Summary of FERC Staff Briefing on Order No. 1000

Summary of FERC Staff Briefing on Order No. 1000: Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities

 

July 25, 2011

 

On July 25, 2011, FERC Staff conducted a briefing for entities in the Eastern part of the United States regarding Order No. 1000: Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities. Prior to the Briefing, FERC Staff provided a PowerPoint presentation that is available on FERC's website using the following link:
http://www.ferc.gov/media/news-releases/2011/2011-3/07-21-11-E-6-presentation.pdf
FERC Staff indicated that they will be conducting similar briefings for different industry groups in the coming days, and that all such briefings will all use the same PowerPoint presentation. The briefing is summarized below:

 

  • The purpose of the briefing is to provide background information, and to make sure that all interested parties are on the same page regarding the determinations the Commission reached in Order No. 1000.
  • Timeline – FERC spends a good chunk of the first portion of the Final Rule explaining the background of the document. Order No. 1000 builds on the transmission reforms begun in Order Nos. 888 and 890.
  • The focus of the Final Rule is on enhancing regional planning. The Commission is not moving towards interconnection-wide planning or cost allocation.
    • The overarching objective of the Final Rule is to enhance regional planning by requiring the formation of transmission plans that are efficient and cost effective and that allocate costs for facilities in the plan in a way that is fair and consistent with cost allocation principles.
  • There are three categories of issues in the Final Rule:
    • Planning requirements
    • Cost allocation requirements
    • Nonincumbent developer requirements
  • Reforms in the Final Rule are intended as a package. They are designed to work together to increase the likelihood that facilities developed in the planning process and selected for cost allocation are more efficient in addressing the needs of a region than they might otherwise be. This will help to ensure that rates are just and reasonable and not unduly discriminatory.
  • The Final Rule builds on existing regional requirements. After Order No. 890, transmission owning and operating utilities consolidated into planning regions around the country. The requirements of the Final Rule do not change the scope of the regions developed pursuant to the Order No. 890 planning requirements. FERC has not incorporated any additional requirements in this Final Rule regarding the definition of a region.
  • Important Terms
    • A number of terms are used in a precise way throughout the Final Rule. FERC recognized the concerns expressed by a number of commenters that the effect of the rule depends on how certain terms are used. As a result, FERC has carefully explained its use of certain terms in the Final Rule, and uses them with much more specificity than it did in the NOPR.
      • The Final Rule distinguishes between a transmission facility "in a regional transmission plan" and one that is "selected in a regional transmission plan for purposes of cost allocation."
      • The Final Rule's requirements apply to "new transmission facilities," which are those subject to evaluation or reevaluation within local or regional transmission planning processes after the effective date of the compliance filings.
    • Staff recommends taking a look at the use of terms section of the Final Rule (beginning at P 63) to have in mind how the terms are being used within the document, and then going back to the beginning of the document to read it through.
  • Planning Requirements
    • The Final Rule requires regional transmission planning – each region must produce a plan using a process that complies with Order No. 890 principles.
      • FERC expressed concern that, under the existing requirements, not all regions are required to develop a regional transmission plan. In some regions, participants engage in scenario analysis, but don't reach a decision regarding the facilities that are the appropriate facilities to address regional needs. Without this requirement in place, FERC is concerned that there could be situations where a regional facility is more appropriate than other facilities, but it is not considered and there is no place for it to move forward. FERC addresses this by establishing a threshold requirement that regions must produce a regional plan.
      • Regions must use a process that satisfies Order No. 890 planning principles regarding process. Specifically, the process must be open, transparent, provide opportunities for stakeholder coordination and consultation, and there must be a mechanism within the process for evaluation of alternative transmission and non-transmission solutions.
      • Many regions may already comply with this requirement.
      • The issue regarding the treatment of merchant transmission facilities received a fair amount of attention in comments. In the NOPR, FERC stated that merchants should not be required to go through the regional process for approval. However, FERC received many comments with a large number of concerns regarding the need for coordination between what is going on in the regional planning process and a merchant developer's process for determining what its needs are and the potential impacts of its proposed project. In response, the Final Rule requires that merchants participate in the regional planning process for purposes of providing sufficient information for the regional process to understand the implications of the merchant's proposal if the merchant's project goes forward. FERC notes that merchant developers are responsible for upgrades to the network associated with the proposed expansion, and are subject to the same requirements a transmission provider would be regarding reliability and ratemaking. However, because a merchant is not seeking cost allocation, moving forward with a project should not be tied to approval or selection of the project in a regional plan.
    • The Final Rule requires consideration of public policy requirements in local and regional transmission planning processes.
      • FERC expressed concern in the NOPR that planning processes are not designed to account for transmission needs driven by public policy requirements. In some cases, transmission planning reflects public policy requirements, but transmission providers in other regions expressed concern that they feel prohibited under their tariffs from considering transmission needs driven by public policy.
