmission, for which the economic case grows in the large load growth era (plus it avoids cost allocation disputes). Large loads would be responsible for covering the full costs of any distribution facilities—namely substations—required to serve their load. Direct access enables lower cost and risk procurement through market-driven mechanisms for large loads, such as facilitating transmission open seasons and “bring your own new capacity” approaches. It avoids the indirect cost and risk socialization of assets on utility books, a common concern in retail large load tariff proceedings.

Direct access aligns incentives for demand flexibility and would require clarification of end-use curtailment rules, which would be simpler to set and maintain than the cost allocation provisions in the current version of BAAJA. Carving out large loads from utilities’ retail service obligations would also make utility resource planning simpler in vertically integrated franchise states by excluding complex, risky large loads and limiting utility planning to smaller-volume customers like retail business and households. Enabling direct wholesale market access resembles the historical push of industrials seeking direct market access policy. Now, broad consumer alliances foresee direct market access in lieu of franchise utilities as the pathway to uphold protections for nonparticipating customers, while yielding superior commercial opportunities for participating customers.

Generator Interconnection

Generator interconnection is a process where a transmission provider studies the effects of a proposed generation source on the transmission system. In some regions, if reliability criteria are violated, the provider requires the developer to incur costs to upgrade the transmission system to accommodate the new generation source.

Current Law

In 2023, FERC issued Order 2023, which required public utilities to modify their generator interconnection procedures and agreements. Upon recognizing the scope limitations of the order, FERC hosted an interconnection workshop in 2024. Regions subsequently enacted their Order 2023 compliance plans and most have pursued additional reforms beyond the scope of the order.

What BAAJA Changes

  • Requires a FERC rulemaking requiring transmission providers to share and employ interconnection queue management practices regarding advanced computing technologies in evaluating and processing interconnection requests.
  • Requires transmission providers to obtain, assemble, maintain, and use grid data necessary to conduct generation or load interconnection studies.
  • Requires FERC to issue a rule requiring transmission planning regions to adopt a consolidated interconnection and regional transmission planning process that jointly evaluates transmission and generation capacity and establishes a generator cluster study process.

Expected Effects

BAAJA’s interconnection-related provisions will likely accelerate the pace of regional interconnection reforms and perhaps shift some regions’ directions. This will likely accelerate the interconnection of generation resources beginning in the late 2020s as transmission providers anticipate FERC compliance needs. The incremental effect will vary by region, as all regions have substantial interconnection reform plans underway, such as adopting advanced computing technologies.

The consolidated planning requirement (CPP) is modeled after a new practice pioneered by the Southwest Power Pool (SPP), which FERC approved in March 2026. This concept has the “potential to reduce uncertainty, speed interconnection timelines, and lead to better outcomes for both interconnection customers and load.” Similar efforts are being pursued in some other regions, making the incremental effect of this BAAJA provision more likely to materialize in laggard regions, subject to the overall performance of the untested concept.

Generally, accelerated generator interconnection would reduce costs and improve reliability by accelerating supply entry. Superior generation-transmission planning may further lower costs by reducing grid upgrade costs associated with interconnection. Greater transparency will likely induce transmission provider operating efficiencies and more efficient generator and load interconnection siting and interconnection request behavior. It may also reveal transmission provider deficiencies that induce subsequent regulatory changes that drive better interconnection practices, furthering long-term cost and reliability benefits.

LEI Analysis

BAAJA targets a major problem: high procedural, informational, and financial barriers to generation and large load entry posed by interconnection. The median generation project in 2025 took 61 months from its interconnection request to reach commercial operations, relative to 36 months in 2015. The delay in interconnection and high-cost ad hoc transmission upgrades via interconnection requests create major avoidable cost burdens while adversely affecting system reliability. The root causes reflect opaque and inefficient transmission planning and interconnection processes, as well as minimal transmission system headroom from changes in the generation mix and load growth.

