Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, 49842-49974 [2011-19084]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 76, Number 155 (Thursday, August 11, 2011)]
[Rules and Regulations]
[Pages 49842-49974]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19084]



[[Page 49841]]

Vol. 76

Thursday,

No. 155

August 11, 2011

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; Final Rule

Federal Register / Vol. 76 , No. 155 / Thursday, August 11, 2011 / 
Rules and Regulations

[[Page 49842]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM10-23-000; Order No. 1000]


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

AGENCY: Federal Energy Regulatory Commission, Energy.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission is amending the 
transmission planning and cost allocation requirements established in 
Order No. 890 to ensure that Commission-jurisdictional services are 
provided at just and reasonable rates and on a basis that is just and 
reasonable and not unduly discriminatory or preferential. With respect 
to transmission planning, this Final Rule requires that each public 
utility transmission provider participate in a regional transmission 
planning process that produces a regional transmission plan; requires 
that each public utility transmission provider amend its OATT to 
describe procedures that provide for the consideration of transmission 
needs driven by public policy requirements in the local and regional 
transmission planning processes; removes from Commission-approved 
tariffs and agreements a federal right of first refusal for certain new 
transmission facilities; and improves coordination between neighboring 
transmission planning regions for new interregional transmission 
facilities. Also, this Final Rule requires that each public utility 
transmission provider must participate in a regional transmission 
planning process that has: A regional cost allocation method for the 
cost of new transmission facilities selected in a regional transmission 
plan for purposes of cost allocation; and an interregional cost 
allocation method for the cost of certain new transmission facilities 
that are located in two or more neighboring transmission planning 
regions and are jointly evaluated by the regions in the interregional 
transmission coordination procedures required by this Final Rule. Each 
cost allocation method must satisfy six cost allocation principles.

DATES: Effective Date: This final rule will become effective on October 
11, 2011.

FOR FURTHER INFORMATION CONTACT:

Kevin Kelly, Federal Energy Regulatory Commission, Office of Energy 
Policy and Innovation, 888 First Street, NE., Washington, DC 20426. 
(202) 502-8850.
Maria Farinella, Federal Energy Regulatory Commission, Office of the 
General Counsel, 888 First Street, NE., Washington, DC 20426. (202) 
502-6000.

SUPPLEMENTARY INFORMATION:

Before Commissioners: Jon Wellinghoff, Chairman; Marc Spitzer, 
Philip D. Moeller, John R. Norris, and Cheryl A. LaFleur.

Order No. 1000

Table of Contents

 
                                                               Paragraph
                                                                  No.
 
I. Introduction.............................................           1
    A. Order Nos. 888 and 890...............................          15
    B. Technical Conferences and Notice of Request for                22
     Comments on Transmission Planning and Cost Allocation..
    C. Additional Developments Since Issuance of Order No.            25
     890....................................................
II. The Need for Reform.....................................          30
    A. Proposed Rule........................................          30
    B. Comments.............................................          32
    C. Commission Determination.............................          42
    D. Use of Terms.........................................          63
III. Proposed Reforms: Transmission Planning................          67
    A. Regional Transmission Planning Process...............          68
        1. Need for Reform Concerning Regional Transmission           70
         Planning...........................................
            a. Commission Proposal..........................          70
            b. Comments.....................................          72
            c. Commission Determination.....................          78
        2. Legal Authority for Transmission Planning Reforms          85
            a. Commission Proposal..........................          85
            b. Comments.....................................          86
            c. Commission Determination.....................          99
        3. Regional Transmission Planning Principles........         118
            a. Commission Proposal..........................         118
            b. Comments.....................................         120
            c. Commission Determination.....................         146
        4. Consideration of Transmission Needs Driven by             166
         Public Policy Requirements.........................
            a. Commission Proposal..........................         166
            b. Comments.....................................         169
            c. Commission Determination.....................         203
    B. Nonincumbent Transmission Developers.................         225
        1. Need for Reform Concerning Nonincumbent                   228
         Transmission Developers............................
            a. Commission Proposal..........................         228
            b. Comments.....................................         231
            c. Commission Determination.....................         253
        2. Legal Authority To Remove a Federal Right of              270
         First Refusal......................................
            a. Commission Proposal..........................         270
            b. Comments Regarding the Commission's Authority         271
             To Implement the Proposal......................
            c. Commission Determination.....................         284
        3. Removal of a Federal Right of First Refusal From          293
         Commission-Jurisdictional Tariffs and Agreements...
            a. Commission Proposal..........................         293
            b. Comments Regarding Developer Qualification            296
             and Project Identification.....................
            c. Comments Regarding Project Evaluation and             302
             Selection......................................
            d. Commission Determination.....................         313