      • FERC adopted the NOPR proposal to require that there be a place within local and regional processes for considering transmission needs driven by public policy requirements. It also provided an explanation of what this means. First, it requires identification of needs driven by public policy requirements; then it requires the development of potential solutions to these needs.
      • Identifying needs driven by public policy requirements could be done in a number of ways. FERC permits flexibility so long as local/regional processes develop a mechanism for identifying needs and evaluating solutions to those needs. FERC's focus is on the process, not the outcome.
      • The Final Rule doesn't require specific public policy requirements to be included. Public policy requirements are defined as enacted statutes and regulations promulgated by a relevant jurisdiction, whether within a state or at the federal level. If a region wants to plan for other policies it is free to do so; however, the specific requirement in the Final Rule applies only to mandatory public policy requirements.
      • When public utility transmission providers are identifying a public policy need, it is critical for stakeholders to be involved. Regardless of what process the transmission providers develop for identifying public policy needs, there must be an opportunity for stakeholders to participate in the process.
    • The Final Rule requires interregional coordination. Transmission providers in each pair of neighboring regions must coordinate.
      • The Final Rule largely adopts the NOPR proposal with some clarification and additional information regarding what is intended. In response to the NOPR, many parties expressed support for the notion of coordination. Failure to do so could lead to the inability of regions to identify potential interregional facilities that solve their collective problems more efficiently and effectively than an intraregional alternative. FERC requires that each pair of neighboring regions develop procedures to coordinate with one another.
      • FERC received requests that it mandate the creation of new entities or formalized processes for this interregional coordination, but FERC declined to do so.
      • This requirement builds on the existing regional transmission planning process, and requires coordination between neighboring regions. No formalized process is required. Neighboring regions must share information regarding their needs and possible solutions, and identify and jointly evaluate interregional facilities that may be more efficient or cost effective. If regions identify a facility that more efficient and cost effective, the next step is to bring the facility back down to each region for inclusion and cost allocation in a regional plan.
      • FERC is not specific about the types of studies, the planning horizon, or the types of data or criteria to be used. Each pair of regions will address this in a different way. However, regions must explain how they will do this to reach some kind of harmony.
      • FERC is not requiring interconnection-wide planning or interconnection-wide cost allocation. However, to the extent a public utility transmission provider is working within the EIPC process, it is encouraged to continue to do so.
  • Cost Allocation
    • FERC has a continued concern that challenges associated with cost allocation are becoming more acute. The need for transmission is growing, and the lack of clear ex ante methods for cost allocation is a problem. Without alignment of planning with cost allocation, there is a concern that there could be facilities that would otherwise move forward to construction, but fail to do so because of disagreement regarding cost allocation. This could lead to higher rates for customers and discrimination among different types of projects.
    • Up to this point, regions have all developed different approaches to cost allocation. While they need to have clear ex ante processes, it makes sense that each region has approached cost allocation differently because the regions themselves are different. FERC acknowledges this in the Final Rule and adopts a principle-based approach for local and regional cost allocation.
    • Each region must adopt a method that meets these principles, and neighboring regions must have a way to allocate costs across borders.
    • FERC is clear that while participant funding is not allowed as a mandatory cost allocation method, it is permitted on a voluntary basis. If the developer of a facility wants to construct and pay for the facility itself, that is permitted. What is not allowed is for a developer to successfully move through the process of showing that a facility has regional benefits and is better than other proposals, and the region then requiring participant funding.
    • There are six regional cost allocation principles:
      • Costs must be allocated in way that is roughly commensurate with benefits.
        • However, the calculation of benefits does not require precision.
        • Each region will likely continue to address this differently, as they have to date.
      • Those who do not benefit from transmission do not have to pay for it.
      • Benefit-to-cost thresholds must not exclude projects with significant net benefits.
      • No costs should be allocated outside a region unless the other region agrees.
        • Given the alignment of transmission planning with cost allocation, if voluntary allocation outside the region is permitted, stakeholders in an external region would need to participate in the decision regarding whether allocation outside the region is appropriate. This would require interconnection-wide planning and cost allocation. FERC has concerns regarding implementing that at this time, so it has declined to do so.
      • Cost allocation methods and identification of beneficiaries must be transparent.
      • Different allocation methods could apply to different types of transmission facilities.
    • There is no one size fits all method – each region must develop a cost allocation method that works for that region.
    • If a region can't decide on a method, FERC will decide based on the record.
    • Within each existing RTO, to the extent stakeholders believe the current cost allocation methods satisfy the principles, the compliance filing just needs to explain that. Regions can choose to take this opportunity to refine their methods in this proceeding, but they are not required to do so.

