July 25, 2011 - FERC reforms transmission policy through Order No. 1000

How should we plan transmission line upgrades to our power grid -- and who should pay for the upgrades?  A new landmark ruling issued by the U.S. Federal Energy Regulatory Commission reshapes the answers to those questions.

Issued on July 21, 2011, FERC Order No. 1000 (620-page PDF) is a sweeping reform of regional and interregional transmission planning and cost allocation.  Previously, each of the many regional grid operators in the country planned transmission upgrades -- and allocated the costs of those transmission projects -- according to its own rules.  Through Order No. 1000, FERC moved the nation toward a standardized planning and cost allocation process by establishing six principles for future transmission cost allocation:

(1) The cost of transmission facilities 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.  In determining the beneficiaries of transmission facilities, a regional transmission planning process may consider benefits including, but not limited to, the extent to which transmission facilities, individually or in the aggregate, provide for maintaining reliability and sharing reserves, production cost savings and congestion relief, and/or meeting public policy requirements established by state or federal laws or regulations that may drive transmission needs.

(2) Those that receive no benefit from transmission facilities, either at present or in a likely future scenario, must not be involuntarily allocated the costs of those facilities.

(3) If a benefit to cost threshold is used to determine which facilities have sufficient net benefits to be included in a regional transmission plan for the purpose of cost allocation, it must not be so high that facilities with significant positive net benefits are excluded from cost allocation. A transmission planning region or public utility transmission provider may want to choose such a threshold to account for uncertainty in the calculation of benefits and costs. If adopted, such a threshold may not include a ratio of benefits to costs that exceeds 1.25 unless the transmission planning region or public utility transmission provider justifies and the Commission approves a greater ratio.

(4) The allocation method for the cost of a regional facility must allocate costs solely within that transmission planning region unless another entity outside the region or another transmission planning region voluntarily agrees to assume a portion of those costs. However, the transmission planning process in the original region must identify consequences for other transmission planning regions, such as upgrades that may be required in another region and, if there is an agreement for the original region to bear costs associated with such upgrades, then the original region’s cost allocation method or methods must include provisions for allocating the costs of the upgrades among the entities in the original region.

(5) The cost allocation method and data requirements for determining benefits and identifying beneficiaries for a transmission facility must be transparent with adequate documentation to allow a stakeholder to determine how they were applied to a proposed transmission facility.

(6) A transmission planning region may choose to use a different cost allocation method for different types of transmission facilities in the regional plan, such as transmission facilities needed for reliability, congestion relief, or to achieve public policy requirements established by state or federal laws or regulations. Each cost allocation method must be set out clearly and explained in detail in the compliance filing for this Final Rule.