Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, 37884-37916 [2010-15735]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 75, Number 125 (Wednesday, June 30, 2010)]
[Proposed Rules]
[Pages 37884-37916]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-15735]



[[Page 37883]]

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Part II





Department of Energy





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Federal Energy Regulatory Commission



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18 CFR Part 35



Transmission Planning and Cost Allocation by Transmission Owning and 
Operating Public Utilities; Proposed Rule

Federal Register / Vol. 75 , No. 125 / Wednesday, June 30, 2010 / 
Proposed Rules

[[Page 37884]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM10-23-000]


Transmission Planning and Cost Allocation by Transmission Owning 
and Operating Public Utilities

Issued June 17, 2010.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission is proposing to amend 
the transmission planning and cost allocation requirements established 
in Order No. 890 to ensure that Commission-jurisdictional services are 
provided on a basis that is just, reasonable and not unduly 
discriminatory or preferential. With respect to transmission planning, 
the proposed rule would provide that local and regional transmission 
planning processes account for transmission needs driven by public 
policy requirements established by State or Federal laws or 
regulations; improve coordination between neighboring transmission 
planning regions with respect to interregional facilities; and remove 
from Commission-approved tariffs or agreements a right of first refusal 
created by those documents that provides an incumbent transmission 
provider with an undue advantage over a nonincumbent transmission 
developer. Neither incumbent nor nonincumbent transmission facility 
developers should, as a result of a Commission-approved tariff or 
agreement, receive different treatment in a regional transmission 
planning process. Further, both should share similar benefits and 
obligations commensurate with that participation, including the right, 
consistent with State or local laws or regulations, to construct and 
own a facility that it sponsors in a regional transmission planning 
process and that is selected for inclusion in the regional transmission 
plan. With respect to cost allocation, the proposed rule would 
establish a closer link between transmission planning processes and 
cost allocation and would require cost allocation methods for 
intraregional and interregional transmission facilities to satisfy 
newly established cost allocation principles.

DATES: Comments are due August 30, 2010.

ADDRESSES: You may submit comments, identified by docket number by any 
of the following methods:
     Agency Web Site: https://www.ferc.gov. Documents created 
electronically using word processing software should be filed in native 
applications or print-to-PDF format and not in a scanned format.
     Mail/Hand Delivery: Commenters unable to file comments 
electronically must mail or hand deliver an original and 14 copies of 
their comments to: Federal Energy Regulatory Commission, Office of the 
Secretary, 888 First Street, NE., Washington, DC 20426.
    Instructions: For detailed instructions on submitting comments and 
additional information on the rulemaking process, see the Comment 
Procedures Section of this document

FOR FURTHER INFORMATION CONTACT:
Russell Profozich, Federal Energy Regulatory Commission, Office of 
Energy Policy and Innovation, 888 First Street, NE., Washington, DC 
20426, (202) 502-6478.
John Cohen, Federal Energy Regulatory Commission, Office of the General 
Counsel, 888 First Street, NE., Washington, DC 20426, (202) 502-8705.

SUPPLEMENTARY INFORMATION:

Notice of Proposed Rulemaking

Table of Contents

 
                                                               Paragraph
                                                                 Nos.
 
I. Introduction.............................................           1
II. Background..............................................           6
    A. Order Nos. 888 and 890...............................           6
    B. Technical Conferences and Notice of Request for                13
     Comments on Transmission Planning and Cost Allocation..
    C. Additional Developments Since Issuance of Order No.            25
     890....................................................
III. The Need for Reform....................................          32
IV. Proposed Reforms: Transmission Planning.................          44
    A. Participation in the Regional Planning Process.......          45
    B. Public Policy Driven Projects........................          55
    C. Opportunities for Undue Discrimination Against                 71
     Nonincumbent Transmission Developers...................
        1. Nonincumbent Transmission Developer Participation          71
         in the Transmission Planning Process...............
        2. Proposed Reforms Regarding Nonincumbents.........          87
    D. Interregional Coordination...........................         102
        1. The Need for Interregional Planning Reforms......         102
        2. Proposed Interregional Planning Reforms..........         114
V. Proposed Reforms: Cost Allocation........................         121
    A. Introduction.........................................         121
        1. Order No. 890's Transmission Planning Principle           121
         on Cost Allocation for New Transmission Facilities.
        2. October 2009 Notice and Subsequent Comments......         129
    B. Legal Authority and Need for Reform..................         138
        1. The Cost Causation Principle.....................         139
        2. Need for Reform..................................         148
    C. Proposed Reforms.....................................         155
        1. Intraregional Cost Allocation....................         164
        2. Interregional Cost Allocation....................         170
VI. Compliance Filings......................................         179
VII. Information Collection Statement.......................         182
VIII. Environmental Analysis................................         186
IX. Regulatory Flexibility Act Analysis.....................         187
X. Comment Procedures.......................................         188
XI. Document Availability...................................         192
Regulatory Text

[[Page 37885]]

 
Appendix A: List of Short Names of Commenters on the Federal
 Energy Regulator Commission's Notice of Request for
 Comments on Transmission Planning Processes Under Order No.
 890--Docket No. AD09-8-000, October 2009
Appendix B: Pro Forma Open Access Transmission Tariff
 Attachment K
 

Notice of Proposed Rulemaking

Issued June 17, 2010.

I. Introduction

    1. In this Notice of Proposed Rulemaking (Proposed Rule), the 
Federal Energy Regulatory Commission (Commission) is proposing to 
reform its electric transmission planning and cost allocation 
requirements for public utility transmission providers. The proposed 
reforms are intended to correct deficiencies in transmission planning 
and cost allocation processes so that the transmission grid can better 
support wholesale power markets and thereby ensure that Commission-
jurisdictional services are provided at rates, terms and conditions 
that are just and reasonable and not unduly discriminatory or 
preferential.
    2. This Proposed Rule builds on Order No. 890,\1\ in which the 
Commission reformed the pro forma open access transmission tariff 
(OATT). Among other changes, Order No. 890 required each public utility 
transmission provider to have a coordinated, open, and transparent 
regional transmission planning process. Order No. 890 also established 
nine transmission planning principles, one of which addressed cost 
allocation for new projects.
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    \1\ Preventing Undue Discrimination and Preference in 
Transmission Service, Order No. 890, FERC Stats. & Regs. ] 31,241, 
order on reh'g, Order No. 890-A, FERC Stats. & Regs. ] 31,261 
(2007), order on reh'g, Order No. 890-B, 123 FERC ] 61,299 (2008), 
order on reh'g, Order No. 890-C, 126 FERC ] 61,228 (2009), order on 
clarification, Order No. 890-D, 129 FERC ] 61,126 (2009).
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    3. The Commission acknowledges that significant work has been done 
in recent years to enhance regional transmission planning processes. 
The reforms proposed herein seek to build on this progress by improving 
the effectiveness of regional transmission planning and the efficiency 
of resulting transmission development. In formulating this proposal, 
the Commission has sought to balance competing interests and identify a 
package of reforms that, if implemented, would support the development 
of transmission facilities identified by the region as necessary to 
satisfy reliability standards, reduce congestion, and enable compliance 
with public policy requirements established by State or Federal laws or 
regulations. The Commission recognizes that opinions may differ as to 
whether the proposal as formulated will best achieve the Commission's 
goals. The Commission therefore seeks comment on the reforms proposed 
herein and encourages commenters to identify enhancements to the 
reforms that could better support the efficient and effective 
development of transmission facilities.
    4. With respect to transmission planning, the reforms proposed in 
this Proposed Rule would provide that: (1) Local and regional 
transmission planning processes account for transmission needs driven 
by public policy requirements established by State or Federal laws or 
regulations; (2) coordination between neighboring transmission planning 
regions is improved with respect to facilities that are proposed to be 
located in both regions, as well as interregional facilities that could 
address transmission needs more efficiently than separate intraregional 
facilities; and (3) a right of first refusal that is created by a 
document subject to the Commission's jurisdiction and that provides an 
incumbent utility with an undue advantage over nonincumbent 
transmission project developers is removed from that document. Neither 
incumbent nor nonincumbent transmission facility developers should, as 
a result of a Commission-approved OATT or agreement, receive different 
treatment in a regional transmission planning process. Further, both 
should share similar benefits and obligations commensurate with that 
participation, including the right, consistent with State or local laws 
or regulations, to construct and own a facility that it sponsors in a 
regional transmission planning process and that is selected for 
inclusion in the regional transmission plan. The Commission 
preliminarily finds that these proposed reforms are needed to protect 
against unjust and unreasonable rates, terms and conditions and undue 
discrimination in the provision of Commission-jurisdictional services.
    5. With respect to transmission cost allocation, the Commission is 
proposing to require public utility transmission providers to establish 
a closer link between cost allocation and regional transmission 
planning processes in which the beneficiaries of new transmission 
facilities are identified, as well as to establish principles that cost 
allocation methods must satisfy. The Commission sees these proposals as 
steps that would increase the likelihood that facilities included in 
regional transmission plans are actually constructed. For example, 
establishing a closer link between transmission planning and cost 
allocation processes would diminish the likelihood that a transmission 
facility would be included in a regional transmission plan, only to 
later encounter cost allocation disputes that inhibit construction of 
that facility.

II. Background

A. Order Nos. 888 and 890

    6. In Order No. 888,\2\ issued in 1996, the Commission found that 
it was in the economic interest of transmission providers to deny 
transmission service or to offer transmission service on a basis that 
is inferior to that which they provide to themselves.\3\ Concluding 
that unduly discriminatory and anticompetitive practices existed in the 
electric industry and that, absent Commission action, such practices 
would increase as competitive pressures in the industry grew, the 
Commission in Order No. 888 and the accompanying pro forma OATT 
implemented open access to transmission facilities owned, operated, or 
controlled by a public utility.
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    \2\ Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery 
of Stranded Costs by Public Utilities and Transmitting Utilities, 
Order No. 888, FERC Stats. & Regs. ] 31,036 (1996), order on reh'g, 
Order No. 888-A, FERC Stats. & Regs. ] 31,048, order on reh'g, Order 
No. 888-B, 81 FERC ] 61,248 (1997), order on reh'g, Order No. 888-C, 
82 FERC ] 61,046 (1998), aff'd in relevant part sub nom. 
Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C. 
Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
    \3\ Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,682.
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    7. As part of those reforms, Order No. 888 and the pro forma OATT 
set forth certain minimum requirements for transmission planning. For 
example, the pro forma OATT required a public utility transmission 
provider to account for the needs of its network customers in its 
transmission planning activities on the same basis as it provides for 
its own needs.\4\ The pro forma OATT also required that new facilities 
be constructed to meet the service requests of long-term firm point-to-
point