Order 2023 addressed primarily the easiest interconnection reforms, but left the most pressing issues unresolved. Independent experts and consumer groups called for additional reforms, especially to improve interconnection transparency, modernize processing methods, ensure accurate study assumptions, simplify deliverability requirements, and revisit the transmission-interconnection planning nexus. BAAJA’s provisions address much of this.

Reforms, like CPP, that explore joint generator interconnection and transmission planning have major upside to drive more cost-effective grid upgrades and expand transmission headroom proactively. However, care should be taken to require an unproven CPP. While the SPP process has received high remarks from many experts, it is yet to be implemented, refined, and evaluated ex post. It is important to remember that codifying a practice only ages well if that practice is verifiably a best practice after extensive experience. For example, it is too early to assess whether the cluster studies required under Order 2023 are successful. A potential BAAJA adjustment would grant FERC greater discretion in implementing aspects of CPP.

Based on other legislative proposals in this Congress, there may be attempts to amend interconnection provisions to accelerate interconnection queue prioritization for certain generation resources over others. These types of reforms are understandably politically expedient in times of scarcity, but similar recent proposals have shown limited effectiveness. It is critical for interconnection processes to remain fuel, technology, and business-model neutral to uphold nondiscriminatory transmission access. Shifting queue prioritization based on commercial readiness parameters, however, can be productive, as long as they are applied uniformly.

National Environmental Policy Act

The National Environmental Policy Act (NEPA) is a procedural statute that requires federal agencies to consider the environmental effects of major federal actions. For example, a major energy infrastructure project that has a “significant environmental impact” (a nuclear power plant, an offshore wind farm, a coal mine, etc.) will require the relevant federal agency (e.g., the Bureau of Land Management for a hardrock mine) to prepare a document describing the environmental effects of a project.

Current Law

NEPA has encountered considerable scrutiny for its vague requirements as to what may trigger a review. Currently, projects requiring an Environmental Impact Statement (EIS) typically navigate the Notice of Intent-EIS process with a median timeframe of 2.2 years, but a small number of projects may require ten years or more. Even though the 2023 Fiscal Responsibility Act set a two-year deadline for completing an EIS, government agencies may still require longer time to prepare documentation, and the extent of what agencies must consider in facilitating NEPA compliance is also largely undefined. And while agencies publish many NEPA-related decisions, there is little publicly available data comparing these decisions across government agencies. This makes it challenging for project sponsors going through the NEPA process to know how long the process might take, or what actions they could undertake that would simplify or expedite the process.

What BAAJA Changes

  • Strengthens enforcement of NEPA deadlines via penalties against deficient agencies, such as limitations on travel for heads of agencies that miss deadlines for publishing environmental documents.
  • Narrows and defines the scope of what constitutes a major federal action triggering the NEPA process (e.g., receiving a government loan guarantee can no longer be a sole reason for a project to go through NEPA).
  • Offers definitions for how agencies should evaluate the reasonable range of alternatives for projects they must consider (i.e., agencies would no longer need to consider alternatives that do not meet the goals of a project sponsor).
  • Allows agencies to use existing environmental analyses that serve the same function as what they would prepare, and removes any requirement to consider scientific research that is published after NEPA review begins (i.e., the possibility that new research may emerge is not a sufficient reason to delay preparing environmental documents).
  • Requires a public comment period of 45–60 days for each notice of intent to prepare an EIS.
  • Agencies will have to provide data relevant to their NEPA processes (how many NEPA decisions, how long to make those decisions, etc.) for utilization in a public database.

Expected Effects

Under BAAJA, fewer projects would trigger NEPA, agencies would face penalties for failing to meet deadlines, there would be more transparency surrounding NEPA actions, and agencies would have better defined criteria for what should or should not be included in their documentation. These combine to limit the complexity and challenges of NEPA document preparation for agencies while improving accountability for agencies that may not be faithfully executing their responsibilities.

