United States: FERC Issues Order Regarding Transmission Planning And Cost Allocation

Last Updated: August 15 2011
Article by Nicholas A. Giannasca and Carlos E. Gutierrez

On July 21, 2011, the Federal Energy Regulatory Commission ("FERC" or the "Commission") issued a final rule ("Order No. 1000" or the "Order") amending transmission planning and cost allocation rules affecting public utility transmission providers. As explained below, while Order No. 1000 builds upon principles established in Order No. 890 (Preventing Undue Discrimination and Preference in Transmission Service) it also departs from them in several respects. By directly addressing controversial topics such as interregional cost allocation, the federal right of first refusal ("ROFR") and public policy considerations in transmission planning, Order No. 1000 is sure to spark continued debate in the ensuing months. The newly imposed rules are significant but largely process-driven, and thus, the true extent of the Order's impact will be revealed in the responsive compliance filings.

Transmission Planning

Order No. 1000 imposes a series of requirements on public utility transmission providers which will impact the Open Access Transmission Tariffs ("OATTs") of the various Independent System Operators ("ISOs") and Regional Transmission Operators ("RTOs") as well as the OATTS of those transmission providers that do not belong to an ISO/RTO. The Order requires that public utility transmission providers participate in a regional transmission planning process that produces a regional transmission plan. Although Order No. 890 already required regional coordination, Order No. 1000 strengthens existing policies by mandating the affirmative obligation to develop a regional transmission plan that reflects the evaluation of whether a regional solution may be more efficient or cost-effective than those identified in existing local transmission planning processes.

Importantly, Order No. 1000 also requires that each public utility transmission provider implement procedures that include local and regional public policy considerations in their transmission planning process. Now public policy requirements will be considered alongside the more traditional reliability and economic planning factors. In addition, regional plans must consider non-transmission solutions on a comparable basis to transmission solutions. As noted below, non-transmission solutions are not the subject of the Order's cost allocation principles.

One of the most hotly debated issues in Order No. 1000's underlying Notice of Proposed Rulemaking was the issue of the federal ROFR. Commenters supporting the removal of the ROFR argued that it would promote competition by placing incumbent and non-incumbent transmission developers on an equal playing field. They argued that customers would realize the benefits of such competition in lowered costs for transmission projects. Those who supported the retention of the ROFR contended that its removal was unnecessary and the evidence does not suggest that it impeded transmission development. Moreover, opponents argued that incumbents are in the best position to develop transmission because they know their system best and removing the ROFR could make transmission planning inefficient and potentially less reliable.

In the final rule, the Commission ordered the removal of the federal ROFR for certain new transmission facilities from FERC-jurisdictional tariffs and agreements. Only transmission facilities evaluated in the regional transmission planning process and selected for cost allocation under the regional plan would be subject to these new rules. In other words, the Commission does not require the elimination of the ROFR from tariffs and agreements applicable to local transmission facilities.

With respect to non-incumbent transmission developers, the Commission acknowledged that there may be circumstances where an incumbent transmission provider is called upon to complete a transmission project that another entity has abandoned. There could also be situations in which an incumbent transmission provider has an obligation to build a project that is selected in the regional transmission plan for purposes of cost allocation but has not been sponsored by another transmission developer. In the Order, FERC clarifies that under both of these scenarios, the incumbent transmission providers would have a basis to request and receive abandoned plant recovery for that transmission facility, upon the filing of a petition for declaratory order or a Federal Power Act ("FPA") section 205 filing at the Commission.

Cost Allocation

The regional and interregional transmission planning processes in Order No. 1000 must also incorporate a cost allocation method that applies to the costs of certain new transmission facilities selected in the regional or interregional transmission plan for purposes of cost allocation. The Commission adopted a "beneficiaries pay" approach surmised in the following principle: "The cost of transmission facilities must be allocated to those within the transmission planning region that benefit from those facilities in a manner that is at least roughly commensurate with estimated benefits. In determining the beneficiaries of transmission facilities, a regional transmission planning process may consider benefits including, but not limited to, the extent to which transmission facilities, individually or in the aggregate, provide for maintaining reliability and sharing reserves, production cost savings and congestion relief, and/or meeting Public Policy Requirements." The Commission established a nearly identical principle for interregional projects. In total, Order No. 1000 enumerated six new cost allocation principles including another which clarifies that non-beneficiaries of transmission projects must not be required to contribute to their costs.

Consistent with the rest of the Order, the Commission set forth a principles-based approach with respect to regional and interregional cost allocation. As such, Order No. 1000 does not specifically define "benefits" or "beneficiaries." The Commission believes that public utility transmission providers should define these (presumably with stakeholder input) and propose them in their respective compliance filings. It is under that context that the FERC will review such proposed definitions in detail. The Commission's intent is to provide flexibility to accommodate a variety of approaches across regions rather than mandating a uniform rule.

Electric Reliability

While not a focus of the Order, certain of FERC's new rules do trigger reliability-related questions and concerns. For example, with respect to the removal of the federal ROFR, incumbent transmission providers may rely on transmission facilities selected in a regional transmission plan for purposes of cost allocation to comply with their reliability and service obligations such that delays in the development of those facilities could negatively impact its ability to meet such obligations. In response to this concern, Order No. 1000 requires each public utility transmission provider to amend its OATT to describe the circumstances and procedures under which public utility transmission providers in the regional transmission planning process will reevaluate the regional transmission plan to determine if delays in the development of a transmission facility require evaluation of alternative solutions, including those the incumbent transmission provider proposes, to ensure the incumbent can meet its reliability needs or service obligations.

Moreover, in response to concerns that increasing the number of asset owners (i.e., non-incumbent transmission developers) would lead to reliability concerns, the Commission noted that a proposed transmission facility's impact on reliability is an important factor that is considered during the evaluation of a proposed transmission facility. Furthermore, when a non-incumbent transmission developer becomes subject to the requirements of section 215 of the FPA, it will have to comply with all applicable reliability standards and obligations, as every other registered entity is required. Notably, Commissioner Moeller argued in his dissent that the Order should have included the right of a utility to build a project within its franchised service territory in order to maintain the reliability of its existing network, regardless of whether the cost of that project is allocated on a regional basis.

Next Steps

Each public utility transmission provider is required to submit its compliance filing no later than twelve months from Order No. 1000's effective date (i.e., 60 days from its publication in the Federal Register). While the Commission's new transmission planning and cost allocation rules are far reaching, the true extent of their impact will only become clear after the compliance filings are submitted. However, interested stakeholders should, to the extent allowable, participate in any compliance-related discussions held by public utility transmission providers to maximize their impact on the final tariff rules and requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions