On July 21, 2011, the Federal Energy Regulatory Commission (FERC or the Commission) issued Order No. 1000 (Order 1000 or Final Rule),1 which adopts significant reforms of the Commission’s transmission planning and cost allocation rules established in 2007 in Order No. 890.2 Order 1000 seeks to address changes in the electric power industry, including an increased emphasis on integrating renewable generation and reducing congestion, by implementing new polices to ensure that transmission providers and planners seek the most reliable, efficient and cost-effective solutions.
The major reforms of Order 1000 include: (1) requiring each public utility transmission provider to participate in a regional transmission planning process that produces a regional transmission plan, (2) requiring each public utility transmission provider to amend its open access transmission tariff (OATT) to describe procedures for considering transmission needs driven by public policy requirements established by state or federal laws or regulations (Public Policy Requirements),3 (3) removing from FERC-approved tariffs and agreements any federal right of first refusal (ROFR) for incumbent utilities to build certain new transmission facilities and (4) improving coordination between neighboring transmission planning regions.
With regard to the controversial issue of allocating costs of new transmission infrastructure, Order 1000 requires each FERC-jurisdictional transmission provider to participate in a regional transmission planning process that has both (1) a regional cost allocation method for new facilities selected in a regional transmission plan, and (2) an interregional cost allocation method for certain new transmission facilities that are located in two or more neighboring transmission planning regions and are jointly evaluated by the regions (under specific procedures required by the new rule).
Almost 600 pages long, Order 1000 generally tracks the Notice of Proposed Rulemaking issued on June 17, 2010 (the NOPR),4 while considering over 200 comments on the NOPR submitted by various stakeholders. Order 1000 requires a large number of jurisdictional transmission providers to file significant amendments to their tariffs over the next 12 to 18 months to comply with the Final Rule’s new regional planning and cost allocation policies. These compliance filings must address FERC’s mandate for public utility transmission providers to undertake meaningful regional planning to accommodate new generation demands on the transmission system while maintaining reliability. Order 1000 also establishes principles for allocating the substantial costs of new infrastructure investment among only the parties that receive the benefits. FERC did not, however, adopt a specific approach for complying with these new directives and, thus, each transmission provider must develop its own procedures to address the requirements of the Final Rule. The industry will closely watch as the public utility transmission providers begin amending their tariffs in compliance with Order 1000.
Transmission Planning Reforms
Participation in Regional Transmission Planning Processes
As noted, Order 1000 requires each transmission provider to participate in a transmission planning process that produces a regional transmission plan and that meets the planning principles established in Order No. 890. These threshold principles remain: (1) coordination, (2) openness, (3) transparency, (4) information exchange, (5) comparability, (6) dispute resolution and (7) economic planning.5 Order 1000 seeks to solidify the transmission providers’ affirmative obligations to apply these principles through an organized regional process that requires consideration of alternative solutions — including non-transmission alternatives — that might meet regional needs more efficiently than solutions proposed by individual utilities.
In Order 1000, FERC expresses concern that, although Order No. 890 required public utility transmission providers to coordinate at the regional level for the purpose of sharing system plans and identifying enhancements that could relieve congestion or integrate new resources or loads, the transmission providers were not obligated to take affirmative steps to identify potential solutions at the regional level.6 In addressing this concern, FERC seeks to ensure that public utility transmission providers identify and evaluate transmission alternatives at the regional level that may resolve the region’s needs more efficiently or cost-effectively than solutions identified in the local transmission plans of individual transmission providers.7 Order 1000 thus requires public utility transmission providers to evaluate, in consultation with stakeholders, alternative transmission solutions that might meet the needs of the region more efficiently or cost-effectively than solutions identified by individual providers in their local planning processes, including facilities needed to meet reliability requirements, address economic considerations, and/or meet needs driven by public policy requirements.8 In undertaking such evaluations, transmission providers must consider proposed non-transmission alternatives on a comparable basis. Where it is determined that an alternative transmission solution is more efficient or cost-effective than transmission facilities in local transmission plans, then the facilities associated with that more efficient or cost-effective transmission solution can be selected in the regional plan for purposes of cost allocation.9
FERC declines to specify in Order 1000 a particular set of analyses that must be performed by transmission providers within regional planning processes. Instead, FERC indicates that public utility transmission providers have the flexibility to develop, in consultation with stakeholders, evaluative procedures and criteria. FERC further indicates that it will review such procedures and criteria on compliance and issue further guidance as necessary.10
Consideration of Projects Driven By Public Policy Requirements
Consistent with the NOPR, Order 1000 requires transmission providers to amend their OATTs to describe procedures providing for the consideration of transmission needs driven by Public Policy Requirements in local and regional transmission planning processes.11 Comments on the NOPR generally agreed with this proposed reform, which had been proposed to remedy opportunities for undue discrimination by requiring public utility transmission providers to provide all stakeholders the opportunity to provide input into what they believe are transmission needs driven by Public Policy Requirements — rather than the public utility transmission provider planning only for its needs or the needs of its native load customers.12
