Transmission Planning a and Cost Allocation Final Rule CONTACT Clifford S. Sikora July 25, 2011 202.274.2966 On July 21, 2011, the FERC voted 5-0 to iss issue a final rule on Daniel L. Larcamp Transmission Planning and Cost Allocation ion by Transmission Owning 202.274.2841 and Operating Public Utilities (“Final Rule”) le”). Commissioner Moeller >> Energy >> troutmansanders.com om issued a partial dissent to the Final Rule on on a few discrete issues. This alert provides the highlights of the Final Ru Rule as well as a more in depth summary. Highlights ghts of the Final Rule I. The Final Rule establishes th s the following: • Three Requirements for transm mission planning o Each public utility transmis ission provider must participate in a regional transmission ssion planning process which pro produces a single regional transmission plan and satisfie fies the principles under Order No. No. 890; o Each transmission plannin nning process at the local and regional level must consider der transmission needs driven en by federal or state laws or regulations; and o Public utility transmission p on providers in neighboring transmission planning regions ons must coordinate concerning mor ore efficient or cost- effective solutions. • Three requirements for transm smission cost allocation o Each public utility transmis ission provider must participate in a regional transmission ssion planning process which ha has a regional cost allocation method for new transmissi ssion facilities that satisfies six re x regional cost allocation principles; o Public utility transmission p on providers in neighboring planning regions must have a a common interregional cost allocation ation method for new interregional transmission facilities w s which satisfies six regional cost a t allocation principles; and o Participant funding of new w transmission facilities is permitted but not as part of the the regional or interregional co cost allocation method. • Federal Rights of First Refusal mu ust be removed from Commission-approved tariffs and and agreements subject to four limitatio tations o The requirement would no not apply to a transmission facility not selected in a region ional transmission plan for purpo rposes of cost allocation; o The requirement would no not apply to upgrades to transmission facilities (ie: tower er change outs or reconductoring); o The rule would allow, but n ut not require, competitive bidding to solicit transmission p on projects or developers; and o Nothing in this requirement ent impacts state or local laws concerning construction o of transmission facilities, inclu luding siting or permitting.
• Additional requirement o Each public utility transmis ission provider must add a tariff provision that requires t s the provider to reevaluate the he regional transmission plan to determine if alternative s e solutions need to be evaluated when hen there is a delay in the development of a transmission ion facility. Such alternative solutions ons can include those proposed by the incumbent. • Compliance o All public utility transmission p ssion providers would be required to make a compliance f e filing within 12 months of the eff effective date of the Final Rule; compliance filings for the the regional planning and cost allocatio tion requirements will be due in 18 months. II. Comments made by the Comm ommission: • Chairman Wellinghoff o Policy drivers behind the d he draft Final Rule include changes in the transmission sys system since Order No. 890 and th nd the need for reliable transmission service at just and rea d reasonable rates. o The existing transmission s on system was not built to accommodate the shifting trans ansmission fleet. o Enhancement to procedure edures required today will provide for fair allocation of costs sts for new facilities needed for reliabili bility. § Planning requirem ements are technology neutral- costs must be allocated ro d roughly commensurate wit with benefits, and no costs should be allocated outside a a region unless that region on agrees. • Commissioner Moeller o Noted the Final Rule does oes not address the issues of siting, or the fact that it take kes way too long and is way too exp expensive to site transmission.. o The draft Final Rule also d o does not address any state laws, or the fact that it in so some cases it is Federal agencie cies which are delaying transmission. o Commission Moeller identi ntified areas where rule could have gone farther. Appare pparently these will be the areas cov overed in his partial dissent. § Specific right of an an incumbent to rely with reliability projects in its footprin rint when they are NERC-manda mandated; and § A right of first refus fusal is not a right to forever not build a project. • Commissioner Spitzer o The Federal Right of First Re rst Refusal is a barrier to entry. • Commissioner Norris o Stresses the importance o e of reliability as a main driver for new transmission devel velopment. • Commissioner LaFleur o United States has underinv rinvested in transmission infrastructure. o The draft Final Rule requir uires adoption of a backstop mechanism to ensure that d t delays in development of a regional al facility will not prevent incumbents from complying with with reliability of service obligat ations.
III. Overall Impressions: • The Final Rule does not impose one e one size fits all requirements for either regional planning ing or cost allocation. Regional differences wil will likely be reflected in compliance filings. In many way ays “the devil will be in the details” regardin ding how the Commission acts on such compliance filings ngs. • Cost allocation must be “roughly co commensurate” with expected benefits. This seems to r to rule out any Eastern or Western interconne onnection-wide rolling in of transmission costs, which some me in the industry advocated, but many oppo posed. • Costs can only be allocated outside o side of a region with the agreement of the neighboring reg region. The Commission appears to expect that t that such seams issues to be dealt with on a negotiated b ed basis. We anticipate FERC will make many fact s t specific decisions on the compliance filings that are sub ubmitted. This is consistent with the way FERC imple plemented Order Nos. 888 and 890. DETAILED SUMMARY DE I. INTRODUCTION • The Commission concludes there a re are certain deficiencies in current transmission planning ing, and thus, through the Final Rule seeks ks to accomplish two primary objectives: (i) ensure that transmission planning processes at th s at the regional level consider and evaluate, on a non- discriminatory basis, possible trans nsmission alternatives and produce a transmission plan an that can meet transmission needs more effi e efficiently and cost-effectively; and (ii) ensure that the cos osts of transmission solutions chosen to m meet regional transmission needs are allocated fairly to to those who receive benefits from them. F Final Rule at P 4. • First, the Commission requires pub public utility transmission providers to participate in a regi gional transmission planning process that that evaluates transmission alternatives at the regional lev level that may resolve the transmission plann anning region’s needs more cost-effectively and efficientl ently than through local planning processes. s. Final Rule at P 6. • Second, the Commission requires es public utility transmission providers to remove from the their OATTs or other jurisdictional tariffs iffs and agreements any provisions that grant a federal rig l right of first refusal to transmission facilitie ilities that are selected in a regional transmission plan for pu r purposes of cost allocation. Final Rule at P 7. P 7. • Third, the Commission requires pu public utility transmission providers to improve coordinati ation across regional transmission plann anning processes by developing and implementing procedu cedures for joint evaluation and sharing of info formation regarding transmission needs of the transmiss ission planning regions, including identific ntification and joint evaluation by neighboring transmission ion planning regions of interregional tra l transmission facilities. Final Rule at P 8. • Fourth, the Commission requires p public utility transmission providers to have in place: (i) (i) a method to allocate costs for new tr transmission facilities selected in a regional transmission ion plan; and (ii) a method to allocate the co costs of a new interregional transmission facility that is jo jointly evaluated by two or more transmiss ission planning regions in their interregional transmission sion coordination procedures. Final Ru Rule at P 9. • The Commission finds that the app pproach adopted in the Final Rule requires that all region ional and interregional cost allocation method ethods allocate costs of new transmission facilities in a manne anner that is at least roughly commensurate w ate with the benefits received by those who will pay those c e costs. In other words, costs may not be invo voluntarily allocated to entities that do not receive benefi benefits. Final Rule at P 10. • The Commission will hold informat ational conferences within 60 days of the effective date o te of the Final Rule to review and discuss tho those requirements set forth in the Final Rule. The Com he Commission
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