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                i. Qualification Criteria To Submit a                323
                 Transmission Project for Selection in the
                 Regional Transmission Plan for Purposes of
                 Cost Allocation............................
                ii. Submission of Proposals for Selection in         325
                 the Regional Transmission Plan for Purposes
                 of Cost Allocation.........................
                iii. Evaluation of Proposals for Selection           328
                 in the Regional Transmission Plan for
                 Purposes of Cost Allocation................
                iv. Cost Allocation for Projects Selected in         332
                 the Regional Transmission Plan for Purposes
                 of Cost Allocation.........................
                v. Rights To Construct and Ongoing                   338
                 Sponsorship................................
        4. Reliability Compliance Obligations of                     341
         Transmission Developers............................
            a. Comments Regarding Reliability Obligations...         341
            b. Commission Determination.....................         342
    C. Interregional Transmission Coordination..............         345
        1. Need for Interregional Transmission Coordination          347
         Reform.............................................
            a. Commission Proposal..........................         347
            b. Comments.....................................         351
            c. Commission Determination.....................         368
        2. Interregional Transmission Coordination                   374
         Requirements.......................................
            a. Interregional Transmission Coordination               374
             Procedures.....................................
                i. Commission Proposal......................         374
                ii. Comments................................         377
                iii. Commission Determination...............         393
            b. Geographic Scope of Interregional                     405
             Transmission Coordination......................
                i. Commission Proposal......................         405
                ii. Comments................................         406
                iii. Commission Determination...............         415
        3. Implementation of the Interregional Transmission          422
         Coordination Requirements..........................
            a. Procedure for Joint Evaluation...............         422
                i. Comments.................................         422
                ii. Commission Determination................         435
            b. Data Exchange................................         451
                i. Comments.................................         451
                ii. Commission Determination................         454
            c. Transparency.................................         456
                i. Comments.................................         456
                ii. Commission Determination................         458
            d. Stakeholder Participation....................         459
                i. Commission Proposal......................         459
                ii. Comments................................         460
                iii. Commission Determination...............         465
            e. Tariff Provisions and Agreements for                  468
             Interregional Transmission Coordination........
                i. Commission Proposal......................         468
                ii. Comments................................         469
                iii. Commission Determination...............         475
IV. Proposed Reforms: Cost Allocation.......................         482
    A. Need for Reform Concerning Cost Allocation...........         484
        1. Commission Proposal..............................         484
        2. Comments on Need for Reform......................         488
        3. Commission Determination.........................         495
    B. Legal Authority for Cost Allocation Reforms..........         504
        1. Commission Proposal..............................         504
        2. Comments on Legal Authority......................         509
        3. Commission Determination.........................         530
    C. Cost Allocation Method for Regional Transmission              550
     Facilities.............................................
        1. Commission Proposal..............................         550
        2. Comments on Cost Allocation Method in Regional            553
         Transmission Planning..............................
        3. Commission Determination.........................         558
    D. Cost Allocation Method for Interregional Transmission         566
     Facilities.............................................
        1. Commission Proposal..............................         566
        2. Comments on Interregional Cost Allocation Reforms         568
        3. Commission Determination.........................         578
    E. Principles for Regional and Interregional Cost                585
     Allocation.............................................
        1. Use of a Principles-Based Approach...............         585
            a. Commission Proposal..........................         585
            b. Comments on Use of Principles-Based Approach.         589
            c. Commission Determination.....................         603
        2. Cost Allocation Principle 1--Costs Allocated in a         612
         Way That Is Roughly Commensurate With Benefits.....
            a. Comments.....................................         612
            b. Commission Determination.....................         622
        3. Cost Allocation Principle 2--No Involuntary               630
         Allocation of Costs to Non-Beneficiaries...........
            a. Comments.....................................         630
            b. Commission Determination.....................         637
        4. Cost Allocation Principle 3--Benefit to Cost              642
         Threshold Ratio....................................
            a. Comments.....................................         642
            b. Commission Determination.....................         646
        5. Cost Allocation Principle 4--Allocation To Be             651
         Solely Within Transmission Planning Region(s)
         Unless Those Outside Voluntarily Assume Costs......

