On July 21, 2011, the Federal Energy Regulatory Commission (FERC) issued Order No. 1000,1 a Final Rule that reforms FERC’s electric transmission planning and cost allocation requirements for public utility transmission providers. Order No. 1000 builds on transmission planning requirements that FERC initially implemented in Order No. 890, issued in 2007. FERC intends by Order No. 1000 to correct remaining deficiencies with respect to transmission planning processes and cost allocation methods.

The rule requires the development of regional transmission plans, consideration of transmission needs driven by public policy requirements (such as laws or regulations relating to renewable power) and greater coordination between neighboring transmission planning regions. The rule also requires the development of both regional and interregional cost allocation methods that satisfy certain principles set forth in Order No. 1000. The rule is intended to promote competition in regional transmission planning processes by eliminating any existing rights of incumbent transmission owners to build certain projects selected in a regional transmission plan for regional cost allocation. The Order No. 1000 rulemaking has been the focus of much attention in the electric utility industry and the Final Rule has the potential to change significantly how the nation’s transmission infrastructure is planned and upgraded.

“This rule is an important step forward, building on FERC’s successful market reforms over the past 15 years,” FERC Chairman Jon Wellinghoff stated.

Order No. 1000 takes effect 60 days from publication in the Federal Register. Each public utility transmission provider is required to make a compliance filing with FERC within 12 months of the effective date of the Final Rule. Compliance filings for interregional transmission coordination and interregional cost allocation are required within 18 months of the effective date. Public utility transmission providers must consult with stakeholders in the region in developing and implementing their compliance filings.

  • Transmission Planning Reforms. The rule establishes three requirements for transmission planning:
    • Regional Transmission Planning. Each public utility transmission provider must participate in a regional transmission planning process that satisfies the transmission planning principles of Order No. 890 and produces a regional transmission plan. FERC does not prescribe the geographic scope of any transmission planning region in the Final Rule but does note that every public utility transmission provider has already included itself in a region for purposes of complying with Order No. 890’s regional participation transmission planning principle. FERC also states that an individual public utility transmission provider cannot, by itself, satisfy the regional transmission planning requirements of either Order No. 890 or Order No. 1000.
    • Public Policy Requirements. Local and regional transmission planning processes must consider transmission needs driven by public policy requirements established by state or federal laws or regulations. Each public utility transmission provider must establish procedures to identify transmission needs driven by public policy requirements and to evaluate proposed solutions to those transmission needs. Although FERC cites state renewable portfolio standards as an example of a potential public policy requirement, the Final Rule does not mandate the consideration of transmission needs driven by any specific public policy requirement. Instead, the Final Rule requires public utility transmission providers to post on their websites an explanation of which transmission needs driven by public policy requirements will be evaluated for potential solutions in the transmission planning process, as well as an explanation of why other suggested transmission needs will not be evaluated.
    • Interregional Transmission Planning Coordination. Public utility transmission providers in each pair of neighboring transmission planning regions must coordinate to determine if there are more efficient or cost-effective solutions to their mutual transmission needs. FERC intends that neighboring transmission planning regions will enhance their existing regional transmission planning processes to provide for: (1) the sharing of information regarding the respective needs of each region and potential solutions to those needs; and (2) the identification and joint evaluation of interregional transmission facilities that may be more efficient or cost-effective solutions to those regional needs.
  • Cost Allocation Reforms. The rule establishes two requirements for transmission cost allocation:
    • Regional Cost Allocation. Each public utility transmission provider must participate in a regional transmission planning process that has a regional cost allocation method for new transmission facilities selected in the regional transmission plan for purposes of cost allocation. The method must satisfy six regional cost allocation principles.
    • Interregional Cost Allocation. Public utility transmission providers in neighboring transmission planning regions must have a common interregional cost allocation method for new interregional transmission facilities that the regions determine to be efficient or cost-effective. The method must satisfy six similar interregional cost allocation principles.

The six cost allocation principles established by FERC are:

  1. Costs must be allocated in a way that is roughly commensurate with benefits.
  2. There must be no involuntary allocation of costs to non-beneficiaries.
  3. If a cost-benefit ratio is used to determine which transmission facilities have sufficient net benefits to be selected for regional or interregional cost allocation, the threshold must not be so high that transmission facilities with significant positive net benefits are excluded from cost allocation.
  4. Costs must be allocated solely within a transmission planning region unless another entity outside the region voluntarily agrees to assume a portion of those costs
  5. The cost allocation method and data requirements for determining benefits and identifying beneficiaries for a transmission facility must be transparent with adequate documentation.
  6. Transmission providers may choose to use a different cost allocation method for different types of transmission facilities.

The specific application of these principles varies based on whether they apply to regional cost allocation or interregional cost allocation. Participant-funding of new transmission facilities (where the costs of a transmission facility are allocated only to those entities that volunteer to bear those costs) is permitted under Order No. 1000, but is not allowed as the regional or interregional cost allocation method that satisfies the principles in the Final Rule.

  • Nonincumbent Transmission Developers. Order No. 1000 requires public utility transmission providers or transmission owners to remove from FERC-approved tariffs and agreements any federal right of first refusal for a transmission facility selected in a regional transmission plan for purposes of cost allocation. This requirement is subject to the following limitations:
    • This does not apply to a transmission facility that is not selected in a regional transmission plan for purposes of cost allocation.
    • Order No. 1000 does not require the elimination of federal rights of first refusal for incumbent transmission providers or transmission owners to build upgrades to their existing transmission facilities, such as tower change outs or reconductoring. FERC stated it does not plan to alter an incumbent transmission provider’s use and control of its existing rights-of-way.
    • The requirements of Order No. 1000 relating to nonincumbent transmission developers allow, but do not require, public utility transmission providers in a transmission planning region to use competitive bidding to solicit transmission projects or project developers.
    • Nothing in this requirement affects state or local laws or regulations regarding the construction of transmission facilities, including but not limited to authority over siting or permitting of transmission facilities.

Order No. 1000 recognizes that incumbent transmission providers may rely on regional transmission facilities to satisfy their reliability needs or service obligations. The rule requires each public utility transmission provider to amend its tariff to require reevaluation of the regional transmission plan to determine if delays in the development of a transmission facility require evaluation of alternative solutions, including those proposed by the incumbent, to ensure incumbent transmission providers can meet reliability needs or service obligations. If a violation of a mandatory reliability standard would result from a nonincumbent transmission developer’s decision to abandon a transmission facility meant to address the reliability need, the incumbent transmission provider does not have the obligation to construct the nonincumbent’s project, but the incumbent transmission provider must instead develop a mitigation plan to address the violation.

Commissioner Philip D. Moeller dissented from this aspect of the Final Rule, stating that he believes “that the owner of a transmission network should have been provided with greater flexibility to ensure the reliability of its own network.”