LEI Analysis

One of the reasons navigating NEPA has persistently been challenging is because agency requirements are so vague. The potential for new research to emerge during the permitting process, coupled with the uncertainty of what information agencies would need for considering undefined project alternatives, has created substantial headwinds against project permitting. BAAJA applies modest reforms grounded in contemporary principles of legislative definition and oversight to limit potential governmental overreach.

National Historic Preservation Act

The National Historic Preservation Act (NHPA) is a procedural statute that requires the federal government to consider how permitted projects impact historic sites. There are currently over 95,000 listed historic sites in the National Register, covering over 1.4 million historic “resources,” and NHPA’s coverage is not limited to currently listed resources. The federal government complies with the NHPA by consulting with State and/or Tribal Historic Preservation Offices (SHPOs/THPOs).

Current Law

Under current regulations, SHPOs/THPOs have 30 days to respond to a federal agency’s findings, or the agency may proceed without their input. This consultation process continues until either the federal agency and the SHPO/THPO reach an agreement, or the federal agency terminates the consultation. Without a set deadline for ending consultations, the process can be a cause for delayed permits.

The potential characteristics that may be considered as part of a consultation are broad, including visual impact, meaning that a historic site merely being within visual distance of a project may necessitate NHPA consultations.

What BAAJA Changes

  • Limits review under NHPA to effects that directly diminish the historic characteristics of a site.
  • Sets deadlines for the SHPO/THPO consultation process, and if such deadlines are missed, an agency may proceed without SHPO/THPO input.
  • When SHPO/THPO input deadlines are met, an agency’s written explanation of how it considered objections satisfies consultation requirements.
  • Authorizes $200 million per year for fiscal years 2027–2036 for the Historic Preservation Fund.

Expected Effects

Firm deadlines coupled with allowing agencies to proceed when deadlines are missed improve the certainty that NHPA will not be a source of delay. Further, narrowing definitions of what constitutes an adverse effect on a historic site increases the likelihood that project sponsors litigated against on historic preservation grounds will prevail in court. These provisions would generally reduce the risk undertaken by investors in infrastructure projects navigating the NHPA process.

SHPOs’/THPOs’ ability to delay permits for projects will be limited under BAAJA. However, these offices also receive additional public funding (subject to appropriation) for historic preservation efforts. From a public benefit perspective, a key question is whether the preserved historic value under the old process is outweighed by the improved resourcing under the BAAJA model. This may be hard to evaluate, as the cultural value of a site is subjective and tends to change depending upon an area’s economic characteristics (i.e., wealthier communities may place a higher premium on historic preservation).

LEI Analysis

The NHPA does come into play for some significant energy-related infrastructure projects, such as hardrock mining, which entails high impacts and is likely to occur in areas that may not have been previously disturbed and thus retain a historic value. For this reason, BAAJA’s changes would likely be viewed as a significant improvement for some capital-intensive projects that are limited to particular geographic areas and otherwise would not consider risking the complexities of navigating the NHPA process.

The more significant aspect of BAAJA’s revisions is its harmonization with changes to NEPA. Because current law has broad eligibility criteria for triggering, changes to NEPA absent NHPA modifications may simply result in project opponents shifting the statute they litigate under. If a policymaker believes litigation risk significantly delays permitting, then it makes sense to ensure that substantial reform adequately addresses non-NEPA litigation risks.

Clean Water Act

The Clean Water Act (CWA) is the federal law that regulates discharges into the “waters of the United States” that are subject to federal jurisdiction. Subject to EPA oversight, states set water quality standards and issue permits governing discharges. When an infrastructure project requires federal approval and may result in a discharge into a regulated body of water, the project must obtain what is called a “Section 401 certification,” which confirms that discharges from projects comply with the state’s water quality requirements.