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customers.\5\ While Order No. 888-A went on to encourage utilities to 
engage in joint and regional transmission planning with other utilities 
and customers, it did not require those actions.\6\
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    \4\ See Section 28.2 of the pro forma OATT.
    \5\ See Sections 13.5, 15.4, & 27 of the pro forma OATT.
    \6\ Order No. 888-A, FERC Stats. & Regs. ] 31,048 at 30,311.
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    8. In early 2007, the Commission issued Order No. 890 to remedy 
flaws in the pro forma OATT that the Commission identified based on the 
decade of experience since the issuance of Order No. 888. Among other 
things, the Commission found that pro forma OATT obligations related to 
transmission planning were insufficient to eliminate opportunities for 
undue discrimination in the provision of transmission service. The 
Commission stated that particularly in an era of increasing 
transmission congestion and the need for significant new transmission 
investment, it could not rely on the self-interest of transmission 
providers to expand the grid in a not unduly discriminatory manner. 
Among other shortcomings in the pro forma OATT, the Commission pointed 
to the lack of clear criteria regarding the transmission provider's 
planning obligation; the absence of a requirement that the overall 
transmission planning process be open to customers, competitors, and 
State commissions; and the absence of a requirement that key 
assumptions and data underlying transmission plans be made available to 
customers.
    9. In light of these findings, one of the primary goals of the 
reforms undertaken in Order No. 890 was to address the lack of 
specificity regarding how customers and other stakeholders should be 
treated in the transmission planning process. To remedy the potential 
for undue discrimination in transmission planning activities, the 
Commission required each public utility transmission provider to 
develop a transmission planning process that satisfies nine principles 
and to clearly describe that process in a new attachment to its OATT 
(Attachment K). The Order No. 890 transmission planning principles are: 
(1) Coordination; (2) openness; (3) transparency; (4) information 
exchange; (5) comparability; (6) dispute resolution; (7) regional 
participation; (8) economic planning studies; and (9) cost allocation 
for new projects.\7\
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    \7\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 418-601.
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    10. The transmission planning reforms adopted in Order No. 890 
apply to all public utility transmission providers, including 
Commission-approved regional transmission organizations (RTOs) and 
independent system operators (ISOs). The Commission also stated that it 
expected all non-public utility transmission providers to participate 
in the planning processes required by Order No. 890. The Commission 
noted that reciprocity dictates that non-public utility transmission 
providers that take advantage of open access due to improved planning 
should be subject to the same requirements as jurisdictional 
transmission providers.\8\ The Commission stated that a coordinated, 
open, and transparent regional planning process cannot succeed unless 
all transmission owners participate. However, the Commission did not 
invoke its authority under FPA section 211A, which allows the 
Commission to require an unregulated transmitting utility (i.e., a non-
public utility transmission provider) to provide transmission services 
on a comparable and not unduly discriminatory or preferential basis.\9\ 
The Commission instead stated that if it found on the appropriate 
record that non-public utility transmission providers are not 
participating in the planning processes required by Order No. 890, then 
the Commission may exercise its authority under FPA section 211A on a 
case-by-case basis.
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    \8\ Id. P 441.
    \9\ FPA section 211A(b) provides, in pertinent part, that ``the 
Commission may, by rule or order, require an unregulated 
transmitting utility to provide transmission services--(1) at rates 
that are comparable to those that the unregulated transmitting 
utility charges itself; and (2) on terms and conditions (not 
relating to rates) that are comparable to those under which the 
unregulated transmitting utility provides transmission services to 
itself and that are not unduly discriminatory or preferential.'' 16 
U.S.C. 824j (2006).
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    11. On December 7, 2007, pursuant to Order No. 890, most public 
utility transmission providers and several non-public utility 
transmission providers submitted compliance filings that describe their 
proposed transmission planning processes.\10\ The Commission addressed 
these filings in a series of orders that were issued throughout 2008. 
Generally, the Commission accepted the compliance filings to be 
effective December 7, 2007, subject to further compliance filings as 
necessary for the proposed transmission planning processes to satisfy 
the nine transmission planning principles. The Commission issued 
additional orders on Order No. 890 transmission planning compliance 
filings in the spring and summer of 2009.
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    \10\ A small number of transmission providers were granted 
extensions.
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    12. As a result of these compliance filings, RTOs and ISOs have 
enhanced their regional transmission planning processes, making them 
more open, transparent, and inclusive. Regions of the country outside 
of RTO and ISO regions have also made significant strides with respect 
to transmission planning by working together to enhance existing, or 
create new, regional transmission planning processes.\11\ These 
improvements to transmission planning processes have given customers 
and other stakeholders the opportunity to participate in the 
identification of regional needs and corresponding solutions, thereby 
facilitating the development of more efficient and effective 
transmission expansion plans.
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    \11\ The regional transmission planning processes that public 
utility transmission providers in regions outside of RTOs and ISOs 
have relied on to comply with certain requirements of Order No. 890 
are the North Carolina Transmission Planning Collaborative, 
Southeast Inter-Regional Participation Process, SERC Reliability 
Corporation, ReliabilityFirst Corporation, Mid-Continent Area Power 
Pool, Florida Reliability Coordination Council, WestConnect, 
ColumbiaGrid, and Northern Tier Transmission Group.
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B. Technical Conferences and Notice of Request for Comments on 
Transmission Planning and Cost Allocation

    13. In several of the above-noted orders issued in 2008 and early 
2009 on filings submitted to comply with the Order No. 890 transmission 
planning requirements, the Commission stated that it would continue to 
monitor implementation of these transmission planning processes. The 
Commission also announced its intention to convene regional technical 
conferences in 2009.
    14. Consistent with the Commission's announcement, Commission staff 
in September 2009 convened three regional technical conferences in 
Philadelphia, Atlanta, and Phoenix, respectively. The focus of the 
technical conferences was to: (1) Determine the progress and benefits 
realized by each transmission provider's transmission planning process, 
obtain customer and other stakeholder input, and discuss any areas that 
may need improvement; (2) examine whether existing transmission 
planning processes adequately consider needs and solutions on a 
regional or interconnection-wide basis to ensure adequate and reliable 
supplies at just and reasonable rates; and (3) explore whether existing 
processes are sufficient to meet emerging challenges to the 
transmission system, such as the development of interregional 
transmission facilities and the integration of large amounts of 
location-constrained generation. Issues discussed