 

  • Nonincumbent Developer Requirements
    • FERC has concerns that rights of first refusal ("ROFR") are leading to disincentives for nonincumbent developers to come into the planning process to offer ideas and potentially construct facilities that would help consumers and save them money. FERC heard a lot of comments on this issue from both sides. This was one of most controversial areas of the Final Rule. FERC adopts the NOPR proposal with modifications.
    • The purpose of eliminating ROFR is to ensure the use of non-discriminatory processes. FERC requires regions to develop qualification criteria, and requires that regions explain how they will evaluate competing proposals. FERC heard concerns that the nature of planning will be adversely affected. In response, FERC explains that what is required in the Final Rule is comparable evaluation of facilities. As long as there is a fair evaluation of alternatives, ultimately the region decides which facility will be selected. The method for evaluating proposals must be fair and non-discriminatory.
    • This is a process-driven requirement. The focus is on how decisions are made, not what decisions are made.
    • The Final Rule focuses on provisions that must be removed from FERC-approved tariffs and agreements. It does not apply to any transmission facility not selected in a regional plan for purposes of cost allocation, or to upgrades to transmission facilities. The Final Rule acknowledges that some regions might be engaging in competitive bidding for transmission development. Nothing in the Final Rule precludes or requires this. Further, nothing in the requirements affects state or local siting or permitting regulations. Finally, the Final Rule is not intended to alter an incumbent transmission provider's ability to use or control an existing right-of-way.
  • Compliance
    • A compliance filing is required within 12 months of the effective date of the Final Rule. This is extended to eighteen months for interregional transmission coordination and interregional cost allocation.
    • Some regions might have in place procedures or cost allocation methods that satisfy some or even all of the requirements in the Final Rule. The Final Rule is about minimum requirements. Consequently, if an individual public utility transmission provider or its region believes that it has adequately complied with one or all of the requirements of the Final Rule, it can state that in its compliance filing.

 

  • Outreach
    • FERC plans 3 webinars (early fall) to aid compliance.
      • RTO regions
      • Eastern (non-RTO)
      • Western (non-RTO)
    • Staff will begin by laying out the compliance requirement – everything in Staff's view that has to be done. Going forward, Staff would like to provide assistance during the compliance period by providing additional information and clarity and answering questions.
    • The Final Rule is what it is and it says what it says, and Staff cannot provide advice regarding what an individual Commissioner meant when his or her vote was cast. However, if there is confusion, it is helpful for Staff to hear that in advance to advise the Commission.
  • Next step – rehearing
    • If anyone wants to talk before requests for rehearing are due, please call Staff. While Staff cannot change anything in the Final Rule, if there are areas of confusion, Staff may be able to clarify a requirement.
    • FERC's point of contact is Sandra Waldstine: 202-502-8092; This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

For more information, please contact Toni Frost at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or 202-296-1500 or Linda Kizuka at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or 202-296-1500.