Introduction
On July 21, 2011, the Federal Energy Regulatory Commission
(FERC) issued Order No. 1000, a Final Rulemaking that amends the
transmission planning and cost allocation requirements previously
established in Order No. 890.1 In more than 600 pages,
FERC adopted requirements that it hopes will have the effect of
opening transmission development to competition from independent
developers. The Final Rule is already drawing substantial criticism
and will likely be subject to rehearing and appeal.
FERC's stated purpose for this rulemaking was to ensure that
jurisdictional transmission services are "provided at just and
reasonable rates and on a basis that is just and reasonable and not
unduly discriminatory or preferential." The Final Order enacts
four requirements in pursuit of this goal:
- That each public utility transmission provider participate in a regional transmission planning process that produces a regional transmission plan;
- That each public utility transmission provider amend its OATT to describe procedures that provide for the consideration of transmission needs driven by public policy requirements;
- That the federal right of first refusal for certain new transmission facilities be removed from FERC-approved tariffs; and
- That coordination between neighboring transmission planning regions be improved to encourage the development of interregional transmission facilities.
In addition, the Final Order concludes that regional
transmission planning processes must have a regional cost
allocation method for the cost of new transmission facilities and
interregional cost allocation methods for the cost of any new
transmission facilities that are located in two or more neighboring
planning regions.
As the Commission noted in Order No. 1000, the Final Rule is
designed to address inadequacies in the Order No. 890 requirements,
which failed to adequately encourage just and reasonable
transmission development and cost allocation. For example, Order
No. 890 did not require transmission providers to develop regional
transmission plans to determine whether certain transmission
projects might be more cost effective or efficient than other
projects; transmission utilities were not required to consider
transmission needs at the local or regional level; non-incumbent
transmission developers could be discouraged by incumbent
utilities' rights of first refusal to develop transmission
facilities (that the order calls "federal rights of first
refusal"); and few procedures existed to evaluate
interregional transmission solutions.2 By enacting the
requirements of Order No. 1000, FERC seeks to correct the
deficiencies of the former planning process, and achieve its
objective of a coordinated, open and transparent transmission
planning process.
Reform Concerning Regional Transmission Planning
In the Notice of Proposed Rulemaking (NOPR), the Commission
proposed the requirement that each public utility transmission
provider must participate in a regional transmission planning
process that satisfies existing Order No. 890 transmission planning
principals, and that produces a regional transmission
plan.3 Those planning principles are (1) coordination;
(2) openness; (3) transparency; (4) information exchange; (5)
comparability; (6) dispute resolution; and (7) economic planning
studies.4 In the Final Rule, the Commission determined
that this requirement is necessary to ensure proactive cooperation
among public utility transmission providers, which in turn will
better identify transmission solutions to more efficiently or
cost-effectively meet the reliability needs of regional
transmission providers.5
In addition to mandating compliance with the seven planning
principles set forth in Order No. 890, the Final Rule also requires
that each public utility transmission provider amend its OATT to
explicitly provide for consideration of transmission needs driven
by "Public Policy Requirements" in both local and
regional transmission planning processes.6 According to
the Commission, consideration of such policy requirements would
likely facilitate more efficient and cost-effective transmission
planning.7
Federal Right of First Refusal
In the NOPR, FERC had proposed eliminating the provision that
grants incumbent utilities the right of first refusal to construct
a proposed transmission project in their service
territory.8 FERC questioned whether this might result in
undue preference to incumbent utilities, and discriminate against
non-incumbent utilities that would not get the opportunity to
construct transmission facilities in certain areas. This in turn
would discourage non-incumbent utilities from participating in the
regional transmission process.9
After reviewing the comments received during the NOPR process, the
Commission determined that incumbent utilities must remove
provisions from their Commission-jurisdictional tariffs and
agreements that grant them a right of first refusal to construct
transmission facilities.10 These provisions, FERC
stated, have the potential to undermine the evaluation of more
efficient or cost-effective solutions to regional transmission
needs, and lead to rates for transmission service that are unjust
and unreasonable. By removing them, FERC will remove a barrier to
participation by all potential transmission providers in a given
region.11 FERC noted in the Final Rule that the
elimination of the federal right of first refusal would apply only
to new transmission facilities. Incumbent transmission owners will
be permitted to maintain a federal right of first refusal for
upgrades to their own transmission facilities.