Current Law

Under the current law, a project that requires a Section 401 certification may not move forward until relevant states grant one or fail to act within one year. Consequently, even if a project would not materially impact water quality, a state has de facto veto power over interstate infrastructure. This is most relevant for linear infrastructure intended to deliver energy across multiple states, and when a transited state that receives little direct benefit from the infrastructure may oppose it. A common example is New York’s refusal to approve a water quality certification for a pipeline to deliver natural gas from Pennsylvania.

What BAAJA Changes

  • Tightens deadlines for state reviews by requiring written requests from project applicants for extensions.
  • States may only deny a certification if they can—with clear and convincing evidence—demonstrate that it is not feasible for a project to comply with water quality requirements.
  • States may only consider compliance with CWA requirements–including state water quality standards and their implementing laws–in issuing or denying certification—other state laws may not be considered.
  • For natural gas pipelines and transmission specifically, states may only consider “direct point source discharge” into federally regulated waters. This means that, for those two classes of projects, states have a narrowed scope of Section 401 authority limited to direct discharges from a project.

Expected Effects

Interstate energy infrastructure that currently cannot secure state-level CWA certifications would be more likely to move forward, assuming it secures other approvals. This would have significant implications for both electric transmission and natural gas pipelines. Customers would have improved access to lower-cost generation sources, as well as lower cost domestic natural gas sources rather than relying on imports. New England would be the region most affected, as it currently relies on fuel imports and thermal resources during extreme weather, at least in part because it lacks sufficient natural gas pipeline access.

Importantly, BAAJA’s provisions do not change water quality standards, weakening arguments that its CWA provisions would reduce public benefits. Temporary impacts from project construction, however, may still occur.

LEI Analysis

The current practice of issuing permits under CWA creates ample opportunities for government failure where political incentives can prevent the market entry of economically improving resources. This issue has also come up in environmental policy debates, as opportunities for electricity generation to engage in fuel switching have been limited and forced energy consumers to rely on readily accessible energy sources even when they pollute more.

One challenge with current CWA compliance is that rejections for permits need not be isolated to a project’s discharges, and determinations of whether certification should be granted are under the oversight of political offices. Consequently, elected officials who may oppose particular infrastructure projects have inordinate authority to prevent new construction irrespective of environmental outcomes. Modifying CWA approvals so they are tied to defined water quality standards limits the opportunities for political interference in economically improving projects that do not diminish water quality.

Endangered Species Act

The Endangered Species Act (ESA) protects endangered species and threatened species (species at risk of becoming endangered). It does so by making it illegal to kill or “take” listed animals, and by requiring that federally permitted actions are not likely to jeopardize listed animals or adversely modify their critical habitat. When harm to an endangered species is unavoidable, agencies can authorize “incidental take,” which must be minimized and possibly offset through other conservation efforts.

Current Law

When a federal action—such as issuing a permit—may impact a listed species or designated critical habitat, the agency must engage in a consultation process with the Fish and Wildlife Service (or the National Marine Fisheries Service for marine impacts). This process is called a Section 7 consultation and is supposed to last 90 days, with the federal government issuing a biological opinion within 45 days of concluded consultations. Despite these deadlines, critics of the current framework argue that the increasing complexity and broad applicability of the process makes it a source of delay for impacted infrastructure projects.

What BAAJA Changes

  • Shortens the consultation period to 60 days, and if ESA consultations are extended beyond 145 days without the consent of the permit applicant, they may seek relief under the Administrative Procedure Act (APA).
  • If ESA consultations are concurrent with NEPA document preparation, those consultations must be completed within required NEPA deadlines.
  • Highway and transit infrastructure projects that occur entirely within an existing right-of-way (e.g., highway improvements) are exempt from Section 7 requirements.

Expected Effects

Current endangered species protections remain in effect—BAAJA’s changes are mostly isolated to how agencies conduct consultations to ensure compliance. The main exception is highway and transit projects within existing rights-of-way. Given, however, that such areas are likely to already represent disturbed habitat, impact to listed species is less likely. Consequently, BAAJA would not likely enable projects that the ESA currently prohibits, but projects that are currently expected to require overly complex consultations would conclude that process sooner. For example, project sponsors that may need to engage in habitat conservation to offset project impacts would be able to complete relevant consultations sooner.

