FERC Considers Reforms To Transmission Planning And Cost Allocation

The Federal Energy Regulatory Commission (FERC) on July 15 issued an Advanced Notice of Proposed Rulemaking (ANOPR) to reform its transmission planning, cost allocation, and generator interconnection rules.

At a high level, the potential reforms in the ANOPR “consider the need for more holistic transmission planning and cost allocation and generator interconnection processes, to plan the grid for the future, and to do so in a way that results in rates that are just and reasonable,” FERC staff noted in a presentation made at the Commission’s monthly open meeting.

Comments on the ANOPR will be due 75 days from its publication in the Federal Register, with reply comments due 30 days later (Docket No. RM21-17-000).

The ANOPR seeks comment on potential reforms in three specific areas: (1) reforms for longer-term regional transmission planning and cost-allocation processes that take into account more holistic planning, including planning for anticipated future generation, (2) rethinking cost responsibility for regional transmission facilities and interconnection-related network upgrades, and (3) enhanced transmission oversight over how new transmission facilities are identified and paid for. The ANOPR includes numerous questions for industry comment in connection with each of these three, interrelated topic areas.

Examples of questions raised in the ANOPR include, among others: 

• How to plan for future scenarios, including planning for the needs of anticipated future generation, as part of the regional transmission planning and cost allocation processes;
• Whether the Commission should require transmission providers in each transmission planning region to establish a process to identify geographic zones that have the potential for the development of large amounts of renewable generation and plan transmission to facilitate the integration of renewable resources in those zones;
• Whether reforms are needed to improve the coordination between the regional transmission planning and cost allocation and generator interconnection processes;
• How to appropriately identify and allocate the costs of new transmission facilities in a manner that satisfies the Commission’s cost causation principle that costs are allocated to beneficiaries in a manner that is at least roughly commensurate with estimated benefits; and
• Whether participant funding of interconnection-related network upgrades may be proven to be unjust and unreasonable and whether the Commission should eliminate the independent entity variations that allow regional transmission organizations (RTOs) and independent system operators (ISOs) to use participant funding for interconnection-related network upgrades.

The ANOPR also seeks comment regarding whether the current approach to oversight of transmission investment adequately protects customers, and, if customers are not adequately protected from excessive costs, which potential reforms may be required and are legally permissible to ensure just and reasonable rates.

It also seeks comment on several other important related topics including whether FERC action on various matters would be consistent with its legal authority, consideration of consumer protection, coordination between individual transmission provider planning processes and regional transmission planning processes, and interregional planning.

Glick, Clements Issue Joint Concurrence

In a joint concurrence, FERC Chairman Richard Glick and Commissioner Allison Clements noted that the nation’s generation resource mix is changing rapidly. “Due to a myriad of factors — including improving economics, customer and corporate demand for clean energy, public utility commitments and integrated resource plans, as well as federal, state, and local public policies — renewable resources in particular are coming online at an unprecedented rate.”

As a result, the transmission needs of the electricity grid of the future are going to look very different than those of the electricity grid of the past, Glick and Clements said.

They expressed concern that the current approach to transmission planning and cost allocation cannot meet those future transmission needs in a manner that is just and reasonable and not unduly discriminatory or preferential. 

“In particular, we believe that the status quo approach to planning and allocating the costs of transmission facilities may lead to an inefficient, piecemeal expansion of the transmission grid that would ultimately be far more expensive for customers than a more forward-looking, holistic approach that proactively plans for the transmission needs of the changing resource mix. A myopic transmission development process that leaves customers paying more than necessary to meet their transmission needs is not just and reasonable,” they wrote.

In that regard, Glick and Clements are pleased to see the Commission “taking a consensus first step toward updating its rules and regulations to ensure that we are meeting the nation’s evolving transmission needs in a cost-effective and efficient fashion.” 

Ensuring that transmission rates remain just and reasonable “will require further action, including reforms to interregional transmission planning and cost allocation, as well as other reforms to our regional transmission planning and cost allocation and generator interconnection processes beyond those contemplated herein. Nevertheless, we believe that today’s unanimous Commission action represents a solid foundation for an expeditious inquiry into how we can regulate to achieve the transmission needs of our changing electricity system in a manner consistent with our statutory obligations under the Federal Power Act.”

Glick and Clements also said that they are concerned that, in light of evolving transmission needs, the current regional transmission planning and cost allocation and generator interconnection processes may no longer ensure just and reasonable rates for transmission service.

“In particular, we are concerned that existing regional transmission planning processes may be siloed, fragmented, and not sufficiently forward-looking, such that transmission facilities are being developed through a piecemeal approach that is unlikely to produce the type of transmission solutions that could more efficiently and cost-effectively meet the needs of the changing resource mix,” they wrote.

