Many studies have identified the US’ need for tens of billions of dollars of investments in new electric transmission facilities. Facilities are need to improve system reliability, to eliminate choke points in the transmission grid that cause consumers to pay higher rates, to move renewable power to markets and to address the requirements of the “Smart Grid.” However, transmission investment has been constrained by the lack of regional planning, the failure to integrate grid planning with state and federal policy objectives and battles over how the cost of new transmission facilities should be allocated.
On June 17, 2010, the Federal Energy Regulatory Commission (FERC), the entity charged with regulating the interstate electric transmission system, proposed new rules that are designed to further its “open access” policy goals. These proposed rules, which build upon FERC’s earlier initiatives in transmission planning1, development and cost allocation and recent orders in the Primary Power2 and Central Transmission3 cases, are intended to improve “the effectiveness of regional transmission planning and the efficiency of resulting transmission development.” Comments on the proposed rulemaking are due 60 days after the proposed rules are published in the Federal Register. If adopted, the proposed rules would significantly alter the transmission planning and development process and cost allocation for new transmission investment.
The proposed rules suggest important reforms in five critical areas:
To this end, FERC has proposed that each transmission tariff must set forth the principles on which cost allocation will be determined. Cost allocation must reflect “cost causation,” address “free rider” problems, ensure that all beneficiaries contribute to cost recovery and assign costs among regions (for inter-regional projects). Further, FERC proposed that cost allocation principles be explicit and address six related criteria: (i) costs must be allocated to those that benefit from the facilities in a manner that is at least roughly commensurate with the benefits; (ii) those who receive not benefits should not be involuntarily allocated costs; (iii) the benefit-to-cost threshold used for planning should not be so high as to exclude projects with net benefits; (iv) costs should not be allocated outside the affected region (or regions) without consent; (v) the cost allocation must be transparent; and (vi) recognizing the complexity of the grid, different allocation methodologies may be used for different types of projects, such as projects for reliability, congestion relief or public policy goals.
If adopted, the proposed rules would create greater transparency, would open the doors to new entrants to transmission planning and development and would provide greater certainty on cost allocation and recovery for transmission investment. However, even minor changes in the final rules that are adopted by FERC could have significant consequences for developers, transmission users and consumers. As a result, affected parties and others interested in these matters should consider participating in the comment process or at least closely following the development of the final rules.
For further information, please contact David Bloom ( ) or Paul Forrester ( ).
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