A landmark order ("Order No. 1000") issued by the Federal Energy Regulatory Commission ("FERC") on July 21, 2011, is likely to have a profound impact on the nation's electric transmission system for decades to come. Over the past several years, an ever-increasing amount of new wind (the predominant type of renewable energy), solar and other renewable energy supply resources have been developed, largely in response to state and federal public policy requirements and incentives. This trend will continue for the foreseeable future and is transforming our electricity supply. Wind power resources are often developed far from where the electricity is consumed, such as large wind farms built in the Dakotas to serve consumers in the cities of the Midwest. To bring energy from these new resources to consumers, a robust electric transmission system is essential. The development of that essential infrastructure to meet the needs of a transforming industry has been stalled because of lack of clear policy and requirements from the federal government regarding transmission expansion. Order No. 1000, however, will reverse that situation and, instead, drive transmission expansion. By providing for greater clarity, certainty, and mandatory participation regarding transmission planning and cost allocation, the order will likely lead to hundreds of billions of dollars of investment in and expansion of transmission infrastructure throughout the nation. Two major features of Order No. 1000 are highlighted below.
First, Order No. 1000 requires transmission planning on a regional and interregional basis. Each public utility transmission provider must participate in a regional transmission planning process that produces a regional transmission plan, rather than developing transmission on a relatively uncoordinated, piecemeal basis. The regional plan must identify transmission needs and evaluate and select solutions that are more efficient or cost-effective than individual solutions developed by each of the individual transmission providers in a region. The regional transmission planning processes must also consider transmission needs driven by public policy requirements established by state or federal laws or regulations, such as requirements to include a certain percentage of renewable energy resources in the energy supplied to consumers. Most regions now plan transmission only for the purpose of maintaining reliability - "to keep the lights on." Planning for public policy requirements will be a major change for most of the country and will likely lead to major expansion of transmission to meet state renewable energy and environmental requirements.
Second, Order No. 1000 establishes much-needed requirements for transmission cost allocation. A clear, comprehensive cost allocation method is one of the most important factors in getting new transmission built, given the potential for multibillion-dollar investments in major transmission. For many regions of the country, agreement on such a method has been the hardest transmission expansion issue to resolve, impeding the integration of new renewable energy resources. Order No. 1000's requirements should help overcome this obstacle. The order requires that each public utility transmission provider must have in place a cost allocation method for new transmission facilities selected in the regional transmission plan. Although Order No. 1000 allows each region considerable flexibility to determine what cost allocation method it will use, the order requires that each method must satisfy certain cost allocation principles, e.g., the costs allocated must be "roughly commensurate" with estimated benefits. Each region will need to have some clearly articulated, transparent method for determining who causes the costs or who benefits from new transmission so that those costs can be allocated.
The FERC has taken a major step forward with Order No. 1000 to make transmission planning more systematic and comprehensive and transmission cost allocation more clear and certain, all of which will spur investment in transmission expansion. Now comes the challenge of each transmission provider throughout the nation working with the states, market participants and other stakeholders in its region to figure out how best to implement the reforms of Order No. 1000 and expand the electricity highway system.