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            a. Comments.....................................         651
            b. Commission Determination.....................         657
        6. Cost Allocation Principle 5--Transparent Method           665
         for Determining Benefits and Identifying
         Beneficiaries......................................
            a. Comments.....................................         665
            b. Commission Determination.....................         668
        7. Cost Allocation Principle 6--Different Methods            673
         for Different Types of Facilities..................
            a. Comments.....................................         673
            b. Commission Determination.....................         685
        8. Whether To Establish Other Cost Allocation                694
         Principles.........................................
            a. Commission Proposal..........................         694
            b. Comments.....................................         695
            c. Commission Determination.....................         704
    F. Application of the Cost Allocation Principles........         706
        1. Whether To Have Broad Regional Cost Allocation            707
         for Extra-High Voltage Facilities..................
            a. Commission Proposal..........................         707
            b. Comments on Cost Allocation for Extra-High            708
             Voltage Facilities.............................
            c. Commission Determination.....................         713
        2. Whether To Limit the Use of Participant Funding..         715
            a. Commission Proposal..........................         715
            b. Comments on Limiting Participant Funding.....         716
            c. Commission Determination.....................         723
        3. Whether Regional and Interregional Cost                   730
         Allocation Methods May Differ......................
            a. Commission Proposal..........................         730
            b. Comments.....................................         731
            c. Commission Determination.....................         733
        4. Recommendations for Additional Commission                 736
         Guidance on the Application of the Transmission
         Cost Allocation Principles.........................
            a. Comments.....................................         737
            b. Commission Determination.....................         745
    G. Cost Allocation Matters Related to Other Commission           751
     Rules, Joint Ownership, and Non-Transmission
     Alternatives...........................................
        1. Whether To Reform Cost Allocation for Generator           752
         Interconnections...................................
            a. Comments.....................................         753
            b. Commission Determination.....................         760
        2. Pancaked Rates...................................         761
            a. Comments.....................................         761
            b. Commission Determination.....................         764
        3. Transmission Rate Incentives.....................         765
            a. Comments.....................................         766
            b. Commission Determination.....................         771
        4. Relationship of This Proceeding to the Proceeding         772
         on Variable Energy Resources.......................
            a. Comments.....................................         772
            b. Commission Determination.....................         774
        5. Joint Ownership..................................         775
            a. Comments.....................................         775
            b. Commission Determination.....................         776
        6. Cost Recovery for Non-Transmission Alternatives..         777
            a. Comment Summary..............................         777
            b. Commission Determination.....................         779
V. Compliance and Reciprocity Requirements..................         780
    A. Compliance...........................................         780
        1. Commission Proposal..............................         780
        2. Comments.........................................         781
        3. Commission Determination.........................         792
    B. Reciprocity..........................................         799
        1. Commission Proposal..............................         799
        2. Comments.........................................         800
        3. Commission Determination.........................         815
VI. Information Collection Statement........................         823
VII. Environmental Analysis.................................         831
VIII. Regulatory Flexibility Act Analysis...................         832
IX. Document Availability...................................         833
X. Effective Date and Congressional Notification............         836
Regulatory Text
Appendix A: Summary of Compliance Requirements
Appendix B: Abbreviated Names of Commenters
Appendix C: Pro Forma Open Access Transmission Tariff
 Attachment K
 

I. Introduction

    1. In this Final Rule, the Commission acts under section 206 of the 
Federal Power Act (FPA) to adopt reforms to its electric transmission 
planning and cost allocation requirements for public utility 
transmission providers.\1\ The reforms herein are intended to improve

