APPA Urges Adoption Of More Narrowly Tailored Approach To Promoting Joint Transmission Ownership

August 23, 2022

by Paul Ciampoli
APPA News Director
August 23, 2022

While it is gratified that a Federal Energy Regulatory Commission (FERC) Notice of Proposed Rulemaking (NOPR) includes an effort to promote joint transmission ownership arrangements, the American Public Power Association (APPA) wants FERC to adopt a more narrowly tailored conditional right of first refusal (ROFR) focused on promoting joint ownership opportunities for public power utilities and other load-serving entities (LSEs).

APPA made this and a series of other suggestions in Aug. 17 comments filed in response to the NOPR, which the Commission issued in April 2022.

BACKGROUND

The proposed reforms outlined by FERC in the NOPR are intended to remedy deficiencies in the Commission’s existing regional transmission planning and cost allocation requirements to ensure that Commission-jurisdictional rates remain just and reasonable and not unduly discriminatory or preferential (Docket No. RM21-17).

The NOPR, which was issued pursuant to Section 206 of the Federal Power Act, builds on FERC Order Nos. 888, 890, and 1000, in which the Commission incrementally developed the requirements that govern regional transmission planning and cost allocation processes to ensure that Commission-jurisdictional rates remain just and reasonable and not unduly discriminatory or preferential.

Of particular importance to many public power utilities, the NOPR seeks to promote joint ownership of transmission facilities by proposing to modify FERC Order No. 1000 to permit incumbent transmission owners to exercise a federal right of first refusal to build new transmission facilities selected in a regional transmission plan for purposes of cost allocation, conditioned on the incumbent transmission provider establishing joint ownership of those facilities.  Order No. 1000 directed public utility transmission providers to eliminate such ROFR provisions from FERC tariffs.

In late 2021, APPA urged the Commission to promote joint transmission ownership through the transmission planning process. APPA’s comments came in response to an advance notice of proposed rulemaking (ANOPR) issued by FERC in July 2021 to reform its transmission planning, cost allocation, and generator interconnection rules.

APPA COMMENTS

In its comments, APPA said it generally believes that the reforms proposed in the NOPR have the potential to improve the regional transmission planning process. 

APPA noted that the NOPR proposes to permit — but not require — the exercise of federal ROFRs “for transmission facilities selected in a regional transmission plan for purposes of cost allocation, conditioned on the incumbent transmission provider with the federal right of first refusal for such regional transmission facilities establishing joint ownership of the transmission facilities.”

APPA “is encouraged that the NOPR includes proposals to promote joint ownership and APPA appreciates the Commission’s efforts in this regard.”

While APPA had not suggested such a conditional ROFR mechanism to promote joint ownership, APPA believes that the conditional ROFR approach, with modifications outlined in the comments, “could effectively achieve the benefits described by the Commission and help ensure planning rules that are just and reasonable and not unduly discriminatory or preferential.”

The elimination of federal ROFRs in Order No. 1000 was intended to promote competition among transmission developers for new projects, and APPA agreed that such competition can be an effective way to restrain transmission costs.  APPA argued, however, that it would be reasonable for FERC to allow a conditional federal ROFR for jointly owned facilities, provided the ROFR is more narrowly tailored to promote joint ownership opportunities for LSEs, including public power utilities.

This revised approach “would be designed to encourage certain joint ownership opportunities that are likely to provide the practical, economic, and public policy benefits that the Commission outlines in the NOPR (as well as other benefits), while avoiding unreasonable and discriminatory outcomes that could flow from the conditional ROFR as described in the proposed rule,” APPA said.

APPA argued that the broad conditional ROFR proposed in the NOPR is unlikely to provide the benefits described by the Commission in proposing to allow ROFRs on a conditional basis.

Under the NOPR’s proposed conditional ROFR framework, the only specific parameters for qualifying joint ownership arrangements would be that:

  • The joint ownership must be with an unaffiliated entity; and
  • Incumbent transmission providers would be required to offer a “meaningful level of participation and investment in the proposed regional transmission facility.” 

The Commission makes clear that qualifying joint ownership arrangements could include other incumbent transmission providers, APPA pointed out.

But such a broad approach to qualifying joint ownership arrangements is unlikely to produce the full range of benefits that the Commission describes in the NOPR, it said.

The criteria for qualifying joint ownership arrangements “are so expansive that there is no way to reasonably conclude that they would meaningfully promote the identified benefits,” APPA said.

Moreover, it is also reasonable to expect that one outcome of the Commission’s proposal, if adopted, would be proposed joint ownership arrangements between large, incumbent utility transmission owners, APPA argued. “Such structures are not likely to result in key benefits that the Commission posits would make the conditional ROFR just and reasonable.”

To address concerns that the NOPR’s proposal would not produce the benefits envisioned by the Commission, or would even prove detrimental, the Commission should adopt a more narrowly focused conditional ROFR approach limited to LSEs in the incumbent public utility transmission owner’s footprint, APPA said. 

“Specifically, this approach would be implemented by requiring incumbent public utility transmission owners wishing to invoke the conditional ROFR to offer joint ownership on reasonable terms, at a load ratio share level, to all unaffiliated LSEs in the incumbent transmission owner’s footprint.”

Qualifying LSEs would be those that fit within the definition of load-serving entity in section 217(a)(2) of the Federal Power Act, including public power joint action agencies, which historically have often participated in jointly-owned projects for their public power utility owners.

APPA did not propose to limit this approach to any particular form of joint ownership structure, and existing inclusive transmission-only companies and shared-system arrangements that include qualifying LSEs should also be eligible.

“It is likely that most of the non-affiliated LSEs located in the footprints of incumbent public utility transmission owners will be not-for-profit public power utilities and electric cooperatives,” the trade group said.

Joint ownership of regional transmission facilities by public power LSEs would provide numerous benefits, APPA argued, “including, but not limited to, the benefits discussed in the NOPR.”  These benefits would support a focused conditional ROFR limited to LSEs in the incumbent transmission owner’s footprint, it said.

Public power utilities have participated in jointly owned transmission arrangements for many years, APPA noted, “and these arrangements can provide practical, economic, and public policy benefits for all consumers in the region(s) where a regional transmission facility will be built. Indeed, the Commission has long recognized the benefits of joint ownership of transmission facilities between investor-owned utilities, public power (municipal and joint action agency) and electric cooperatives.”

Public power participation in joint ownership arrangements also provides economic benefits to the public power entities and their ratepayers that can, in turn, benefit the applicable region(s), it added.

Focusing the conditional ROFR on LSE joint ownership is consistent with the requirement in FPA section 217(b)(4) that the Commission exercise its authority “in a manner that facilitates the planning and expansion of transmission facilities to meet the reasonable needs of load-serving entities to satisfy the service obligations of load-serving entities,” APPA pointed out. “This approach provides the opportunities the Commission intends for joint ownership arrangements, but in a manner that will ensure the benefits of joint ownership are actually realized.”

The Commission should find that limiting the conditional ROFR to offering joint ownership opportunities to LSEs in the incumbent transmission owner’s footprint is just and reasonable and not unduly discriminatory, APPA said.

APPA also weighed in on numerous other aspects of the NOPR including FERC’s proposal to require public utility transmission providers to implement a new long-term regional transmission planning process.  APPA agreed that such a long-term planning process may help identify cost-effective transmission solutions, but APPA urged the Commission to adopt a number of modifications and clarifications to the NOPR to ensure that any final rule is just and reasonable, not unduly discriminatory, and otherwise consistent with FERC’s statutory obligations.