FERC Issues Proposal To Reform Regional Grid Planning, Cost Allocation Requirements

by Paul Ciampoli
APPA News Director
April 25, 2022

The Federal Energy Regulatory Commission (FERC) on April 21 issued Notice of Proposed Rulemaking (NOPR) to reform the Commission’s electric regional transmission planning and cost allocation requirements. 

The proposed reforms 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, FERC staff noted in a presentation given at the Commission’s monthly open meeting (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 note to 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 for 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.

In late 2021, the American Public Power Association (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.

Regional Transmission Planning

With respect to regional transmission planning, the reforms proposed in the NOPR would require transmission providers to conduct long-term regional transmission planning on a sufficiently forward-looking basis to meet transmission needs driven by changes in the resource mix and demand. 

As part of this long-term regional transmission planning, transmission providers would be required to:  (1) identify transmission needs driven by changes in the resource mix and demand through the development of long-term scenarios, including accounting for high-impact, low-frequency events such as extreme weather; (2) evaluate the benefits of regional transmission facilities to meet these needs over a time horizon that covers, at a minimum 20 years starting from the estimated in-service date of the transmission facilities; and, (3) establish transparent and not unduly discriminatory criteria to select transmission facilities in the regional transmission plan for purposes of cost allocation that more efficiently or cost-effectively address these transmission needs. 

Additionally, the NOPR proposes to require that transmission providers more fully consider dynamic line ratings and advanced power flow control devices in regional transmission planning.

Cost Allocation

With respect to transmission cost allocation, the reforms proposed in the NOPR would require that transmission providers in each transmission planning region seek to obtain the agreement of relevant state entities within the transmission planning region regarding the cost allocation method or methods that will apply to transmission facilities selected in the regional transmission plan for purposes of cost allocation through long-term regional transmission planning and revise their OATTs to include those methods.

The NOPR also proposes to not permit transmission providers to take advantage of the Commission’s construction-work-in-progress (CWIP) rate incentive for transmission facilities selected in the regional plan for purposes of cost allocation through long-term regional transmission planning.

With respect to federal rights of first refusal, the NOPR proposes to amend Order No. 1000’s requirements, in part, to permit the exercise of federal rights of first refusal for transmission facilities selected in a regional transmission plan for purposes of cost allocation, conditioned on the incumbent transmission provider establishing joint ownership of the transmission facilities.

With respect to transparency and coordination, the NOPR proposes to require transmission providers to adopt enhanced transparency requirements for local transmission planning processes and improve coordination between regional and local transmission planning with the aim of identifying potential opportunities to “right-size” replacement transmission facilities.

With respect to interregional transmission coordination and cost allocation, the reforms proposed in the NOPR would require that transmission providers revise their existing interregional transmission coordination procedures to reflect the long-term regional transmission planning reforms proposed in the NOPR.

The proposed reforms in the NOPR related to regional transmission planning and cost allocation requirements, are focused on the transmission planning process, and not on any substantive outcomes that may result from this process. 

The NOPR seeks comment on the proposed reforms and encourages commenters to identify enhancements to those reforms that could better support development of more efficient or cost-effective transmission facilities.

Comments on the NOPR are due 75 days from the date of publication in the Federal Register, with reply comments due 30 days after the initial comment deadline. 

Commissioners Weigh In

“Transmission facilities provide a broad range of benefits,” FERC Chairman Rich Glick said. “Planning for those facilities with a longer-term forward-looking approach, in addition to fairly allocating their costs, is essential to ensuring we are developing energy infrastructure in a manner that reduces costs and enhances reliability.”

FERC Commissioner Allison Clements said in her opening statement at the meeting that the NOPR “is not a plan to foist the costs of one state’s policies onto another.  It is also not a policy action to advance renewable energy interests.”

The NOPR “contains a sensible suite of reforms to shore up” cost protections and reliability of the U.S. electricity system “based on clear market signals about generation development and demand, the risks of extreme weather, and the increasing threat of cyber- and physical attacks,” she said.

Commissioners Christie and Phillips Concurred With Order

Commissioners Willie Phillips and Mark Christie concurred with the order.

“The record here appears to show that transmission expansion is increasingly occurring in a piecemeal and inefficient fashion outside of the regional transmission planning process, which may not be cost-effective for consumers in the long run,” said Phillips.

“While commenters’ views vary on how best to address this problem, nearly all commenters endorse some form of proactive planning for the future resource mix and demand,” he said in the concurrence.

“I believe the NOPR proposal to require long-term scenario planning, including accounting for extreme weather events, is necessary to maintain the reliability of the grid and to ensure that transmission costs are just and reasonable,” wrote Phillips. “I also note that while this NOPR proposes to require the evaluation of benefits of long-term regional transmission facilities over a 20-year time horizon, it does not propose to prescribe any particular definition of ‘benefits’ or ‘beneficiaries,’ nor require use of any specific benefit.”

Commissioner Christie noted in his concurrence that the NOPR “will formally put the states — for the first time — at the center of regional transmission planning and cost allocation decision-making for policy-driven projects in all regional transmission entities, if the states choose.”

The NOPR “will shift the risk of financing policy-driven projects from consumers back to developers, where it should be.”

He said that he “will not support any final rule that exceeds our FPA authority and/or threatens to cause unjust and unreasonable rates to consumers.”

Commissioner Danly dissents

In his dissent, Commissioner Danly said that while he welcomes long term transmission planning reform, he would prefer that Regional Transmission Organizations (RTOs) and other interested utilities “simply file their own proposals” under section 205 of the FPA. “They are fully capable of proposing rate changes and reforms on their own,” he wrote.

The NOPR “goes far beyond that. It contemplates a Federal Power Act section 206 finding that existing transmission planning across the nation—in every region, for every utility and market—is so unjust and unreasonable that it must be replaced with mandatory, pervasive, and invasive ‘reforms,’” Danly argued.

He further asserted that the NOPR’s “primary purpose is to achieve narrow environmental policy objectives, not to address legitimate requirements under the Federal Power Act like ensuring just and reasonable rates or reliability.”

While he believes the NOPR is a mistake, “I am happy to be convinced that particular reforms are justified by sound legal argument and solid record evidence,” Danly went on to say. “Where reform is needed to ensure just and reasonable rates and reliable service, and the reform itself is just and reasonable, I can be persuaded that it is worthy of support.”

But he reiterated his strong preference that FERC allow utilities to file their own transmission planning solutions under FPA section 205. 

He said that if the Commission really believes that it cannot rely on utilities to seek more efficient transmission planning of their own volition, “my second option would be to issue section 206 orders requiring the RTOs to show cause why their existing transmission planning processes are just and reasonable. Whether you agree or disagree with these alternative procedural vehicles for change, please say so in your comments.”