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at the technical conferences included the effectiveness of the current 
transmission planning processes, the development of regional and 
interregional transmission plans, and the effectiveness of existing 
cost allocation methods used by transmission providers and alternatives 
to those methods.
    15. Following these technical conferences, the Commission in 
October 2009 issued a Notice of Request for Comments.\12\ The October 
2009 Notice presented numerous questions with respect to enhancing 
regional transmission planning processes and allocating the cost of 
transmission.
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    \12\ Federal Energy Regulatory Commission, Transmission Planning 
Processes Under Order No. 890; Notice of Request for Comments; 
Docket No. AD09-8-000, October 8, 2009 (October 2009 Notice).
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    16. In response to the October 2009 Notice, the Commission received 
107 initial comments and 45 reply comments.\13\ Many of these comments 
are discussed in greater detail later in this Proposed Rule, in the 
context of the Commission's proposals on specific issues.
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    \13\ See Appendix A for a list of the commenters and their 
abbreviated names.
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    17. In general, some commenters oppose additional Commission action 
at this time with respect to transmission planning. Among these 
commenters, some argue that existing transmission planning processes 
are adequate to achieve the Commission's stated goals.\14\ Some of 
these commenters highlight work already underway in their own 
transmission planning regions, arguing that no Commission action is 
needed at least in those regions. Other commenters argue that existing 
processes are new or are being revised and should be given time to 
mature before additional changes are proposed. Many of these commenters 
state that if the Commission chooses to act, it should do so in a 
manner that does not disrupt existing transmission planning processes. 
Some commenters that oppose Commission action on transmission planning 
at this time state that it is important to maintain what they describe 
as a ``bottom-up'' approach to transmission planning, in which regional 
transmission planning is based on transmission planning conducted by 
the individual transmission-owning utilities in a transmission planning 
region.\15\
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    \14\ E.g., Dominion, Large Public Power Council, Midwest ISO, 
New York PSC, Northern Tier Transmission Group, and WECC.
    \15\ E.g., Ohio Commission, PPL, Southern Companies, and WECC.
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    18. Many other commenters support additional Commission action on 
transmission planning at this time.\16\ These commenters offer a wide 
range of views on why and how the planning process should be improved. 
Although these commenters express diverse views, there appears to be a 
consensus among those supporting action that the Commission should--at 
a minimum--provide guidance about planning for large, interregional 
transmission projects.
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    \16\ E.g., American Transmission, CAlifornians for Renewable 
Energy, Dayton Power and Light, E.ON, LS Power, NRG, Pioneer 
Transmission, San Diego Gas & Electric, and Transmission Access 
Policy Study Group.
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    19. Many commenters that support Commission action on transmission 
planning raise issues related to the procedural characteristics or 
geographic scope of existing transmission planning processes. Some 
commenters contend that the Order No. 890 transmission planning 
principles should be extended to support interregional coordination, 
while others argue that additional planning principles are necessary to 
ensure the effectiveness of transmission planning processes. Some 
commenters suggest that the type of ``bottom-up'' transmission planning 
described above is insufficient,\17\ and other commenters advocate 
changes such as establishing a regional or interconnection-wide 
planning coordinator.\18\ A few commenters suggest that the Commission 
add to the OATT a pro forma seams agreement that includes joint 
collaborative planning and cost allocation across planning regions.\19\ 
Still other commenters support changes to transmission planning 
processes, but caution against adopting a one-size-fits-all or an 
interconnectionwide approach.\20\
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    \17\ E.g., Calvin Daniels (commenting as an individual).
    \18\ E.g., AEP.
    \19\ E.g., Midwest ISO Transmission Owners, National Rural 
Electric Coops, and SPP.
    \20\ E.g., Pacific Gas and Electric and Transmission Agency of 
Northern California.
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    20. Other commenters that support Commission action on transmission 
planning argue that some existing transmission planning processes 
provide an incumbent transmission owner with an unfair advantage over 
merchant and independent transmission project developers, such as by 
providing an incumbent transmission owner with a right of first refusal 
\21\ to construct a transmission facility that is included in a 
regional transmission plan and meets certain other criteria.\22\ These 
commenters argue that such practices discourage other, merchant and 
independent transmission developers' \23\ participation in the 
transmission planning process and present a significant barrier to 
transmission investment. Other commenters state that projects proposed 
by merchant and independent transmission project developers need to be 
included fully in regional transmission planning processes on the same 
basis as other projects.\24\
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    \21\ A right of first refusal is defined, for the purposes of 
this proposed rulemaking, as the right of an incumbent transmission 
owner to construct, own, and propose cost recovery for any new 
transmission project that is: (1) Located within its service 
territory; and (2) approved for inclusion in a transmission plan 
developed through the Order No. 890 planning process.
    \22\ E.g., AWEA, EPSA, LS Power, and Transmission Dependent 
Utility Systems.
    \23\ Merchant transmission projects are defined as those for 
which the costs of constructing the proposed transmission facilities 
will be recovered through negotiated rates instead of cost-based 
rates. For purposes of this proposed rulemaking, an incumbent 
transmission developer is an entity that develops a project within 
its own service territory. We note that a transmission owner that 
proposes a project outside of its own service territory is not 
considered an incumbent for purposes of that project.
    \24\ E.g., Allegheny Companies, AEP, CAlifornians for Renewable 
Energy, Delaware Municipal and Southwestern Electric, E.ON Climate & 
Renewables North America, Great River Energy, Sun Flower and Mid-
Kansas, National Nuclear Security Administration Service Center, 
Organization of MISO States, and Transmission Agency of Northern 
California.
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    21. Still other commenters that support Commission action on 
transmission planning express concern that current transmission 
planning processes do not adequately assess all of the potential 
benefits associated with transmission project proposals.\25\ Some of 
these commenters state that more attention needs to be devoted to 
analyzing the benefits associated with economic-based projects and 
incorporating such projects into regional transmission plans.\26\ PJM 
states that generic planning principles are needed to deal with the 
various social, environmental and economic impacts of regional 
transmission projects. In addition, several commenters recommend that 
the Commission incorporate State and Federal public policy objectives 
into the transmission planning process,\27\ noting, for example, that 
doing so could facilitate cost-effective achievement of those 
objectives. Commenters also