LEI Analysis

ESA consultation processes are complex and can involve determinations as to what benefits or actions appropriately compensate for an unavoidable impact to a species. The key question we lack sufficient information to answer is whether longer consultation periods appreciably produce better outcomes, and what regulatory burden they impose relative to any potentially improved outcome. BAAJA’s authors seem to err on the side of thinking that there is little marginal benefit to open-ended consultations.

The more economically important element of BAAJA’s changes is that it would provide certainty that concurrent ESA consultations will not materially extend the permitting process beyond what NEPA requires. Given existing NEPA timelines—as well as proposed ones in BAAJA—harmonizing these requirements signals to potential market entrants that permitting deadlines are firm. This can reduce the risk of committing capital and resources to securing a permit and encourage greater investment.

Judicial Review

Judicial review is a court’s review of whether a government action is lawful. In the case of permitting, judicial review refers to how courts should specifically handle challenges to the legality of government-issued (or denied) permits. This typically focuses on standing (i.e., who may challenge a permit), as well as the statute of limitations (the permissible timeframe for new challenges to be filed). Importantly, in the case of permitting, judicial review only applies to the permit—not the other impacts of a project (i.e., a change to permitting judicial review does not limit the standing of a suit alleging environmental quality violations).

Current Law

Currently, NEPA itself sets no judicial review requirements. This means that—except for cases when a separate statute sets a separate deadline—the applicable law is the default statute of limitations for suing the federal government, which is generally six years from when a permit is issued. In 2015, as part of Title 41 of the Fixing America’s Surface Transportation Act (FAST-41), a process was created for large infrastructure projects (including eligible energy ones) that set tighter judicial review standards. Under this process (which only applies to a small portion of NEPA permits), FAST-41 projects enjoy a two-year statute of limitations and plaintiffs challenging a permit must have provided comments during the public comment period.

What BAAJA Changes

  • Sets a 150-day statute of limitations for challenges to federal authorizations related to NEPA decisions. This brings the federal statute of limitations for environmental determinations more in line with state ones, like California’s 30–180-day limit.
  • Limits standing to parties that filed sufficiently detailed comments during public comment periods and can demonstrate direct harm.
  • Limits judicial remedies to remand without vacatur. Plainly speaking, this means that a permit remains in effect while an agency remedies deficiencies.

Expected Effects

Most NEPA-related litigation comes from public interest groups. A 2021 analysis of NEPA cases from 2001–2013 found that 59% of cases were brought by public interest groups, and a 2024 analysis by the Breakthrough Institute of 2013–2022 appellate NEPA cases found that 72% of litigation came from nongovernmental organizations. Generally, data indicates a trend of advocacy organizations that oppose an infrastructure project utilizing permit litigation as a means to deny or delay construction. Some groups, such as the Center for Biological Diversity, describe their utilization of “creative litigation” as a means to impact policy.

Typically, the government wins most of these cases. The Government Accountability Office found that in 2011 agencies won 68% of NEPA cases (or 80% when including settlements). Additionally, the Breakthrough Institute’s analysis found that NEPA reviews were “seldom changed as a result of litigation.” To our knowledge, there is no empirical analysis evaluating if resulting modifications yield public benefits that exceed the value of project delays.

BAAJA would broadly apply existing standing limitations that already exist under FAST-41 and the Clean Air Act to all NEPA-related challenges to federal authorizations, with an additional direct harm requirement. The effect of these policies is broadly twofold: Firstly, it gives agencies advance notice of deficiencies with permitting documentation before finalization. This avoids a speculated cause of delay where agencies prepare expansive environmental documents to preempt court challenges. (For example, Uinta Basin Railway’s EIS was more than 3,600 pages and was still challenged in court for not fully analyzing upstream and downstream effects of oil industry operations.)

