Interconnection Animus: Do Regulatory Procedures Create a “Tragedy of the Commons”?

By Scott Hempling

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Picture a pasture open to all.... As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, “What is the utility to me of adding one more animal to my herd?” ... [T]he rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another.... But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit—in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

—Garret Hardin, “The Tragedy of the Commons,” Science (Dec. 13, 1968).

No one disputes the benefits of interconnectedness: accessible air travel, job mobility, telecommuting, economies from interregional trade. Yet regulatory efforts to increase electrical interconnectedness draw opposition, seemingly reflexive, always intense. Embedded in regulatory practice and culture, this behavior is not cost-free; public benefits are delayed and diminished. Can we make adjustments, or is opposition inevitable?

Procedural Narrowness Yields Zero-Sum Relationships

Consider the battle over new, extra-high-voltage electric transmission facilities. In the Virginia-to-Ohio region served by PJM, the Federal Energy Regulatory Commission (FERC) allocated costs on a postage-stamp basis (all users pay the same rate, regardless of location or benefit). Challenged in the Seventh Circuit by Ohio, Illinois, and other Midwestern interests, FERC lost. The court found insufficient evidentiary support and inconsistent FERC reasoning. (See this August 2009 case here.)

The case is but one of many cost allocation battles, state against state, producer against consumer, utility against independent, east against west. Despite the national benefits of new infrastructure, controversy persists. Two reasons are statutory and cultural.

Regulatory statutes—in this case the Federal Power Act—always grant opportunities to litigate: New facilities require new costs; new costs require rate filings; rate filings attract proponents and opponents. Our litigation culture adds the sharp edges: Victory-seeking clients hire victory-promising lawyers; these party-pairs join the battle if litigation cost is below the value of winning multiplied by the probability of winning.

One more ingredient makes conflict inevitable: the narrowness of the typical proceeding. A 500-kV transmission facility is, inarguably, a “big project.” But for a nation with 300 million citizens who rely on electricity for everything from incubators to funeral homes, a single transmission facility is a small contributor to life’s daily costs.

Yet that facility gets its own proceeding, in which participants then focus on winning benefits and avoiding costs associated with that single facility. Procedural narrowness is therefore the key ingredient in the recipe for a zero-sum culture. By isolating each proposal from its benefits context, our procedures promise a showdown between win-seekers and loss-avoiders.

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