[[Page 37888]]

recommend that the Commission provide for flexibility so that each 
transmission planning region could determine which resources it would 
use to fulfill these public policy objectives.\28\
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    \25\ E.g., AEP, AWEA, Baltimore Gas and Electric, Energy Future 
Coalition, Exelon, Green Energy Express, ITC Holdings, MidAmerican, 
National Audubon Society, et al., NextEra, and Public Interest 
Organizations & Renewable Energy Groups.
    \26\ E.g., MidAmerican and Old Dominion.
    \27\ E.g., AWEA, Baltimore Gas and Electric, Exelon, Eastern PJM 
Governors, The Brattle Group, ITC Holdings, LS Power, National 
Audubon Society, et al., National Grid, NextEra, Old Dominion, PJM, 
Public Interest Organizations & Renewable Energy Groups, Renewable 
Energy Systems Americas, and Trans-Elect.
    \28\ E.g., Consolidated Edison, et al.
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    22. The Commission's questions in the October 2009 Notice with 
respect to allocating the cost of transmission also drew wide-ranging 
responses. For example, some commenters express concern that the lack 
of a link between transmission planning and cost allocation procedures 
may unnecessarily block or delay needed projects.\29\ Other commenters 
support establishing a generic cost allocation method as a backstop 
that would apply when parties or transmission planning regions cannot 
agree on a cost allocation method.\30\
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    \29\ E.g., ITC Holdings, AEP, American Transmission, Green 
Energy Express, and WIRES.
    \30\ E.g., American Transmission; National Grid; and NEPOOL 
Participants.
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    23. Some commenters indicate that the Commission should provide 
more detailed guidelines or principles for allocating the costs of new 
transmission facilities.\31\ These commenters generally agree that 
those who share in the benefits of transmission facilities should be 
responsible for their costs. However, there is not a consensus on how 
this principle should be implemented, what benefits should be 
considered for purposes of cost allocation, or how to determine who is 
a beneficiary.
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    \31\ E.g., APPA, Green Energy Express, ITC Holdings, NEPOOL 
Participants, NextEra, Ohio Commission, Solar Energy Industries, and 
Transmission Access Policy Study Group.
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    24. Some commenters urge the Commission to avoid rushing to a one-
size-fits-all approach to determining beneficiaries of transmission 
projects, due to the varying nature of projects and benefits.\32\ 
Others express the view that it is difficult to quantify certain 
benefits that they consider relevant, such as carbon emission 
reduction, integration of renewable generation, or the most efficient 
use of existing rights-of-way.\33\ Other commenters suggest that there 
are ways to factor difficult to quantify benefits into the planning 
process such that they are adequately considered.\34\
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    \32\ E.g., APPA, Bonneville, California ISO, ColumbiaGrid, 
Consolidated Edison, et al., Dayton Power and Light, EEI, Entergy, 
Midwest ISO, Southern Companies.
    \33\ E.g., California ISO, Electricity Consumers Resource 
Council, MidAmerican, National Grid.
    \34\ E.g., AWEA, Energy Future Coalition, Entergy, Exelon, ITC 
Holdings, Integrys, et al.
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C. Additional Developments Since Issuance of Order No. 890

    25. Other developments with important implications for transmission 
planning have occurred amid the above-noted Order No. 890 compliance 
efforts on transmission planning and as the Commission gathered 
information through the technical conferences and the October 2009 
Notice discussed above.
    26. For example, in February 2009, Congress enacted the American 
Recovery and Reinvestment Act (ARRA), which provided $80 million for 
the U.S. Department of Energy (DOE), in coordination with the 
Commission, to support the development of interconnection-based 
transmission plans for the Eastern, Western, and Texas 
interconnections. In seeking applications for use of those funds, DOE 
described the initiative as intended to: (1) Improve coordination 
between electric industry participants and states on the regional, 
interregional, and interconnection-wide levels with regard to long-term 
electricity policy and planning; (2) provide better quality information 
for industry planners and State and Federal policymakers and 
regulators, including a portfolio of potential future supply scenarios 
and their corresponding transmission requirements; (3) increase 
awareness of required long-term transmission investments under various 
scenarios, which may encourage parties to resolve cost allocation and 
siting issues; and (4) facilitate and accelerate development of 
renewable or other low-carbon generation resources.\35\
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    \35\ Department of Energy, Recovery Act--Resource Assessment and 
Interconnection-Level Transmission Analysis and Planning Funding 
Opportunity Announcement, at 5-6 (June 15, 2009).
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    27. In December 2009, DOE announced award selections for much of 
this ARRA funding. In each interconnection, applicants awarded funds 
under what DOE defined as Topic A are responsible for conducting 
interconnection-level analysis and transmission planning. Applicants 
awarded funds under Topic B are to facilitate greater cooperation among 
states and stakeholders within each interconnection to guide the 
analyses and planning performed under Topic A.\36\ Broad participation 
in sessions to date related to this initiative suggest that the 
availability of Federal funds to pursue these goals has increased 
awareness of the potential for greater coordination among regions in 
transmission planning.
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    \36\ Id. at 4-8.
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    28. DOE has also been involved in the development of several recent 
reports that may have implications for transmission planning. In its 
2008 report, 20% Wind Energy by 2030, DOE concludes that 
``[s]ignificant expansion of the transmission grid will be required 
under any future electric industry scenario. Expanded transmission will 
increase reliability, reduce costly congestion and line losses, and 
supply access to low-cost remote resources, including renewables.'' 
\37\
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    \37\ Department of Energy, 20% Wind Energy by 2030, at 93 (July 
2008).
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    29. Similarly, in its 2009 report, Keeping the Lights On in a New 
World, the DOE Electricity Advisory Committee concluded that expanding 
and strengthening the nation's transmission infrastructure is becoming 
increasingly important for two reasons: ``First, increasing 
transmission capability will help ensure a reliable electric supply and 
provide greater access to economically priced power. Second, the growth 
in renewable energy development, stimulated in part by State-adopted 
renewable portfolio standards (RPS) and the possibility of a national 
RPS, will require significant new transmission to bring these 
resources, which are often remotely located, to consumer load 
centers.'' \38\
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    \38\ Electricity Advisory Committee, Keeping the Lights On in a 
New World, at 45 (Jan. 2009). The Electricity Advisory Committee was 
formed to provide advice to DOE in implementing the Energy Policy 
Act of 2005 and the Energy Independence and Security Act of 2007, 
and in modernizing the nation's electricity delivery infrastructure. 
The Electricity Advisory Committee includes representatives from 
industry, academia, and state government.
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    30. The number of states that have adopted renewable portfolio 
standard measures, as well as the target levels set in those measures, 
has continued to increase. Some 30 states and the District of Columbia 
have now adopted renewable portfolio standard measures. These measures 
typically require that a certain percentage of energy sales (MWh) or 
installed capacity (MW) come from renewable energy resources, with the 
target level and qualifying resources varying among the renewable 
portfolio standard measures.
    31. In its role as the Commission-designated Electric Reliability 
Organization, the North American Electric Reliability Corporation 
(NERC) concluded that significant transmission expansion will be needed 
to comply with renewable mandates. Even in the absence of a national 
renewable portfolio standard, NERC has stated that ``an analysis of the 
past 14 years shows that the siting and construction of transmission 
lines will need to significantly accelerate to maintain reliability 
over the coming years.'' \39\ In

