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Legal Update

FERC Issues Order Concerning Transmission Planning and Cost Allocation

25 July 2011
Mayer Brown Legal Update

On July 21, 2011, the US Federal Energy Regulatory Commission (FERC) issued Order No. 1000,1 a landmark order regarding transmission planning and allocation of the related costs. (The rulemaking that led to Order No. 1000 was previously discussed in our Legal Updates dated June 21 and July 27, 2010.) Order No. 1000 potentially represents the next significant step toward making electric transmission planning a key priority for FERC. In requiring both regional and inter-regional consideration of public policy benefits in related transmission planning, and for these policy benefits also to be included in the determination of appropriate cost allocation, the Order should be welcomed by renewable energy proponents.

However, many state regulators will object to FERC’s intrusion into what they perceive to be their jurisdiction. FERC’s compromise on the right of incumbent utilities to build new transmission facilities may satisfy neither side of the debate. And thorny questions of cost allocation—designed to ensure that costs and benefits are reasonably commensurate—already have been the focus of proposed legislation and inter-regional debate. FERC’s articulation of broad standards is not likely to end that debate.

Generally, Order No. 1000:

  • Requires that each public utility transmission provider participate in a regional planning process that produces a regional transmission plan;
  • Requires each public utility transmission provider to amend its open access transmission tariff to describe the procedures for the consideration of transmission needs driven by public policy requirements in the local and regional transmission planning processes;
  • Removes from FERC-approved tariffs and agreements a federal right of first refusal for certain, but not all, new transmission facilities; and
  • Requires steps to improve coordination between neighboring transmission planning regions for new interregional transmission facilities.

Also, Order No. 1000 requires each public utility transmission provider to participate in a regional transmission planning process that addresses cost allocation issues by adopting:

  • A regional cost allocation method for the cost of new transmission facilities selected in a regional transmission plan for purposes of cost allocation; and
  • An interregional cost allocation method for the cost of certain new transmission facilities that are located in two or more neighboring transmission planning regions and are jointly evaluated by the regions in the interregional transmission coordination procedures required by Order No. 1000.

Order No. 1000 provides new guidance regarding cost allocation plans. It requires that each regional transmission organization (RTO) or Independent System Operator (ISO), on behalf of its transmission owning members or, in a non-RTO/ISO transmission planning region, an individual public utility transmission provider, to demonstrate through a compliance filing that its cost allocation method or methods for new transmission facilities satisfy the following regional cost allocation principles:

  • The cost of transmission facilities must be allocated to those within the transmission planning region that benefit from those facilities in a manner that is at least roughly commensurate with estimated benefits. In determining the beneficiaries of transmission facilities, a regional transmission planning process may consider a broad spectrum of benefits, including the extent to which transmission facilities, individually or in the aggregate, provide for maintaining reliability and sharing reserves, offer production cost savings and congestion relief, and/or meet public policy requirements established by state or federal laws or regulations that may drive transmission needs.
  • Those that receive no benefit from transmission facilities, either at present or in a likely future scenario, must not be involuntarily allocated the costs of those facilities.
  • If a benefit-to-cost threshold is used to determine which facilities have sufficient net benefits to be included in a regional transmission plan for the purpose of cost allocation, the threshold must not be so high that facilities with significant positive net benefits are excluded from cost allocation. A transmission planning region or public utility transmission provider may want to choose such a threshold to account for uncertainty in the calculation of benefits and costs. If adopted, such a threshold may not include a ratio of benefits to costs that exceeds 1.25 unless the transmission planning region or public utility transmission provider justifies and the Commission approves the greater ratio.
  • The allocation method for the cost of a regional facility must allocate costs solely within that transmission planning region unless another entity outside the region—or another transmission planning region—voluntarily agrees to assume a portion of those costs. However, the transmission planning process in the original region must identify consequences for other transmission planning regions, such as upgrades that may be required in another region; if there is an agreement for the original region to bear costs associated with such upgrades, then the original region’s cost allocation method or methods must include provisions for allocating the costs of the upgrades among the entities in the original region.
  • The cost allocation method and data requirements for determining benefits and identifying beneficiaries for a transmission facility must be transparent, with adequate documentation to allow a stakeholder to determine how they were applied to a proposed transmission facility.
  • A transmission planning region may choose to use a different cost allocation method for different types of transmission facilities in the regional plan, such as transmission facilities needed for reliability, congestion relief, or to achieve public policy requirements established by state or federal laws or regulations. Each cost allocation method must be set out clearly and explained in detail in the compliance filing pursuant to Order No. 1000.

For a copy of our more detailed analysis of Order No. 1000, or for more information about the topics addressed in this Legal Update, please contact at +1 312 701 7366 or at +1 312 701 8079.

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Footnotes:
  1. 136 FERC ¶61,051 (2011).

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