Monday, September 12, 2011
An Overview of FERC Order 1000: Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities
The Federal Energy Regulatory Commission (“FERC”) has jurisdiction over bulk wholesale electricity markets and interstate transmission. FERC has been engaged in reforming transmission planning and cost allocation through several landmark orders. FERC Order 1000 issued on July 21, 2011, is the next step in the evolution of the FERC’s approach to address regional transmission planning processes.
Brief Background to Order 1000
FERC first addressed transmission planning in 1996 with FERC Order No. 888 requiring open access to transmission facilities to address unduly discriminatory and anticompetitive practices. In broad terms, Order 888 required all public utilities to adopt the pro forma open access transmission tariff (OATT) and provide transmission service for its customers comparable to the transmission service they provide themselves. Order 888 did not require utilities to engage in regional planning efforts.
In 2007, determining that its open access program had certain flaws, FERC issued Order 890 requiring coordinated, open and transparent regional transmission planning processes. Among other things, Order 890 established that each transmission provider must file a new Attachment K as part of its OATT describing how its transmission planning process satisfies the following nine planning principles: (1) coordination; (2) openness; (3) transparency; (4) information exchange; (5) comparability; (6) dispute resolution; (7) regional participation; (8) economic planning studies; and (9) cost allocation for new projects.
Subsequent to Order 890, the FERC held a series of technical conferences to address further planning issues and on June 17, 2010 FERC issued a Notice of Proposed Rulemaking identifying further reforms in the areas of transmission planning and cost allocation. The FERC noted, however, that the intention was not to disrupt progress being made with respect to transmission panning and investment in transmission infrastructure, but to address deficiencies in these processes to enable better support of wholesale power markets.
On July 21, 2011 FERC issued the Final Rule (“Final Rule” or “Rule”) providing for reforms in the areas of planning, cost allocation, and nonincumbent developers. A power point discussion of the Rule can be found here: http://www.ferc.gov/media/news-releases/2011/2011-3/07-21-11-E-6-presentation.pdf
The Rule establishes three categories of planning reform: (1) public utility transmission providers are required to participate in a regional transmission planning process that satisfies Order No. 890 principles and produces a regional transmission plan; (2) local and regional transmission planning process must consider transmission needs driven by public policy requirements established by state or federal laws or regulations (e.g., Renewable Portfolio Standard requirements); and (3) public utility transmission providers in each pair of neighboring transmission planning regions must coordinate to determine if more efficient or cost-effective solutions are available. However, with respect to interregional transmission, the FERC declined to mandate a requirement for neighboring transmission regions to produce an interregional transmission plan or to engage in interconnection-wide planning.
The Rule does not mandate specific cost allocation methods. Rather, the Rule provides that methods for cost allocation must be based on six cost allocation principles: (1) cost allocated must be “roughly commensurate” with estimated benefits; (2) those who do not benefit from transmission do not have to pay for it; (3) benefit-to-cost thresholds must not exclude projects with significant net benefits; (4) no allocation of costs outside a region unless other region agrees; (5) cost allocation methods and identification of beneficiaries must be transparent; and (6) the methods must allow the use of different allocation methods for different types of transmission facilities. Thus, the Rule does not require a one-size fits all method for allocating costs.
To facilitate understanding of how the order impacts non-RTO markets, the FERC has scheduled two webinars. More information on these webinars can be found here: http://www.ferc.gov/EventCalendar/EventDetails.aspx?ID=5952&CalType=%20&CalendarID=116&Date=09/13/2011&View=Listview
Nonincumbent Developers – Removal of Federal Right of First Refusal (“ROFR”)
The Rule further acknowledges that Order 890 did not specifically address the potential for, or effect of, undue preference to incumbent utilities over nonincumbent transmission developers through practices applied within transmission planning processes. As a result, there is the potential for a nonincumbent developer to lose the opportunity to construct its proposed transmission project to the incumbent transmission owner if that owner has a Federal Right of First Refusal (“ROFR”) to construct any transmission facility in its service territory. The new Rule addresses nonincumbent developers by requiring removal of any ROFR from Commission-approved tariffs and agreements with respect to new transmission facilities selected in a regional transmission plan for purposes of cost allocation. The removal of the ROFR is subject to four limitations:
1. Removal does not apply to a transmission facility that is not selected in a regional transmission plan for purposes of cost allocation;
2. Removal does not apply to upgrades to transmission facilities;
3. Removal allows, but does not require, use of competitive bidding to solicit transmission projects or project developers; and
4. Removal does not impact state or local laws or regulations regarding the construction of transmission facilities.
The impacts of the Rule on transmission planning will likely become clearer after the compliance period. Under the rule each transmission provider is required to make a compliance filing within twelve months of the effective date of the Final Rule. Compliance filings for interregional transmission coordination and interregional cost allocation must be filed within eighteen months of the effective date.
FERC’s transmission and cost allocation page can be found here: http://www.ferc.gov/industries/electric/indus-act/trans-plan.asp