[[Page 37889]]

its 2009 assessment of transmission needs, NERC found that if a 
national renewable portfolio standard of 15 percent were adopted, an 
additional 40,000 miles of transmission lines would be needed and 
``transmission would be a key component to accommodating new resources, 
linking geographically remote generation to demand centers.'' \40\
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    \39\ North American Electric Reliability Corporation, 2009 Long-
Term Reliability Assessment: 2009-2018, October 2009, at 29.
    \40\ North American Electric Reliability Corporation, 2009 
Scenario Reliability Assessment: 2009-2018, October 2009, at 9.
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III. The Need for Reform

    32. The Commission notes that transmission planning processes, 
particularly at the regional level, have seen substantial improvement 
through compliance with Order No. 890. As noted above, these 
improvements have increased opportunities for customers and other 
stakeholders to participate in the identification of regional needs and 
corresponding solutions, facilitating the development of more efficient 
and effective transmission plans. The Commission believes that the 
expanded cooperation and collaboration that is now occurring in 
transmission planning both among transmission providers and between 
transmission providers and their stakeholders is to be commended.
    33. Although Order No. 890 became effective just a few years ago, 
there have been significant changes in the nation's electric power 
industry in those few years that require the Commission to consider 
additional reforms to transmission planning and cost allocation to 
reflect these new circumstances. These changes have been widely 
recognized within the industry.\41\ Our intention in this Proposed Rule 
is not to disrupt the progress that is already being made with respect 
to transmission planning and investment in transmission infrastructure, 
but rather to address remaining deficiencies in transmission planning 
and cost allocation processes so that the transmission grid can better 
support wholesale power markets and thereby ensure that Commission-
jurisdictional services are provided at rates, terms and conditions 
that are just and reasonable and not unduly discriminatory or 
preferential.
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    \41\ For example, a trend of increased investment in the 
country's transmission infrastructure has emerged in recent years. 
EEI attributes that trend to, among other factors, recognition of 
the reliability and other developments discussed above, as well as 
enactment of the Energy Policy Act of 2005 and the Commission's 
implementation of its new transmission pricing policies. EEI has 
also observed that even amid this trend of increased investment in 
transmission infrastructure, transmission projects that would be 
located in more than one state ``face significant challenges for 
siting, permitting, cost allocation and cost recovery.'' 
Transmission Projects: At a Glance, Prepared by Edison Electric 
Institute with assistance from Navigant Consulting, Inc., February 
2010, at iii-iv. EEI has also stated that ``[t]hese challenges must 
be resolved to facilitate the movement of large quantities of 
renewable energy.'' Transmission Projects Supporting Renewable 
Resources, Prepared by Edison Electric Institute, February 2009, at 
iv.
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    34. The siting, permitting, and cost allocation of transmission 
facilities face significant challenges. These challenges may be present 
whether an interstate transmission project is proposed to be located 
within a single region for which transmission planning is conducted in 
accordance with Order No. 890 (i.e., an intraregional transmission 
facility) or is instead proposed to be located in more than one such 
transmission planning region (i.e., an interregional transmission 
facility). The failure to address these challenges also can lead to 
increases in congestion costs. For example, PJM stated recently that 
prices for new generating capacity in the eastern part of its 
transmission planning region have increased due to constraints on its 
transmission system. Observing that capacity prices in the western 
portion of PJM were $27.73 per megawatt-day, while capacity prices in 
the transmission-constrained areas of PJM were between $226.15 and 
$247.14 per megawatt-day, PJM noted that ``the great difference in 
prices for the eastern portion of PJM compared with elsewhere shows the 
need for increased transmission line capacity into the region. 
Transmission line additions and upgrades would reduce capacity price 
differences.'' \42\
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    \42\ PJM Interchange, News Release, May 14, 2010.
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    35. In light of the comments and developments discussed above, one 
deficiency that has arisen is the lack of a requirement for a regional 
transmission plan, without which the construction of new transmission 
facilities could be inhibited. Additionally, in the absence of such a 
requirement, the facilities best suited to meet the needs of a 
particular region may not be identified.
    36. Another deficiency that has arisen since the issuance of Order 
No. 890 involves transmission needs driven by public policy 
requirements established by State or Federal laws or regulations. For 
example, State policies to promote increased reliance on renewable 
energy resources, such as the renewable portfolio standard measures 
discussed above, accentuate the need for transmission to deliver 
electricity from location-constrained renewable energy resources to 
load centers. Other State policies, such as goals for use of energy 
efficiency or demand response, may lower load forecasts within a given 
load zone and thereby affect transmission planning determinations. In 
addition, states may adopt economic development policies associated 
with meeting energy needs that may be relevant to assumptions made in a 
transmission planning process. Future public policy requirements 
established by Federal laws or regulations also could have a 
significant effect on transmission planning.
    37. However, existing transmission planning processes generally 
were not designed to account for, and do not explicitly consider, these 
types of public policy requirements established by State or Federal 
laws or regulations. Indeed, some comments submitted in response to the 
October 2009 Notice indicate that current transmission planning 
processes may not permit consideration of public policy requirements 
within regional transmission plans.\43\ As discussed in greater detail 
below, the Commission preliminarily finds that the failure to account 
explicitly for such public policy requirements in the transmission 
planning process may result in undue discrimination and rates, terms, 
and conditions of service that are not just and reasonable.
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    \43\ E.g., Baltimore Gas and Electric, Eastern PJM Governors, 
ITC Holdings, LS Power, National Grid, Old Dominion, PJM, and Trans-
Elect.
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    38. A third deficiency involves obstacles to nonincumbent 
transmission project developers' participation in regional transmission 
planning processes. The Commission in recent years has seen increasing 
interest in transmission investment among these developers. Such 
interest, however, often has been coupled with expressions of concern 
about the treatment of merchant and independent transmission project 
developers in relevant transmission planning processes.\44\ Many 
commenters raised similar concerns in response to the October 2009 
Notice, describing what they see as remaining opportunities for undue 
discrimination against nonincumbent transmission project developers in 
transmission planning processes. Such undue discrimination could 
discourage these developers from presenting projects in regional 
transmission planning processes, which, in turn, could inhibit 
development of beneficial transmission facilities.
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    \44\ See, e.g., Green Energy Express LLC, 129 FERC ] 61,165 
(2009); Western Grid Dev., LLC, 130 FERC ] 61,056 (2010); Pioneer 
Transmission LLC, 126 FERC ] 61,281 (2009).
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    39. A fourth deficiency involves the relative lack of coordination 
between transmission planning regions. In Order No. 890, the Commission 
found that when transmission providers engage in