[[Page 49845]]

transmission planning processes and cost allocation mechanisms under 
the pro forma Open Access Transmission Tariff (OATT) to ensure that the 
rates, terms and conditions of service provided by public utility 
transmission providers are just and reasonable and not unduly 
discriminatory or preferential. This Final Rule builds on Order No. 
890,\2\ in which the Commission, among other things, reformed the pro 
forma OATT to require each public utility transmission provider to have 
a coordinated, open, and transparent regional transmission planning 
process. After careful review of the voluminous record in this 
proceeding, the Commission concludes that the additional reforms 
adopted herein are necessary at this time to ensure that rates for 
Commission-jurisdictional service are just and reasonable in light of 
changing conditions in the industry. In addition, the Commission 
believes that these reforms address opportunities for undue 
discrimination by public utility transmission providers.
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    \1\ 16 U.S.C. 824e (2006).
    \2\ Preventing Undue Discrimination and Preference in 
Transmission Service, Order No. 890, 72 FR 12266 (Mar. 15, 2007), 
FERC Stats. & Regs. ] 31,241, order on reh'g, Order No. 890-A, 73 FR 
2984 (Jan. 16, 2008), FERC Stats. & Regs. ] 31,261 (2007), order on 
reh'g and clarification, Order No. 890-B, 73 FR 39092 (July 8, 
2008), 123 FERC ] 61,299 (2008), order on reh'g, Order No. 890-C, 74 
FR 12540 (Mar. 25, 2009), 126 FERC ] 61,228 (2009), order on 
clarification, Order No. 890-D, 74 FR 61511 (Nov. 25, 2009), 129 
FERC ] 61,126 (2009).
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    2. The Commission acknowledges that significant work has been done 
in recent years to enhance regional transmission planning processes. 
The Commission appreciates the diversity of opinions expressed by 
commenters in response to the Notice of Proposed Rulemaking \3\ as to 
whether, in light of the progress being made in many regions, further 
reforms to transmission planning processes and cost allocation 
mechanisms are necessary at this time. On balance, the Commission 
concludes that the reforms adopted herein are necessary for more 
efficient and cost-effective regional transmission planning. As 
discussed further below, the electric industry is currently facing the 
possibility of substantial investment in future transmission facilities 
to meet the challenge of maintaining reliable service at a reasonable 
cost. The Commission concludes that it is appropriate to act now to 
ensure that its transmission planning processes and cost allocation 
requirements are adequate to allow public utility transmission 
providers to address these challenges more efficiently and cost-
effectively. In reaching this conclusion, the Commission has balanced 
competing interests of various segments of the industry and designed a 
package of reforms that, in our view, will support the development of 
those transmission facilities identified by each transmission planning 
region as necessary to satisfy reliability standards, reduce 
congestion, and allow for consideration of transmission needs driven by 
public policy requirements established by state or federal laws or 
regulations (Public Policy Requirements). By ``state or federal laws or 
regulations,'' we mean enacted statutes (i.e., passed by the 
legislature and signed by the executive) and regulations promulgated by 
a relevant jurisdiction, whether within a state or at the federal 
level.
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    \3\ Transmission Planning and Cost Allocation by Transmission 
Owning and Operating Public Utilities, Notice of Proposed 
Rulemaking, FERC Stats. & Regs. ] 32,660 (2010) (Proposed Rule).
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    3. Through this Final Rule, we conclude that the existing 
requirements of Order No. 890 are inadequate. Public utility 
transmission providers are currently under no affirmative obligation to 
develop a regional transmission plan that reflects the evaluation of 
whether alternative regional solutions may be more efficient or cost-
effective than solutions identified in local transmission planning 
processes. Similarly, there is no requirement that public utility 
transmission providers consider transmission needs at the local or 
regional level driven by Public Policy Requirements. Nonincumbent 
transmission developers seeking to invest in transmission can be 
discouraged from doing so as a result of federal rights of first 
refusal in tariffs and agreements subject to the Commission's 
jurisdiction. While neighboring transmission planning regions may 
coordinate evaluation of the reliability impacts of transmission within 
their respective regions, few procedures are in place for identifying 
and evaluating the benefits of alternative interregional transmission 
solutions. Finally, many cost allocation methods in place within 
transmission planning regions fail to account for the beneficiaries of 
new transmission facilities, while cost allocation methods for 
potential interregional facilities are largely nonexistent.
    4. We correct these deficiencies by enhancing the obligations 
placed on public utility transmission providers in several specific 
ways. While focused on discrete aspects of the transmission planning 
and cost allocation processes, the specific reforms adopted in this 
Final Rule are intended to achieve two primary objectives: (1) Ensure 
that transmission planning processes at the regional level consider and 
evaluate, on a non-discriminatory basis, possible transmission 
alternatives and produce a transmission plan that can meet transmission 
needs more efficiently and cost-effectively; and (2) ensure that the 
costs of transmission solutions chosen to meet regional transmission 
needs are allocated fairly to those who receive benefits from them. In 
addition, this Final Rule addresses interregional coordination and cost 
allocation, to achieve the same objectives with respect to possible 
transmission solutions that may be located in a neighboring 
transmission planning region.
    5. Certain requirements of this Final Rule distinguish between ``a 
transmission facility in a regional transmission plan,'' and ``a 
transmission facility selected in a regional transmission plan for 
purposes of cost allocation.'' \4\ A ``transmission facility selected 
in a regional transmission plan for purposes of cost allocation'' is 
one that has been selected, pursuant to a Commission-approved regional 
transmission planning process, as a more efficient or cost-effective 
solution to regional transmission needs. As discussed in more detail 
below, this distinction is an essential component of this Final Rule.
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    \4\ See infra P 0.
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    6. Turning to the specific discrete reforms we adopt today, we 
first require public utility transmission providers to participate in a 
regional transmission planning process that evaluates transmission 
alternatives at the regional level that may resolve the transmission 
planning region's needs more efficiently and cost-effectively than 
alternatives identified by individual public utility transmission 
providers in their local transmission planning processes. This 
requirement builds on the transmission planning principles adopted by 
the Commission in Order No. 890, and the regional transmission planning 
processes developed in response to this Final Rule must satisfy those 
principles. These processes must result in the development of a 
regional transmission plan. As part of our reforms, we also require 
that the regional transmission planning process, as well as the 
underlying local transmission planning processes of public utility 
transmission providers, provide an opportunity to consider transmission 
needs driven by Public Policy Requirements. We conclude that requiring 
each local and regional transmission planning process to provide this 
opportunity is necessary to ensure that transmission planning processes 
identify and evaluate transmission needs driven by relevant

