In July 2011, the Federal Energy Regulatory Commission (FERC) issued Order No. 1000, which amends transmission planning and cost allocation requirements established in Order No. 890 to ensure just and reasonable, and non-discriminatory transmission rates and access. Order No. 1000 finds that although transmission planning processes have seen “substantial improvements, particularly at the regional level, in the relatively short time since the issuance of Order No. 890,” existing regulations “provide an inadequate foundation for public utility transmission providers to address the challenges they are currently facing or will face in the near future.” In particular, FERC explains that regulations ensuring efficient and cost-effective investment decisions are necessary at this time because changes in generation mix are driving the demand for additional investment in transmission.

Order No. 1000 mandates a number of reforms, including the establishment of a regional transmission planning process, interregional transmission coordination requirements, elimination of the federal right of first refusal, and the issuance of cost allocation guidelines. Each of these reforms is intended to address a current deficiency in FERC’s existing requirements.

Transmission Planning

Order No. 1000 makes several changes to FERC’s existing transmission planning requirements. First, Order No. 1000 updates Attachment K to the pro forma Open Access Transmission Tariff (OATT) to require that each public utility transmission provider, in consultation with stakeholders, participate in a regional transmission planning process to evaluate alternative transmission solutions, including non-transmission alternatives. At the end of this process, transmission providers must produce a regional transmission plan with solutions that meet the region’s need more efficiently and cost-effectively than in the past. In order to ensure that stakeholders have an adequate opportunity to participate in the process, FERC extends Order No. 890’s transmission planning principles to the regional transmission planning process.

Second, Order No. 1000 requires that public utility transmission providers amend their OATTs to include procedures for the identification of transmission needs driven by public policy requirements established under state or federal law, and the evaluation of solutions to meet those needs. Although FERC mandates that public utility transmission providers evaluate public policy requirements, Order No. 1000 does not establish an obligation for the transmission provider to satisfy each public policy requirement under its OATT.

Third, Order No. 1000 requires that neighboring regions develop and implement procedures for the joint evaluation and sharing of information to facilitate interregional planning. Order No. 1000 does not, however, require the development of interregional transmission plans, or mandate transmission planning on an interconnection-wide basis.

Elimination of the Right of First Refusal

Out of concern that incumbent transmission providers can use the right of first refusal to discourage new transmission development, Order No. 1000 requires the removal of any OATT provisions that grant incumbent transmission providers a federal right of first refusal to construct transmission facilities selected in a regional transmission plan for purposes of cost-allocation from FERC-jurisdictional tariffs and agreements. The right of first refusal does not have to be eliminated as to a transmission facility that is not selected in a regional transmission plan, or as to upgrades of an incumbent transmission provider on its own transmission facilities.

To implement the elimination of right of first refusal provisions, FERC adopts a new framework for evaluating transmission proposals. Under Order No. 1000 transmission providers are required to revise their OATTs to (i) demonstrate that the regional planning process has appropriate, non-discriminatory qualification criteria; (ii) identify the information that must be submitted by prospective transmission developers, and the date by which such information must be submitted; and (iii) include a description of a transparent and non-discriminatory evaluation process for the selection of proposed transmission facilities for purposes of cost allocation.

Cost Allocation

Addressing cost allocation, FERC requires that each public utility transmission provider in a region have in place a common method for allocating the costs of new transmission facilities selected in a regional transmission plan for purposes of cost allocation. Similarly, two neighboring transmission planning regions must have a common interregional cost allocation method for new interregional transmission facilities. A particular region may have different regional and interregional cost allocation methods.

Although FERC is allowing each region to develop its own cost allocation method, each regional cost allocation method must meet six regional cost allocation principles. In the event a region cannot agree on a cost allocation method, FERC will make a determination based on the record in the relevant compliance proceedings.

Next Steps

Order No. 1000 becomes effective October 10, 2011, and its principles apply only to new transmission facilities. New transmission facilities are those subject to evaluation or reevaluation within a local or regional transmission planning process after the effective date of the relevant public utility transmission provider’s filing adopting the relevant requirements of Order No. 1000.

In order to implement its changes, FERC revises Attachment K to the pro forma OATT, and specifies a number of additional revisions to the tariffs and agreements of transmission providers. Changes to the OATT and other relevant FERC-jurisdictional documents regarding the regional planning process, and a regional cost allocation method must be made by October 10, 2012. Changes to the OATT and other relevant FERC-jurisdictional documents regarding interregional coordination procedures, and an interregional cost allocation method must be made by April 10, 2012.