Secondly, the reforms prevent future litigants from challenging the permit of an existing project that may already be in operation. Currently, there is only limited analysis available on when NEPA decisions are litigated, but an analysis of clean energy projects found that most were litigated within 120 days. Regardless of how quickly suits are brought, the six-year statute of limitations means that the threat of litigation for a project exists even after it enters operation. The Dakota Access Pipeline, for example, had its federal easement vacated in court after it had begun operation. This possibility deters market entry and incurs an economic cost.

The limitations on vacatur of permits may either have considerable effect, or very little effect. The Supreme Court of the United States (SCOTUS) in Seven County Infrastructure Coalition v. Eagle County held that a deficient EIS in and of itself may not require an agency’s approval of a project to be vacated, which makes sense as a deficient EIS is typically modified with supplemental information to attain compliance.

In essence, SCOTUS suggested that vacatur may not be an appropriate remedy unless a more complete review could lead an agency to reject a project. BAAJA codifies and expands upon this view, barring the use of vacatur against permits for NEPA violations. Importantly, we lack sufficient data since the Seven County case to determine whether vacatur risks are a considerable barrier to infrastructure development, making it difficult to determine whether BAAJA’s changes would be materially different from the status quo.

LEI Analysis

The judicial review changes would stimulate the market entry of all types of energy infrastructure. This is because all forms of energy infrastructure—renewable energy, fossil fuels, nuclear power, electric transmission, etc.—encounter substantial complexity in permit document preparation that litigation risk may contribute to.

The proposed judicial review reforms in BAAJA would not modify the environmental protections that exist under current law and instead limit opportunities for litigation targeting procedure. Claims that these changes would diminish environmental quality should be accompanied by demonstrable evidence that litigation results in meaningful additional environmental conservation. Given that there is little evidence that NEPA-related litigation results in large changes to permitted activities, we view it as unlikely that there would be significant environmental impacts from BAAJA’s changes. Rather, the proposed judicial review reforms may improve upon existing government failure in the form of complex permitting processes that raise the costs of market entrants.

The effect of BAAJA’s limitations on judicial remedy, however, is a broader legal question we are ill equipped to answer. This is partially because the Seven County case may already have achieved the desired effect. But we would be remiss not to acknowledge that there is a robust debate on the role of Congress in defining how courts and agencies should remedy deficient agency actions, and we cannot evaluate BAAJA’s consistency with the stated positions of SCOTUS justices.

Permitting Certainty

Permitting “certainty” is the idea that a government-issued or issuable permit will only be revoked or denied for legitimate reasons (e.g., providing false information for an application or presenting a national security risk). The concept has gained increasing attention as more projects have faced “uncertainty” about their future permitting status. The phenomenon is sometimes called “keystone-ization,” named after the Obama administration’s delayed and eventual refusal of a permit for the Keystone XL pipeline. Most recently, the Trump administration paused new permits for proposed offshore wind generation facilities as well as issued stop work orders, claiming that the previous administration had issued permits without properly accounting for all environmental impacts as well as citing national security reasons.

Current Law

Some permitting certainty already exists under current law via the APA. The Trump administration’s stop work orders did not persist as courts blocked them, lending support to the idea that the APA bolsters permit certainty. Nevertheless, project sponsors recognize that court victories are not guaranteed, and the justifications that an administration can use to revoke a permit are extraordinarily broad. Even when permit applicants secure court victories, navigating the judicial process still produces uncertainty. Consequently, it is likely that investors view the current law as insufficiently guaranteeing that issued permits will remain in effect, and this diminishes investor confidence.

What BAAJA Changes

  • Congressionally defines a narrow set of criteria for the revocation or alteration of permits while putting the burden of proof on the agency, providing greater likelihood of court victories for project sponsors fearing a future permit revocation.
  • Ensures that project sponsors who win their court cases demonstrating improper revocation of a permit have their permit reinstated, an injunction against further agency interference, recovery of costs stemming from litigation and delay, and an additional 25%–50% of the thus far incurred project costs.
  • Provides a secondary test where if a project sponsor can statistically demonstrate a pattern of intentionally denying or delaying permits for their type of project, they are entitled to 50%–100% of the total expected construction costs (if they build the project) plus the potential for a court award of perceived economic damages.