Interregional Transmission Coordination
In the NOPR, FERC proposed a requirement that each public utility transmission provider, through its regional transmission planning process, (1) develop procedures for sharing information regarding the respective needs of neighboring transmission planning regions; (2)develop and implement procedures for neighboring public utility transmission providers to identify and evaluate transmission facilities that are proposed to be located in both regions; (3) exchange planning data and information between neighboring transmission planning regions at least annually; and (4) maintain a website or e-mail list for the communication of information related to interregional transmission coordination.12 In the Final Rule, FERC adopted these measures in order to broaden the geographic scope of transmission planning and enable an adequate analysis of the benefits associated with interregional transmission facilities that address transmission needs in an efficient and cost-effective manner.13 However, the Commission declined to require a formal planning agreement between public utility transmission providers of neighboring transmission planning regions, as proposed in the NOPR.14
Proposed Reforms: Cost Allocation
As part of the Final Rule, FERC required that each public
utility transmission provider have in its OATT a method or methods
for allocating the costs of new transmission facilities selected
through the regional transmission plan, and that each public
utility transmission provider develop a method for allocating the
costs of new interregional transmission facilities.15 As
stated in the NOPR, FERC found that challenges concerning the cost
of transmission have become more acute as the need for new
transmission infrastructure has grown. However, there are few rate
structures currently in place that provide for an analysis of the
beneficiaries of a transmission facility, and for the corresponding
allocation and recovery of the facility's costs.16
In enacting this requirement, FERC's goal is to establish a
more stable method of transmission cost allocation, and reduce the
number of litigated cases related to transmission infrastructure
cost allocation.17
To further these goals, the Commission adopted six "Cost
Allocation Principles" that public utility transmission
providers' cost allocation methods must satisfy. The Cost
Allocation Principles are as follows:
- Costs must be allocated in a way that is roughly commensurate with benefits;
- No involuntary allocation of costs to non-beneficiaries;
- A benefit-to-cost ratio not to exceed 1.25 unless approved by the Commission;
- Costs must be allocated solely within the benefitting transmission planning region(s), unless those outside the region(s) voluntarily assume costs;
- There must be a transparent method for determining benefits and identifying beneficiaries; and
- Different methods of allocation may be used for different types of facilities.18
The Final Rule does not stray too far from the principles and
requirements set forth in the NOPR. Criticism leveled at the rule
revolves around a perceived lack of clarity in its requirements.
For example, while the rule requires that costs must be allocated
in a way that is roughly commensurate with the benefits, critics
point out that the rule has not altered the cost sharing approach
that has faced opposition by many industry participants.
Requests for rehearing must be filed with FERC no later than
Monday, August 22, 2011.
Footnotes
1 Transmission Planning and Cost Allocation by
Transmission Owning and Operating Public Utilities, Order No.
1000, RM10-23-000 (Jul. 21, 2011) at ¶ 1, citing
Preventing Undue Discrimination and Preference in Transmission
Service, Order No. 890, 72 FR 1266 (Mar. 15, 2007), FERC Stats
& Regs, ¶ 31,241, order on reh'g, Order No.
890-A, 73 FR 2984 (Jan. 16, 2008), FERC Stats & Regs. ¶
31,261 (2007) order on reh'g and clarification, Order
No. 890-B, 73 FR 39092 (July 8, 2008), 123 FERC ¶ 61,299
(2008), order on reh'g, Order No. 890-C, 74 FR 12540
(Mar. 25, 2009), 126 FERC ¶ 61,228 (2009), order on
clarification, Order No. 890-D, 74 FR 61511 (Nov. 25, 2009),
129 FERC ¶ 61,126 (2009).
2 Order No. 1000 at ¶3.
3 Notice of Proposed Rulemaking at ¶ 44.
4 Order No. 1000 at ¶ 118.
5 Id. at ¶¶ 78-79.
6 Id. at ¶ 203.
7 Id.
8 Notice of Proposed Rulemaking at ¶ 89.
9 Order No. 1000 at 226.
10 Id.
11 Id. at 253.
12 Order No. 1000 at ¶ 345.
13 Id. at ¶ 368.
14 Id. at ¶ 475.
15 Order No. 1000 at ¶ 482.
16 Id. at ¶ 485.
17 Id. at ¶ 498.
18 Order No. 1000 at ¶¶ 603-693.
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