On May 17, 2012, the Federal Energy Regulatory Commission (FERC) issued Order No. 1000-A that denies the many rehearing requests of its Order No. 1000. Thus, FERC has left in place the requirement that all FERC-jurisdictional electric transmission providers must participate in regional and inter-regional processes for planning new transmission facilities, and adopt FERC-approved cost allocation methods for the new facilities. Orders 1000 and 1000-A are the latest in a series of orders over sixteen years in which FERC has pushed its statutory authority to the limits in order to increase generator access to electric transmission lines.

New Regional Planning Requirements

Order 1000, as affirmed by Order 1000-A, expands on the requirements for regional transmission planning that were adopted in Order No. 890 just five years ago, which FERC now considers inadequate. These additional requirements include:

1. All jurisdictional transmission providers must adopt and participate in a regional transmission planning process through which a regional transmission plan is produced;
2. The process must consider transmission and non-transmission proposals by any qualified entity;
3. The process must plan for the effects of “Public Policy Requirements,” such as environmental or renewable energy laws and regulations, in addition to traditional reliability and economic considerations;
4. The process must include a cost allocation methodology, consistent with FERC principles, to determine how the costs of facilities approved in the plan are allocated to customers;
5. Incumbent transmission providers must have no federal priority rights over “non-incumbent” developers to build transmission facilities selected for the regional plan; and
6. Transmission providers must develop inter-regional transmission coordination procedures and cost allocation methods with neighboring regions.

Transmission providers must file compliance plans at FERC by Oct. 11, 2012 to demonstrate how they have modified their transmission tariffs and pursued regional coordination actions required by Order No. 1000. They must make a good faith effort to arrive at a planning process through consensus with stakeholders. Another compliance filing is required by April 2013 for transmission providers to address inter-regional coordination efforts.

Order 1000 does not mandate the scope of the planning regions, other than to say that a single public utility transmission provider cannot be a region. It notes that planning regions have already been formed for purposes of Order 890 compliance and could continue to be used for purposes of Order 1000. Existing Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) may already be regions that satisfy many of the planning requirements, but they still must make a compliance filing that shows how they comply.

FERC strongly encourages that non-jurisdictional transmission providers participate in the regional planning and cost allocation process. However, non-jurisdictional providers would only become bound to the planning and cost allocation requirements if they choose to enroll in the regional process, with enrollment criteria to be chosen by the region. If a non-jurisdictional provider wants to ensure that it receives the benefits of open access transmission service by public utilities, it may have to participate in the Order No. 1000 planning processes.

Order No. 1000 leaves many implementation details open, to be addressed in rulings on individual compliance plans.

FERC’s Authority to Mandate Regional Planning

Many petitioners for rehearing of Order 1000 challenged FERC’s legal authority to issue the mandates as to transmission planning, priority to build, and cost allocation. State commissioners argued that FERC’s requirements usurp traditional state authority over resource planning and the siting of transmission lines. Some transmission providers argued that FERC is statutorily prohibited from mandating regional transmission system coordination. Others argued that existing planning processes are working well and there is no problem that justifies a FERC remedy.

FERC has no explicit statutory authority to direct transmission providers how to plan their transmission systems. However, FERC has a general grant of authority under Section 206 of the Federal Power Act to determine that a utility’s transmission rates, including rules and practices affecting rates, are unjust and unduly discriminatory, and then to prescribe rates, rules, and practices that are just and reasonable, and not unduly discriminatory.

FERC first used this section 206 authority on an industry-wide basis in 1996 in Order 888, which required that transmission providers functionally separate transmission services from power sales and offer non-discriminatory access to transmission lines by all eligible customers. In Order 888, FERC made it a point to identify specific examples of discriminatory behavior by transmission providers as a foundation for its use of the section 206 remedy. An appellate court approved of FERC's authority to prescribe a marketwide remedy for a marketwide problem upon the finding of a fundamental systemic problem in the industry caused by undue discrimination.

FERC next tried to advance transmission access through its Order No. 2000 which addressed the formation of RTOs for purposes of making the grid more efficient. FERC again relied on section 206 and the finding of continuing undue discrimination to require all transmission providers to consider forming RTOs. Although some FERC Commissioners and others were in favor of FERC requiring transmission providers to join RTOs, rather than just considering it, many parties challenged FERC’s legal authority to require regional transmission planning and operation, and FERC chose not to fight that battle then. An appellate court dismissed challenges to FERC’s authority to issue Order 2000 on the basis that the Order did not mandate participation, but left it voluntary.

In its Order 890, which required utilities to participate in some regional planning efforts, FERC seemed to expand the interpretation of its authority under section 206, stating that it need not make specific factual findings of discrimination in order to promulgate a rule, but may act under section 206 to limit “continuing opportunities for undue discrimination.” No entity sought judicial review of Order 890, perhaps because the requirements there were not seen as onerous or harmful to their interests.

In response to numerous contentions that Order 1000 did not identify specific discrimination that needed to be remedied, Order 1000-A seems to assert an even broader authority to act under section 206 than FERC had done before. FERC explains that it may take “proactive steps” to eliminate threats to efficient and cost-effective solutions. Further, FERC states that a remedy is justified by the “theoretical threat” that undue discrimination could occur, without the need for specific evidence demonstrating that undue discrimination currently exists. FERC thus has asserted a broad authority to regulate public utilities by rulemaking based on “generic factual predictions.”

Orders 1000 and 1000-A represent a continuation of FERC’s efforts to expand the transmission grid and make it more efficient to align with twenty-first century realities, but most of FERC’s statutory authority is still based on 1935 legislation enacted when the electric industry looked much different. If a court were to approve of Order 1000-A’s interpretation of FERC’s authority, the range of FERC’s regulatory actions could be significantly expanded.