On May 13, 2024, the Commission announced two major transmission reform final rules: Building for the Future Through Electric Regional Transmission Planning and Cost Allocation (“Order No. 1920”) and Applications for Permits to Site Interstate Electric Transmission Facilities (“Order No. 1977”). Order No. 1920, which adopts specific requirements for how transmission providers must conduct long-term planning and allocate costs for regional transmission facilities, was the subject of significant debate at today’s meeting and only mustered two votes in support from the three sitting commissioners. The Commission unanimously approved Order No. 1977, which updates the process FERC will use in the limited circumstances in which it must exercise its authority over siting electric transmission lines, as directed by Congress in the Infrastructure Investment and Jobs Act of 2021 (“IIJA”).
Order No. 1920 – Transmission Planning and Cost Allocation
In Order No. 1920, FERC voted out significant transmission planning and cost allocation reforms, but not without significant debate between the sitting commissioners as to the propriety and legality of the rule. Commissioner Mark Christie voted against the rule and previewed a lengthy dissenting opinion that will focus on the role states get to play in planning major grid upgrades and deciding who pays for them.
While the text of the rule is not yet available as of the writing of this alert, as explained by FERC, Order No. 1920 will adopt a number of transmission planning reforms. The rule enacts reforms in three broad areas: (1) long-term regional transmission planning; (2) cost allocation for transmission; and (3) enhanced transparency, “right-sizing,” and interregional transmission coordination. The rule will require transmission providers to conduct and periodically update long-term transmission planning to anticipate future needs, consider a broad set of benefits when planning new facilities, and “right-size” projects by considering in-kind replacement of existing transmission facilities to increase their transfer capability.
For long-term regional transmission planning, Order No. 1920 requires transmission providers to plan ahead at least 20 years, using the best available data to develop projections of long-term transmission needs and long-term regional transmission facilities to meet those needs. Order No. 1920 also requires transmission providers to measure and use the seven economic and reliability benefits below to evaluate and select long-term regional transmission facilities. These seven benefits include: (1) avoided or deferred reliability transmission facilities and aging infrastructure replacement; (2) either reduced loss of load probability or reduced planning reserve margin; (3) production cost savings; (4) reduced transmission energy losses; (5) reduced congestion due to transmission outages; (6) mitigation of extreme weather events and unexpected system conditions; and (7) capacity cost benefits from reduced peak energy losses. Lastly, Order No. 1920 requires transmission providers to reevaluate previously selected long-term regional transmission facilities in certain circumstances.
Regarding cost allocation, Order No. 1920 requires transmission providers to adopt one or more ex-ante methods to allocate the costs of regional transmission facilities (or a portfolio of such facilities) that are selected. While FERC’s approach will not require the approval of a state in order to allocate costs to customers in that state, Order No. 1920 provides that: (1) there must be a six-month engagement period with relevant state entities; (2) applicants must propose a default method for cost allocation to pay for selected long-term regional transmission facilities; and (3) transmission providers may adopt a cost allocation scheme based on the agreement of affected states. Order No. 1920 also requires that transmission providers consider alternative transmission technologies and optimize existing transmission infrastructure more efficiently.
Further, Order No. 1920 requires transmission providers to enhance transparency for local transmission planning information and identify potential opportunities to “right-size” replacement transmission facilities to address long-term transmission needs more efficiently or cost-effectively. FERC declined to adopt its previous proposal to create a federal right of first refusal based on joint ownership. Instead, Order No. 1920 requires transmission providers to adopt tariff provisions that provide a federal right of first refusal for a transmission provider to develop any “right-sized” facility. FERC also declined to adopt its previous proposal to eliminate the long-established construction work in progress rate treatment.
Order No. 1920 takes effect 60 days after publication in the Federal Register. Compliance filings with respect to most of the rule’s requirements are due within 10 months of the effective date, while filings to comply with the interregional transmission coordination requirements are due within 12 months of the effective date.
Order No. 1977 – FERC’s Backstop Siting Authority
FERC also adopted regulations today explaining how it will implement its “backstop” statutory authority to permit interstate transmission lines under section 216(b) of the Federal Power Act (“FPA”). States remain the primary permitting authority for electric transmission lines, but FERC’s backstop authority applies when a state has denied a permit application.
FPA Section 216(b) authorizes FERC to issue permits to build or modify electric transmission facilities in “National Corridors,” which are national interest electric transmission corridors designated by the U.S. Department of Energy. In 2021, Congress amended FPA section 216(b) through the IIJA and clarified that (1) the Commission may only issue a permit after a state denies a permit application and (2) a permit holder must make a good faith effort to engage with landowners and other stakeholders early in the permitting process as a precondition to exercising eminent domain authority. On December 15, 2022, the Commission issued a NOPR on the transmission siting rule in response to the updates made under the IIJA.
In Order No. 1977, the Commission clarified that it only has authority to issue permits to construct or modify electric transmission facilities in a National Corridor if a state has denied a siting application. FERC also explained that Order No. 1977 will provide additional safeguards for landowners, environmental justice communities, and Indian Tribes during the permit application process. For example, Order No. 1977 includes a “Landowner Bill of Rights” that provides affected landowners with information about their rights to intervene in any open Commission proceeding. The rule requires applicants to send the Landowner Bill of Rights to affected landowners in its pre-filing notification. Order No. 1977 also codifies the “Applicant Code of Conduct,” which FERC explains will help applicants demonstrate that they have made good faith efforts to engage with landowners early in the permitting process. Lastly, Order No. 1977 requires applicants to develop engagement plans that describe completed and planned outreach to environmental justice communities and Indian Tribes to describe the impacts of the transmission project on those communities. Order No. 1977 did not adopt the NOPR proposal to allow state siting proceedings and the Commission’s pre-filing process to proceed simultaneously; rather, the final rule maintains the current policy of holding the Commission proceeding one year after the state proceeding commences. Order No. 1977 will take effect 60 days after publication in the Federal Register.
Order Nos. 1920 and 1977 have not yet been issued, however, a copy of the Commission’s press release for Order No. 1920 can be found here, and the press release for Order No. 1977 can be found here.
