A new Cornell University study suggests that the fairest way to finance upgrades to the nation’s aging electrical grid is to allocate costs to those who directly benefit from new power lines. The research, published in the Energy Law Journal, argues that this “beneficiary pays” strategy promotes investment in critical infrastructure while reducing disputes over cost-sharing.
The report, co-authored by Jacob Mays of Cornell’s School of Civil and Environmental Engineering and Joshua Macey of Yale Law School, comes as federal regulators push forward with new rules to address grid modernization and decarbonization goals. The Federal Energy Regulatory Commission’s (FERC) recent Order No. 1920 requires transmission providers to engage in long-term planning and allocate costs based on the benefits derived from new projects.
“This has become a fight about cost allocation,” Mays said. “Half the country wants to decarbonize and half doesn’t. Our paper aims to clarify and resolve these disagreements by showing that the ‘beneficiary pays’ principle is both fair and effective.”
The U.S. electrical grid, a vast and interconnected system spanning state lines and jurisdictions, is in urgent need of upgrades to improve reliability, lower electricity bills, and deliver cheaper renewable energy to consumers. However, political and ideological tensions have slowed progress. Critics argue that some cost allocation strategies force certain states to pay for projects that primarily benefit others, stoking resistance to multi-state transmission initiatives.
The study highlights the legal and economic precedent for the “beneficiary pays” approach, tracing its roots to a century of federal energy policies for both electricity and natural gas. The researchers contend that allocating costs to those who directly benefit ensures fairness and avoids “free rider” scenarios, where one group enjoys the advantages of new infrastructure without contributing to its funding.
The report uses New Jersey and Ohio as case studies. New Jersey’s clean energy goals contrast sharply with Ohio’s more traditional energy priorities. Under the “beneficiary pays” model, if a new power line improves economic efficiency in Ohio while enabling emissions reductions in New Jersey, each state would pay for the specific benefits it receives.
FERC’s Order No. 1920 has faced criticism, with some dissenters accusing it of promoting a “green energy” agenda and imposing costs unfairly. However, Mays and Macey argue that the order is an effort to address the stagnation of large-scale, multi-state grid projects by ensuring a balanced and transparent cost allocation process.
“Better transmission planning is essential for improving reliability and achieving decarbonization,” Mays said. The researchers believe the “beneficiary pays” model is the most effective way to encourage investment in a grid that supports both economic growth and environmental goals.
As the nation grapples with how to equitably finance grid modernization, this study offers a blueprint for resolving disputes and accelerating progress toward a resilient, efficient, and cleaner energy future.
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