[[Page 37890]]

regional transmission planning, they may identify solutions to regional 
needs that are more efficient than those that would have been 
identified if needs and potential solutions were evaluated only 
independently by each individual transmission provider.\45\ Similarly, 
in the absence of coordination between transmission planning regions, 
transmission providers may not identify more efficient and cost-
effective solutions to the individual needs identified in their 
respective utility-level and regional transmission planning processes, 
potentially including interregional transmission projects. In the few 
years since the issuance of Order No. 890, interest in multiregional 
facilities has grown significantly.\46\ The October 2009 Notice 
observed that the lack of coordinated planning over the seams of 
current transmission planning regions could be needlessly increasing 
costs for customers of individual transmission providers. Accordingly, 
the Order No. 890 transmission planning requirements may not be just 
and reasonable in that they may not be sufficient to address the need 
for greater coordination in interregional transmission planning.
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    \45\ ``The coordination of planning on a regional basis will 
also increase efficiency through the coordination of transmission 
upgrades that have region-wide benefits, as opposed to pursuing 
transmission expansion on a piecemeal basis.'' Order No. 890, FERC 
Stats. & Regs. ] 31,241 at P 524.
    \46\ See, e.g., Pioneer Transmission LLC, 126 FERC ] 61,281 
(2009); Green Power Express, 127 FERC ] 61,031 (2009).
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    40. Finally, we preliminarily conclude that existing methods for 
allocating the costs of new transmission may not be just and reasonable 
because they may inhibit the development of efficient, cost-effective 
transmission facilities necessary to produce just and reasonable rates. 
While challenges associated with allocating the cost of transmission 
are not new, those challenges appear to have become more acute as the 
need for transmission infrastructure has grown. For example, the 
expansion of regional power markets and the increasing adoption of 
State policies to promote increased reliance on renewable energy 
resources have led to a growing need for regional or interregional 
transmission facilities. Meanwhile, determining the benefits of adding 
transmission infrastructure to the grid is a complex process, 
particularly for projects that affect multiple utilities' transmission 
systems and therefore may have multiple beneficiaries. In such 
circumstances, any individual beneficiary of a project has an incentive 
to defer investment in the hopes that other beneficiaries will value 
the project enough to fund its development.
    41. Moreover, as stated in the October 2009 Notice, constructing 
new transmission facilities requires a significant amount of capital. 
Therefore, a threshold consideration for any company considering 
investing in transmission is whether it will have a reasonable 
opportunity to recover its costs. However, there are few rate 
structures in place today that provide for the allocation and recovery 
of costs for projects that are proposed to be located either within a 
transmission planning region that is outside of an RTO or ISO, or in 
more than one transmission planning region. The lack of such rate 
structures creates significant risk for transmission project developers 
that they will have no identified group of customers from which to 
recover the cost of their investment.
    42. Therefore, the Commission proposes to reform transmission 
planning and cost allocation processes as described in the following 
sections of this Proposed Rule. Although focused on discrete aspects of 
the transmission planning and cost allocation processes, these reforms 
are integrally related and should be understood as a package. With 
these related reforms, more transmission projects would be considered 
in the transmission planning process on an equitable basis, and more 
facilities that are included in transmission plans are likely to move 
forward to construction.
    43. The Commission recognizes that many of the existing regional 
transmission planning processes are comprised of both public utility 
and non-public utility transmission providers. Consistent with the 
approach taken in Order No. 890,\47\ the Commission expects all public 
utility and non-public utility transmission providers to participate in 
the regional transmission planning and cost allocation processes 
proposed by this Proposed Rule. Reciprocity dictates that non-public 
utility transmission providers that take advantage of open access, 
including improved regional transmission planning and cost allocation, 
should be subject to the same requirements as public utility 
transmission providers. We are encouraged, based on the efforts that 
followed Order No. 890, that both public utility and non-public utility 
transmission providers collaborate in a number of regional transmission 
planning processes. We therefore do not believe it is necessary at this 
time to invoke our authority under FPA section 211A, which allows us to 
require non-public utility transmission providers to provide 
transmission services on a comparable and not unduly discriminatory or 
preferential basis. However, if the Commission finds on the appropriate 
record that non-public utility transmission providers are not 
participating in the regional transmission planning and cost allocation 
processes proposed in this Proposed Rule, the Commission may exercise 
its authority under FPA section 211A on a case-by-case basis.
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    \47\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 441.
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IV. Proposed Reforms: Transmission Planning

    44. Transmission planning is a critical component of the provision 
of transmission service in interstate commerce. Among other purposes, 
transmission planning is the means by which the transmission needs of a 
given area and the facilities that are best suited to meet those needs 
are identified. Based on the comments received in response to the 
October 2009 Notice and the other developments and considerations 
discussed above, the Commission believes that further steps with 
respect to transmission planning may be necessary to protect against 
unjust and unreasonable rates, terms and conditions and undue 
discrimination in the provision of Commission-jurisdictional services.