In Order 1000, FERC emphasizes it is not requiring the identification of any particular transmission need driven by any particular Public Policy Requirement. Rather, each public utility transmission provider must establish procedures for identifying those transmission needs driven by Public Policy Requirements for which potential transmission solutions will be evaluated in the local or regional planning processes.13 The Final Rule allows for local and regional flexibility in designing the procedures for evaluating potential solutions, subject to the Commission’s review on compliance, but requires that stakeholders have an opportunity to provide input and offer proposals regarding transmission needs they believe are driven by Public Policy Requirements.14 Reforms Concerning Nonincumbent Transmission Developers
The Final Rule directs transmission providers to, with certain exceptions, eliminate any provisions in FERC-jurisdictional tariffs and agreements that establish a federal ROFR for an incumbent transmission provider to construct transmission facilities selected in a regional transmission plan for purposes of cost allocation.15 In Order 1000, FERC concludes that these reforms are necessary to eliminate planning practices that could potentially undermine the identification and evaluation of more efficient alternatives to regional transmission needs, which in turn could result in rates that are unjust and unreasonable, or otherwise result in undue discrimination by transmission providers.16 FERC states its focus in Order 1000 is on transmission facilities that are initially evaluated at the regional level and selected in a regional plan for purposes of cost allocation — but not facilities included in a local plan and later “rolled up” into a regional plan without going through a needs analysis at the regional level. These types of local plan facilities would not be eligible for regional cost allocation.17
Order No. 890 did not specifically address the potential for, or effect of, undue preference to incumbent utilities over nonincumbent transmission developers within transmission planning processes. In Order 1000, FERC observes that, as a result of existing practices in some areas, a nonincumbent transmission developer could lose the opportunity to construct its proposed transmission project to the incumbent transmission owner if that owner has a federal ROFR to construct any transmission facility in its service territory.18 FERC concludes that a federal ROFR may be leading to rates that are unjust and unreasonable by creating a barrier to entry that discourages nonincumbent transmission developers from proposing alternative solutions at a regional level.19 At the same time, however, FERC indicates that these reforms are not intended to affect the right of an incumbent transmission provider to build, own and recover costs for upgrades to its own transmission facilities, or alter its use and control of an existing right of way, nor are they intended to limit, preempt, or otherwise affect state or local laws or regulations regarding construction of transmission facilities.20
Order 1000 does not require the removal of a federal ROFR as applicable to local transmission facilities — transmission facilities located solely within a public utility transmission provider’s retail distribution service territory or footprint that is not selected in the regional transmission plan for purposes of cost allocation.21 FERC also explains in Order 1000 that its reforms do not affect the right of an incumbent transmission provider to build, own and recover costs for upgrades to its own transmission facilities, regardless of whether an upgrade has been selected in the regional transmission plan for purposes of cost allocation.22 FERC cites tower change outs and reconductoring as examples of such upgrades, but declines to provide specific guidance on the scope of an “upgrade” for which an incumbent may build, own and recover costs.
Order 1000 adopts a framework to develop qualification criteria to govern the submission and evaluation of proposals for transmission facilities to be evaluated in regional transmission planning processes.23 In particular, Order 1000 mandates three areas in which a public utility transmission provider must revise its OATT:
- The OATT must demonstrate that the regional planning process has established appropriate (e.g., not unduly discriminatory or preferential) qualification criteria for determining an entity’s eligibility to propose a transmission project for selection in the regional plan for purposes of cost allocation, regardless of whether that entity is an incumbent provider or nonincumbent developer. The qualification criteria must provide each potential developer with the opportunity to demonstrate that it has the necessary financial resources and technical expertise to develop, construct, own, operate and maintain transmission facilities.24
- The OATT must identify both (1) the information that must be submitted by a prospective transmission developer in support of a project it proposes in the regional planning process and (2) the date by which such information must be submitted to be considered in a given planning cycle. To ensure consistency, the Commission requires each provider’s OATT to have the same information requirements as other providers in the same planning region.25
- The OATT must describe a transparent (and not unduly discriminatory) process for evaluating whether to select a proposed transmission facility in the regional plan for purposes of cost allocation. The process must comply with the Order No. 890 transmission planning principles and must culminate in a determination that is sufficiently detailed for stakeholders to understand why a particular project was or was not selected.26
