On April 21, 2022, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued a Notice of Proposed Rulemaking (“NOPR”) aimed at reforming long-term regional transmission planning. The NOPR builds on FERC’s advanced notice of proposed rulemaking (“ANOPR”) issued in July of last year. The NOPR proposes changes requiring transmission providers to conduct regional transmission planning on a long-term, forward-looking basis to meet transmission needs driven by changes in the resource mix and demand, and requiring each transmission provider to seek the agreement of relevant state entities within the transmission planning region regarding the cost allocation for transmission facilities selected as part of long-term regional transmission planning.
FERC’s efforts represent the first time in a decade that the agency has considered large-scale changes to regional transmission planning and cost allocation processes. Given the timing of the NOPR, FERC could issue a final rule by the end of the year.
FERC believes that the current regional transmission planning process is not optimized to coordinate the interconnection and transmission of energy from renewable generation that is anticipated to be connected to the grid at an increasing rate over the coming years. Due to the lack of regional transmission planning and cost allocation, the grid is currently being expanded on a more localized level through interconnection-related network upgrades resulting from one-off generator interconnection requests. The status quo of localized, incremental expansion does not efficiently or cost‑effectively address transmission needs on a regional scale, thereby failing to achieve the economies of scale needed to integrate and bring online a significant amount of new renewable generation resources that will likely require additional transmission facilities due to their distance from load centers. This in turn creates issues in maintaining Commission-jurisdictional rates that FERC believes are just and reasonable and not unduly discriminatory or preferential. The NOPR aims to address these concerns by proposing reforms to encourage long-term, regional transmission planning and cost allocation. The NOPR would require public utility transmission providers to identify transmission needs driven by the changing mix of energy resources and demand and to work more closely with states in long-term regional transmission planning and in developing cost allocation methodologies.
The major proposed reforms in the NOPR fall into two buckets: (1) proposed changes to regional transmission planning and (2) proposed changes to regional transmission cost allocation. In addition, there are a number of related reform proposals of note which are discussed below.
Proposed Changes to Regional Transmission Planning
Public utility transmission providers conduct regional transmission planning to satisfy (1) reliability needs that meet minimum performance requirements; (2) economic needs to plan congestion alleviation and the integration of new resources in a cost-justified manner; and (3) public policy requirements established by local, state or federal laws or regulations. Long-term assessments may range from ten to twenty years depending on the process. FERC is concerned that the existing regional transmission planning process may not be forward-looking enough to meet transmission needs driven by changes in the resource mix and demand, which may lead to a piece-meal and inefficient transmission planning approach. The NOPR contains a number of proposed reforms accordingly, including:
Proposed Changes to Regional Transmission Cost Allocation
FERC states in the NOPR that reforms to public utility transmission providers’ regional cost allocation methods are necessary to ensure that Commission-jurisdictional rates are just and reasonable and not unduly discriminatory or preferential. However, the most readily recognizable impediment to the build out of regional transmission facilities is identifying and implementing a cost allocation methodology that is recognized as just and reasonable and may encompass several states. As a result, the NOPR contains proposed cost allocation reforms, including:
Additional Proposed Changes
The NOPR includes a number of additional reform proposals that could have a major impact on regional transmission planning and project development, including:
The ANOPR sought comments on reforms related to cost allocation methodologies for interconnection-related network upgrades, interconnection queue processes, interregional transmission coordination and planning, and oversight of transmission planning and costs. The NOPR did not propose reforms directly related to these topics. Instead, the Commission issued a notice of technical conference on transmission planning and cost management, scheduled for fall of this year.
This means that FERC left one of the major issues—reforming the interconnection process—on the table. This is a key point of contention for many renewable generation project developers that have increasingly complained of delayed waits in the interconnection queue and rising costs of system upgrades. Although FERC’s proposed reforms in the NOPR address issues indirectly related to the system upgrade costs, there will likely be sustained pressure on FERC to address the underlying issues in a future rulemaking after the technical conference this fall.
Commissioner Danly, drafting the lone dissent to the NOPR, chastised FERC for using Section 206 of the FPA to implement its proposed reforms rather than allowing public utilities to file their own transmission planning reforms under Section 205. Danly argues the NOPR’s proposed reforms are based on narrow environmental policy objectives as opposed to legitimate FPA issues such as ensuring just and reasonable rates or reliability. Commissioner Danly goes on to accuse the NOPR of “socalizing the costs of  transmission across as broad a population of ratepayers as possible” and summarizes the NOPR as “a boondoggle.” One of Commissioner Danly’s primary concerns is that consumers in some states will be forced to bear the cost of policy choices made by other states.
Comments on the NOPR are due 75 days after it is published in the Federal Register, with reply comments due 30 days thereafter. Should the Commission issue any final rule in the NOPR proceeding, then FERC proposes to require that each public utility transmission provider submit a compliance filing within 8 months of the effective date of that final rule to revise its OATT and other documents necessary to demonstrate that the utility meets the requirements in the final rule. Transmission providers that are not public utilities would have to adopt the requirements as a condition of maintaining the status of their safe harbor tariff or otherwise satisfy the reciprocity requirement in Order No. 888.
Chairman Glick has been publicly vocal about his efforts to implement transmission planning and cost allocations reforms. With reply comments on the NOPR due in August, it is reasonable to expect a final rule by the end of the year.
The technical conference on transmission planning and cost management is scheduled for Thursday, October 6, 2022. Interested panelists are required to self-nominate by June 16, 2022.
1 The Order No. 1000 cost allocation principles are: (1) the cost of transmission facilities selected in a regional transmission plan for purposes of cost allocation must be allocated to those within the transmission planning region that benefit from those facilities in a manner that is at least roughly commensurate with estimated benefits; (2) those that receive no benefit from transmission facilities, either at present or in a likely future scenario, must not be involuntarily allocated any of the costs of those transmission facilities; (3) a benefit to cost threshold ration, if adopted, cannot exceed 1.25 to 1; (4) costs must be allocated solely within the transmission region unless another entity outside the region voluntarily assumes a portion of those costs; (5) the method for determining benefits and identifying beneficiaries must be transparent; and (6) there may be different regional cost allocation methods for different types of transmission facilities, such as those needed for reliability, congestion relief, or to achieve public policy requirements.