A. Participation in the Regional Planning Process

    45. In Order No. 890, the Commission adopted a regional 
participation principle as a necessary component of a public utility 
transmission provider's transmission planning process. To meet that 
principle, the Commission required that each public utility 
transmission provider coordinate with interconnected systems to: (1) 
Share system plans to ensure that the plans are simultaneously feasible 
and otherwise use consistent assumptions and data; and (2) identify 
system enhancements that could relieve congestion or integrate new 
resources.\48\ This requirement for coordination at the regional level 
can be contrasted with the separate requirement in Order No. 890 that 
each public utility transmission provider use an open and transparent 
process to develop a transmission plan for its own control area.\49\ In 
other words, by adopting the regional participation principle, the 
Commission

[[Page 37891]]

did not require development of a comprehensive regional transmission 
plan.
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    \48\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 523.
    \49\ Id. P 494, 523.
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    46. The Commission explained that in complying with the regional 
participation principle, the specific features of a public utility 
transmission provider's regional transmission planning process should 
take account of and accommodate, where appropriate, existing 
institutions, as well as historical practices and the physical 
characteristics of the region.\50\ The Commission recognized that 
regional transmission planning already occurs, for example, as part of 
the NERC Regional Entity planning process.\51\ The Commission urged 
public utility transmission providers to closely examine whether 
improvements in these regional transmission planning processes could be 
implemented to satisfy the requirements of Order No. 890 imposed on 
individual transmission providers.\52\
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    \50\ Id. P 524.
    \51\ Id. P 528.
    \52\ Id. P 526.
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    47. The Commission also stated that to satisfy the regional 
participation principle, an existing transmission planning process must 
be open and inclusive and address both reliability and economic 
considerations.\53\ The Commission required each public utility 
transmission provider to participate in a transmission planning process 
that facilitates regional participation and that is open to all 
interested customers and stakeholders.\54\ However, the Commission did 
not require each regional transmission planning process to comply with 
each of the nine transmission planning principles established in Order 
No. 890.\55\
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    \53\ Id. P 528.
    \54\ Order No. 890-A, FERC Stats. & Regs. ] 31,261 at P 226.
    \55\ See, e.g., Entergy Services, Inc., 124 FERC ] 61,268, at P 
104 (2008).
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    48. On compliance with these Order No. 890 requirements, many 
public utility transmission providers relied on existing regional 
entities and transmission planning processes, modified as necessary, to 
comply with the regional participation principle.\56\
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    \56\ As we note above, the regional transmission planning 
processes that public utility transmission providers in regions 
outside of RTOs and ISOs have relied on to comply with certain 
requirements of Order No. 890 are North Carolina Transmission 
Planning Collaborative, Southeast Inter-Regional Participation 
Process, SERC Reliability Corporation, ReliabilityFirst Corporation, 
Mid-Continent Area Power Pool, Florida Reliability Coordination 
Council, WestConnect, ColumbiaGrid, and Northern Tier Transmission 
Group.
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    49. Since the issuance of Order No. 890, it has become apparent to 
the Commission that Order No. 890's regional participation principle 
may not be sufficient, in and of itself, to ensure an open, 
transparent, inclusive, and comprehensive regional transmission 
planning process. Without such a process, each transmission provider 
will not have information needed to assess proposed projects and 
determine which project or group of projects could satisfy local and 
regional needs more efficiently and cost-effectively. As a result, the 
rates, terms and conditions of transmission services may not be just 
and reasonable. For example, greater regional coordination in 
transmission planning would expand opportunities for transmission 
providers, their transmission customers, and other stakeholders to 
identify and implement regional solutions to local and regional needs 
that are more cost-effective than those proposed in the transmission 
planning process of individual transmission providers. In addition, 
more effective regional transmission planning could better facilitate 
the integration of location-constrained renewable energy resources, 
which may be needed to fulfill public policy requirements such as the 
renewable portfolio standards adopted by many states.
    50. Given this concern, we propose to require that each public 
utility transmission provider participate in a regional transmission 
planning process that produces a regional transmission plan and that 
meets the following transmission planning principles established in 
Order No. 890: (1) Coordination; (2) openness; (3) transparency; (4) 
information exchange; (5) comparability; (6) dispute resolution; and 
(7) economic planning studies.\57\
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    \57\ This proposal does not include the regional participation 
principle and cost allocation for new projects principle of Order 
No. 890 because we address interregional coordination in 
transmission planning and cost allocation for transmission 
facilities included in a regional transmission plan elsewhere in 
this Proposed Rule.
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    51. More specifically, we propose to require that each regional 
transmission planning process consider and evaluate transmission 
facilities and other non-transmission solutions that may be proposed 
and develop a regional transmission plan that identifies the 
transmission facilities that cost-effectively meet the needs of 
transmission providers, their transmission customers, and other 
stakeholders.\58\ When an individual transmission provider engages in 
local transmission planning, it considers and evaluates transmission 
facilities and non-transmission solutions that are proposed and then 
develops a local transmission plan that identifies what transmission 
facilities are needed to meet the needs of its native load (if any), 
transmission customers, and other stakeholders. Likewise, the regional 
transmission planning process would consider and evaluate transmission 
facilities and non-transmission solutions that are proposed and develop 
a regional transmission plan that identifies what transmission 
facilities are needed to meet the needs of transmission customers and 
other stakeholders in the region.\59\
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    \58\ When evaluating potential solutions to identified needs, 
transmission providers must evaluate proposals for transmission, 
generation, and demand resources against one another based on 
criteria set forth in their tariffs. See Order No. 890, FERC Stats. 
& Regs. ] 31,241 at P 494-95; Order No. 890-A, FERC Stats. & Regs. ] 
31,261 at P 216. The Commission also has recognized that in 
appropriate circumstances alternative technologies may be eligible 
for treatment as transmission for ratemaking purposes. Western Grid, 
130 FERC ] 61,056 (2010).
    \59\ As noted in Order No. 890, the planning obligations 
proposed here do not address or dictate which invest