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Legal Update

FERC Issues Further Guidance Regarding Transmission Cost Allocation and Planning: Much More Remains Unresolved

27 July 2010
Mayer Brown Legal Update

The US Federal Energy Regulatory Commission (FERC) and the electric industry continue to struggle with the issue of who should bear the costs of transmission upgrades and how related planning should be handled. A recent FERC filing addresses one set of proposals, while another recent filing sets the stage for further action.

In two related, recent FERC orders1 accepting tariff revisions by Southwest Power Pool, Inc. (SPP), FERC has provided additional guidance regarding transmission cost allocation and planning following FERC’s related recent notice of proposed rulemaking.2

In the Cost Allocation Order, FERC permits SPP to adopt the so-called “Highway/Byway Methodology” and to allocate related transmission costs for certain transmission projects3 based on the related voltage, as follows:

(1) Facilities operating at 300kV or above, 100 percent across the SPP region on a postage stamp basis;

(2) Facilities operating above 100kV and below 300kV, one-third on a regional postage stamp basis and two-thirds to the zone in which the facilities are located; and

(3) Facilities operating below 100kV, 100 percent to the zone in which the facilities are located.

Notably, the SPP tariff has a special treatment for transmission costs associated with a wind resource that is not located in the transmission customer’s delivery zone and will allocate costs for these facilities operating at 300kV 100 percent on a regional postage stamp basis and, for facilities operating at less than 300kV, 67 percent regionally, with the balance allocated to the transmission customer.

In the Planning Order, SPP implements a planning process that includes 20-Year, 10-Year and Near-Term Assessments, with the 20-Year and 10-Year Assessments initiated every three years and the Near-Term Assessments initiated annually. The 20-Year Assessment focuses on facilities that will operate at 300kV or above, while the 10-Year Assessment focuses on 100-300kV facilities. The Near-Term Assessment focuses on reliability and compliance with NERC’s reliability standards.

The SPP orders will, of course, not be the last word on the subject. The general issues of cost allocation will be considered in the NOPR. However, the NOPR may produce general guidelines, rather than specific guidance.

FERC will have to address more specific proposals in ruling on the July 15, 2010 proposal submitted by Midwest Independent Transmission System Operator, Inc. (MISO), in Docket No. ER10-1791-000. These include:

(1) The creation of a new category of transmission projects designated as Multi-Value Projects (MVPs), which provide substantial reductions in regional congestion costs, reductions in transmission losses, or reductions in installed capacity requirements—the costs of which would be broadly allocated; and

(2) Allocating the costs of more focused Network Upgrades to Generator Interconnection Projects arising within a defined time period, to avoid the first mover/late comer issue.

FERC’s actions on the MISO filing and the NOPR, which will generate extensive comments, will provide further guidance to the power industry on these critical issues of cost responsibility.

For further information, please contact at +1 202 263 3204 or at +1 312 701 7366.

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1. Southwest Power Pool, Inc., 131 FERC ¶61,252 (2010), available at: (the “Cost Allocation Order”), and Southwest Power Pool, Inc., 131 FERC ¶61,042 (2010), available at: (the “Planning Order”).
2. FERC’s Notice of Proposed Rulemaking (NOPR) “Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities” issued June 17, 2010, available at: For a discussion of this NOPR, see our prior Legal Update, available at:
3. These include Base Plan Upgrades, transmission projects resulting from SPP’s integrated transmission planning and interim projects developed by SPP pending the implementation of its new transmission planning process

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