Expected Effects

Under the current framework, the threat of permit revocation increases the risk associated with committing capital to energy infrastructure projects. Economically, this functions like a tax. The financial remedies contained in BAAJA, by contrast, act as a subsidy for canceled permits, offsetting the cost of a revoked permit. Because subsidies induce market entry for marginal producers that are only profitable at the subsidized rate, the BAAJA policy effectively lowers the risk associated with capital committed to energy infrastructure and stimulates additional market entry.

Simultaneously, while more projects may apply for permits, more permits could be revoked. Creating a mechanism to compensate wronged parties for government actions diminishes political accountability for those actions, as perceptions of harm or wrongdoing are lessened. There is currently insufficient evidence to show how likely it is that a future administration would heavily leverage BAAJA’s provisions to deny permits.

LEI Analysis

A rationale supporters of BAAJA’s permit certainty provision have used is that political actors are punished for incurring needless costs to the public, and that the adoption of such mechanisms could discourage future permit revocations. However, the limited existing empirical evidence is more consistent with the opposite position—that such mechanisms could increase permit revocations.

In its attempts to stop development of offshore wind energy facilities, the Trump administration negotiated an agreement with TotalEnergies to refund about $1 billion of lease payments in exchange for giving up its leases. This indicates that politicians may see greater political value in blocking a project than incurring a cost passed to taxpayers. A University of Chicago Law Review article published in 2000 supports this idea, noting that political actors are not motivated by fiscal responsibility. Its author argues that “If the goal of making government pay compensation is to achieve optimal deterrence with respect to constitutionally problematic conduct, the results are likely to be disappointing and perhaps even perverse.”

Quantitative analysis on these issues is scarce, but one important analysis was published in the Journal of Legal Studies in 2016. That study analyzed the use of eminent domain in Tel Aviv, Israel, with data for 3,140 takings between 1990 and 2014. Under Israeli law, compensation is only required when more than 40% of a parcel of land is taken, and a fiscally conscious politician would be expected to prefer the “free” takings to compensated ones. The study’s authors found no clustering of takings below the 40% threshold, indicating no preference for uncompensated takings. Additionally, the study found that after a 2001 Israeli Supreme Court decision requiring full compensation for 100% takings the share of 100% takings rose. The authors conclude that decisionmakers value fairness and planning considerations above fiscal ones.

We treat BAAJA’s provisions as a form of loan guarantee for permits, and a government subsidy of permit risk. This does not reduce the risk of permit revocation—and in fact it may increase it—but it shifts the costs of permit revocations to the public, and as such encourages greater market entry of private infrastructure that requires permits.

Importantly, policymakers should not consider BAAJA’s provisions in isolation. The status quo of political risk to permits effectively raises the cost of committing capital to projects. In lay terms, both the status quo and BAAJA’s provisions enable government failure through the state’s extraordinary power to capriciously deny or revoke permits. For policymakers then, the appropriate evaluation of BAAJA is whether its modifications lessen or worsen the risk profile for committed capital–something not easily evaluated with the limited data available.

Conclusion

BAAJA is comprehensive permitting and transmission reform legislation that addresses an array of permitting delay sources and transmission regulation inefficiencies. Overall, despite some inefficiencies, BAAJA’s provisions effectively target many causes of permitting delay and potential cost-effective infrastructure underinvestment. As such, we anticipate that BAAJA would on net reduce energy costs, result in more innovative energy investment, and reduce pollution associated with energy consumption. The scope and impact of BAAJA suggest it could be an era-defining reform that advances its core objective: energy affordability.

Tagged
, , , , , , ,

Related Posts