HIGHLIGHTS

FERC's Order No. 1000 changes existing transmission planning and cost allocation requirements.

Planning: Each public utility transmission provider must participate in a regional transmission planning process consistent with existing FERC rules and establish procedures to identify transmission needs resulting from federal or state public policy requirements.

Costs: Transmission costs must be allocated in a manner that is "roughly" commensurate with anticipated benefits.

Controversy? Order 1000 eliminates incumbent transmission providers' rights of first refusal to develop and build transmission projects identified in an approved regional transmission planning process (and subject to regional cost allocation).

On July 21, 2011, the Federal Energy Regulatory Commission announced significant changes to transmission planning and cost allocation methodologies associated with new electric transmission development. With the issuance of its much anticipated Order No.1000 ("Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities"), FERC is now requiring that every utility transmission provider participate in a regional transmission planning process. It is also now requiring that all regional transmission planning be consistent with FERC rules and transmission providers establish procedures to identify transmission needs resulting from federal or state public policy requirements (e.g., transmission infrastructure necessary to meet state renewable portfolio standards). Order 1000 also addresses the long controversial topic of who should pay for needed transmission infrastructure, which has been the subject of contentious litigation in recent years as significant new transmission costs have been allocated beyond state borders and utility service territories.

Order 1000 makes it clear that transmission costs will be allocated in a manner that is "roughly" commensurate with anticipated benefits. This requirement addresses a key concern expressed by stakeholders that entities that do not benefit from new transmission facilities should not be forced to pay the costs of those facilities. Nevertheless, it is unlikely that this will end the controversy inherent in transmission cost allocation due to the imprecise nature of ratemaking and stakeholders' differing views of whether anticipated benefits outweigh the expected costs.

Order 1000 also requires that public utility transmission providers in neighboring transmission planning regions have a common interregional cost allocation method for new interregional transmission facilities. Under this requirement, to be eligible for interregional cost allocation, a transmission facility must be selected in the regional transmission plan for purposes of cost allocation in each of the transmission planning regions in which the transmission facility would be located.

Perhaps the most controversial step taken in Order 1000 is a decision to eliminate incumbent transmission providers' rights of first refusal to develop and build transmission projects identified in an approved regional transmission planning process (and subject to regional cost allocation). The Commission reasoned that rights of first refusal for incumbent transmission providers have the potential to undermine more efficient and cost-effective solutions to regional transmission needs and could otherwise result in undue discrimination against non-incumbent transmission providers. The Commission declined, however, to address specific claims that eliminating such rights of first refusal in some contexts would require it to make specific "public interest" determinations before reforming negotiated contracts. Instead, FERC indicated that such issues would be addressed in filings made in compliance with the Final Rule. As a result, it is reasonable to assume that the elimination of the rights of first refusal will be subject to ongoing litigation as stakeholders challenge the Final Rule on rehearing and its future application.

Order 1000 takes effect 60 days from publication in the Federal Register. Each public utility transmission provider is required to make a compliance filing with the Commission within 12 months of the effective date of the Final Rule, while compliance filings for interregional transmission coordination and interregional cost allocation are required within 18 months of the effective date.

Related Rulemakings

As the Commission continues its focus on transmission reform, interested stakeholders should keep in mind two upcoming comment dates. First, comments on FERC's Notice of Inquiry, Promoting Transmission Investment Through Pricing Reform (Docket No. RM11-26-000) are due August 25, 2011. In the NOI, FERC is requesting comments on the scope and implementation of its transmission incentive regulations and policies under Order No. 679.

Second, on June 16, 2011, FERC issued a Notice of Inquiry seeking comments on two distinct issues: (1) third-party sales of ancillary services and (2) accounting and financial reporting requirements for new energy storage technologies. Comments on this NOI are due August 22, 2011.