Glick and Clements argued that regional transmission planning processes “generally do little to proactively plan for the resource mix of the future, including both commercially established resources, such as onshore wind and solar, as well as emerging ones, such as offshore wind. We are also concerned that current regional transmission planning processes are not sufficiently integrated with the generator interconnection processes, and are overwhelmingly focused on relatively near-term transmission needs, and that attempting to meet the needs of the changing resource mix through such a short-term lens will lead to inefficient transmission investments.  As a result, under the status quo, customers could end up paying far more to meet their transmission needs than they would under a more forward-looking approach that identifies the more efficient or cost-effective investments in light of the changing resource mix.”

They are also concerned that the current approach to transmission planning and cost allocation is failing to adequately identify the benefits and allocate the costs of new transmission infrastructure. 

“In addition, we are concerned that, largely due to the potential shortcomings with the current regional transmission planning and cost allocation processes, transmission infrastructure is increasingly being developed through the generator interconnection process. That means that infrastructure with potentially significant benefits for a broad range of entities may be developed through a process that focuses exclusively on the needs of a comparatively small number of interconnection customers—a dynamic that is almost sure to result in comparatively inefficient investment decisions.” 

The participant funding approach to financing interconnection-related network upgrades will often mean that the interconnection customer(s) alone must pay for all—or the vast majority—of the costs of that transmission infrastructure, even where it provides significant benefits to other entities, Glick and Clements said. “That, in turn, may cause those interconnection customers to withdraw projects from the queue, causing considerable uncertainty and delay, and may mean that net beneficial transmission infrastructure is never developed due to a misalignment in how that infrastructure would be paid for.”

Glick and Clements also said that they are concerned that the Commission’s current approach to overseeing transmission investment may not adequately protect consumers. “While transmission infrastructure can provide a broad spectrum of benefits, it is itself a significant investment that represents a major component of customers’ electric bills.  The Commission must vigorously oversee the rules governing how transmission projects are planned and paid for if we are to satisfy our responsibility to protect customers from excessive rates and charges. The potential bases for invigorating our oversight of transmission spending contemplated in today’s order have the potential to go a long way toward ensuring that we fulfill that function,” they wrote.

Christie, Danly issue separate concurrences

FERC Commissioners Mark Christie and James Danly issued separate concurrences.

Danly said that the ANOPR poses several questions “where the answer is ‘no.’ Many of the contemplated proposals would exceed or cede our jurisdictional authority, violate cost causation principles, create stifling layers of oversight and ‘coordination,’ trample transmission owners’ rights, force neighboring states’ ratepayers to shoulder the costs of other states’ public policy choices, treat renewables as a new favored class of generation with line-jumping privileges, and perhaps inadvertently lead to much less transmission being built and at much greater all-in cost to ratepayers.”

Danly, who said that there are obviously problems with the existing transmission regime, hopes that commenters “will supply us with a full record on each issue raised in the ANOPR: whether and why the existing rule works or not, and whether and why the possible reform may work or not. With every proposed change, I specifically solicit comments on two subjects. First: is the contemplated reform a proper exercise of the Commission’s authority, i.e., is it within our jurisdiction? That is always the threshold question before we turn to policy. Second: what will be the ultimate effect on ratepayers? I fear that in the enthusiasm to build transmission, many may tout the benefits of new transmission while overlooking the costs that will eventually be borne by ratepayers. No proposed policy, however worthy, can evade our statutory duty to ensure that rates are just and reasonable.”

For his part, Christie said that he concurred with the ANOPR “because approximately ten years after the Commission issued Order No. 1000, it is appropriate to review the implementation of that order, assess the successes and problems that have become evident over the past decade, and consider reforms and revisions to existing regulations governing regional transmission planning and cost allocation. This consideration of potential reforms is especially timely as the transmission system faces the challenge of maintaining reliability through the changing generation mix and efforts to reduce carbon emissions.”

At the same time, he said that his concurrence to issue the ANOPR does not represent an endorsement at this point in the process of any one or more of the proposals included in the order. 

Christie said the ANOPR “contains a number of good proposals, some potentially good proposals (depending on how they are fleshed out), and frankly, some proposals that are not — and may never be — ready for prime time, or could potentially cause massive increases in consumers’ bills for little to no commensurate benefit or inappropriately expand the role of federal regulation over local utility regulation. Given the early stage of this process, however, I agree it is worthwhile to submit a broad range of proposals to the public for comment in the hope that the final result will be a more reliable, more efficient, and more cost-effective transmission system.”