On July 21, 2011, the Federal Energy Regulatory Commission (“FERC”) issued a new rule that for the first time requires public utilities to plan new transmission lines specifically to integrate renewable energy projects, adopts new regional planning cost allocation principles for the new lines, and bans utilities from giving themselves a “right of first refusal” to build new transmission facilities as part of federal open access transmission tariffs (“OATTs”). Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, 136 FERC ¶ 61,051 (2011).

The new rule, dubbed “Order No. 1000,” revamps the transmission planning processes and cost allocation methods established by FERC just four years ago in Order No. 890. The Commission adopted Order No. 1000 in large part to ensure that transmission planning processes and cost allocation requirements adequately promote the development of transmission infrastructure on a more efficient and cost-effective basis.

The rule requires all public utility transmission providers, RTOs/ISOs, and non-jurisdictional entities with FERC reciprocity tariffs, to make compliance filings within one year of the effective date to, among other things:

  1. incorporate a regional transmission planning process that evaluates transmission alternatives at the regional level to resolve the region’s needs efficiently and costeffectively;
  2. incorporate planning for policy-driven transmission upgrades, such as those required to integrate renewable and demand resources;
  3. improve coordination among transmission planning processes across regions by developing and implementing procedures for joint evaluation and sharing of information regarding the respective transmission needs of each region and potential solutions to those needs;
  4. use a “beneficiary pays” method to allocate cost responsibility for new transmission facilities that are selected in a regional transmission plan for the purposes of cost allocation;
  5. develop an interregional cost allocation method for the cost of certain new interregional transmission facilities that are jointly evaluated by two or more transmission planning regions, again using the “beneficiary pays” approach; and
  6. eliminate from FERC-filed tariffs and agreements any federal right of first refusal (“ROFR”) for incumbent transmission owners to build transmission facilities selected in a regional transmission plan, subject to certain exceptions.

A more detailed summary of FERC’s requirements is as follows:

Transmission Planning

Order No. 1000 establishes three requirements for transmission planning:

  1. Regional Transmission Plans

Although Order No. 890 required regional transmission planning, FERC worried that the rule was not achieving its goal to promote regional transmission expansions, and that planning was not adequately considering the transmission needs of renewable generation, which is often built in locations that are far from load centers. To remedy this problem, the Final Rule requires transmission providers to take part in regional transmission planning processes to identify the transmission facilities and non-transmission solutions that are needed to meet the needs of transmission customers and other stakeholders in the region, culminating in the development of a single regional transmission plan.

  1. Consideration of Public Policy Requirements

Order No. 1000 also mandates that transmission providers must specifically include in their transmission plans consideration of state or federal mandates to promote renewable generation or demand-side management programs. Additionally, through consultation with stakeholders, transmission providers may include public policy objectives not specifically mandated by state or federal law. FERC is directing transmission providers to incorporate these obligations directly into their open access transmission tariffs.

  1. Interregional Coordination

Order No. 1000 further requires neighboring transmission providers to coordinate with one another to determine if there are more efficient or cost-effective solutions to the transmission needs of each region. FERC is concerned that a lack of transmission planning among transmission providers may be increasing costs unnecessarily. FERC envisions that RTOs and non-RTO public utilities will enter into interregional transmission planning agreements that will include detailed descriptions of the process for coordinated planning as well as: (1) commitments to coordinate and share the results of regional transmission plans; (2) agreements to exchange planning data and information at least annually; (3) formal procedures to identify and jointly evaluate transmission facilities that are proposed to be located in both transmission planning regions; and (4) commitments to maintain a website or e-mail list to communicate information related to the coordinated planning process.

Cost Allocation

With respect to transmission cost allocation, Order No. 1000 establishes the following requirements:

  1. Regional Cost Allocation Methods

All transmission providers must participate in a regional transmission planning process that has a regional cost allocation method for new transmission facilities selected in a regional transmission plan for purposes of cost allocation. This process must satisfy six regional cost allocation principles: (1) transmission costs must be allocated in a manner that is roughly commensurate with benefits; (2) those who receive no benefit, either at present or in likely future scenarios, must be allocated no cost; (3) if benefit-to-cost metrics are used, they must not be so high that facilities with significant positive net benefits will be excluded from cost allocation; (4) the costs must be allocated solely within the planning region, unless another entity outside the region has voluntarily agreed to bear a share of the costs; (5) the cost allocation method and data requirements for determining benefits must be transparent; and (6) the allocation plan may use different methods for reliability, congestion, and public policy upgrades. Participant-funding approaches, under which the costs of transmission facilities are allocated only to those who volunteer to bear those costs, are not allowed as a regional cost allocation method.

  1. Interregional Cost Allocation Methods

Transmission providers in neighboring regions must develop a common interregional cost allocation method for new interregional transmission facilities that both regions deem to be efficient or cost-effective. Interregional cost allocation methods must satisfy six cost allocation principles that are analogous to the six regional cost allocation principles, and participant-funding is not permitted as an interregional cost allocation method.

Rights of First Refusal

Order No. 1000 finds that giving incumbent transmission owners a right of first refusal to build new transmission lines in their service areas is unduly discriminatory. FERC concludes that the ROFR can cause non-incumbent transmission owners to lose the opportunity to construct transmission projects, leading to higher costs and less efficient transmission expansions. Accordingly, transmission providers must remove from FERC-approved tariffs and agreements any federal ROFR to build new transmission facilities, subject to four limitations:

  1. The requirement does not apply to a transmission facility that is not selected in a regional transmission plan for purposes of cost allocation.
  2. The requirement does not apply to upgrades to existing transmission facilities.
  3. The new rule allows, but does not require, transmission providers in a transmission planning region to use competitive bidding to solicit transmission projects or project developers.
  4. The requirement does not affect state or local laws or regulations.

The exclusions mean that, as a practical matter, incumbent transmission owners will continue to have a significant “home field” advantage over transmission developers.

Compliance Filing Requirements

With the exception of the requirements regarding interregional transmission coordination procedures and interregional cost allocation methods, transmission providers must submit a compliance filing within one year of the effective date of the Final Rule to revise their OATTs and other documentation as necessary to demonstrate compliance with the Final Rule. Transmission providers must also submit a compliance filing within eighteen months of the effective date of the Final Rule revising their OATTs and/or other document(s) as necessary to demonstrate compliance with the requirements regarding interregional transmission coordination procedures and interregional cost allocation methods. Transmission owners that are part of an RTO or ISO may demonstrate compliance through that RTO’s/ ISO’s compliance filing and are not required to make a separate compliance filing. This includes compliance with the interregional transmission coordination requirements to the extent an RTO or ISO has negotiated the necessary arrangements on behalf of its members.

To assist utilities in their efforts to comply with the directives in Order No. 1000, FERC staff will hold informational conferences within 60 days of the Final Rule’s effective date.