The framework also requires that each public utility transmission provider participate in a regional transmission planning process that provides that nonincumbent developers with an opportunity comparable to that of incumbent transmission developers to allocate the cost of their sponsored-transmission facilities through a regional cost allocation method.27 In Order 1000, FERC declines to adopt an aspect of the proposed rule that would have required OATTs to contain a regional transmission planning process that provides a right to construct and own a transmission facility. FERC also declines to adopt a proposal under which a transmission developer could maintain, for a defined period of time, a right to build and own a transmission project that it proposed but that is not selected.28
Interregional Transmission Coordination
Order 1000 also adopts several reforms to improve coordination among public utility transmission planners aimed at facilitating the identification and evaluation of interregional transmission facilities that may resolve the individual needs of neighboring planning regions more efficiently and cost-effectively.29 Specifically, each transmission provider, through its regional planning process, must: (1) coordinate with transmission providers in each of its neighboring planning regions within its interconnection to implement procedures that provide for information sharing regarding the respective needs of neighboring planning regions, as well as the identification and joint evaluation of potential interregional transmission facilities that address those needs30 and (2) implement procedures for neighboring planning regions to identify and jointly evaluate transmission facilities that are proposed to be located in both regions.31 To facilitate these joint evaluation measures, each public utility transmission provider, through its regional planning process, must adopt interregional coordination procedures that provide for the exchange of planning data and information at least on an annual basis.32 At the same time, however, in Order 1000, FERC declines to require that the coordination between transmission providers in neighboring planning regions be reflected in a formal interregional planning agreement filed with FERC.33
Cost Allocation Reforms
Under Order 1000, each public utility transmission provider must include in its OATT a method, or set of methods, for allocating the costs of new transmission facilities selected in a regional transmission plan for purposes of cost allocation.34 Similarly, Order 1000 requires that each public utility transmission provider, together with the other public utility transmission providers in its own planning region and a neighboring planning region, develop a common method or methods for allocating the costs of a new interregional transmission facility among the beneficiaries of that facility in the two neighboring transmission regions in which the facility is located.35
While Order 1000 does not specify a cost allocation method or methods for regional and interregional transmission facilities, these methods must adhere to six general cost allocation principles:
- Principle 1: Costs of facilities must be allocated to those within the planning region that benefit from those facilities in a manner that is at least roughly commensurate with benefits;36
- Principle 2: Costs cannot be involuntarily allocated to non-beneficiaries;37
- Principle 3: Any benefit to cost threshold used to determine which facilities have sufficient net benefits to be selected in a regional and/or interregional plan for cost allocation may not exceed a ratio of benefits to costs of 1.25 unless approved by the Commission;38
- Principle 4: Costs for a project selected in a regional planning process must be allocated solely within that planning region unless those outside the region voluntarily assume a portion of the costs;39
- Principle 5: The cost allocation method and data requirements for determining benefits and identifying beneficiaries of a facility must be transparent;40 and
- Principle 6: Different cost allocation methods may be used for different types of facilities, e.g., facilities needed for reliability, congestion relief, or to achieve Public Policy Requirements.41
Each cost allocation method must be clearly explained in a utility’s compliance filing.42
Issues Determined To Be Outside the Scope of the Proceeding
In response to the NOPR, commenters had raised cost allocation issues related to generator interconnection costs in Order No. 2003,43 pancaked transmis sion rates policy in Order No. 2000,44 transmission rate incentives in Order No. 679,45 the separate FERC proceeding on variable energy resources in Docket No. RM10-11-000, and joint transmission ownership. For example, some commenters sought clarification on coordination of regional transmission planning processes with generator interconnection study processes46 and expressed concerns regarding whether larger interconnection-related network upgrades (e.g., long distance or higher voltage transmission lines) should be submitted through a regional request window for each planning cycle and evaluated in the regional planning process, and whether the generator interconnection process allows transmission providers to circumvent the transmission planning process by proposing projects that are constructed by transmission providers.47
Other commenters drew connections between cost allocation issues and the Commission’s transmission rate incentives policy by, for example, arguing that transmission providers should be able to recover only the costs associated with a major transmission project through formula rates if that project was a part of an Order No. 890-compliant planning process that also meets the requirements of Order 1000.48
FERC declined to address these issues and stated that such issues related to the generator interconnection process, interconnection cost recovery, pancaked rates, transmission rate incentives, variable energy resources operational matters and specific financing techniques such as joint ownership are outside of the scope of Order 1000.49 The Commission did acknowledge, however, “the importance of evaluating the impact of generator interconnection requests during transmission planning.”50
Order 1000 requires each public utility transmission provider to, within 12 months of the effective date of the Final Rule, amend its OATT to comply with the Final Rule, with the exception of provisions for interregional transmission coordination and interregional cost allocation for which compliance filings are required within 18 months of the effective date of the Final Rule. Order 1000 takes effect within 60 days of publication in the Federal Register.51