[[Page 49846]]

Public Policy Requirements, and support more efficient and cost-
effective achievement of those requirements.
    7. Second, we direct public utility transmission providers to 
remove from their OATTs or other Commission-jurisdictional tariffs and 
agreements any provisions that grant a federal right of first refusal 
to transmission facilities that are selected in a regional transmission 
plan for purposes of cost allocation.\5\ We conclude that leaving 
federal rights of first refusal in place for these facilities would 
allow practices that have the potential to undermine the identification 
and evaluation of a more efficient or cost-effective solution to 
regional transmission needs, which in turn can result in rates for 
Commission-jurisdictional services that are unjust and unreasonable or 
otherwise result in undue discrimination by public utility transmission 
providers. To implement the elimination of such federal rights of first 
refusal, we adopt below a framework that requires, among other things, 
the development of qualification criteria and protocols for the 
submission and evaluation of transmission proposals. In addition, as 
described in section III.B.3, we also require each public utility 
transmission provider to amend its OATT to describe the circumstances 
and procedures under which public utility transmission providers in the 
regional transmission planning process will reevaluate the regional 
transmission plan to determine if delays in the development of a 
transmission facility selected in a regional transmission plan for 
purposes of cost allocation require evaluation of alternative 
solutions, including those the incumbent transmission provider 
proposes, to ensure the incumbent can meet its reliability needs or 
service obligations. This requirement, however, applies only to 
transmission facilities that are selected in a regional transmission 
plan for purposes of cost allocation and not, for example, to 
transmission facilities in local transmission plans that are merely 
``rolled up'' and listed in a regional transmission plan without going 
through an analysis at the regional level, and therefore, not eligible 
for regional cost allocation.
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    \5\ See infra P 0.
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    8. Third, we require public utility transmission providers to 
improve coordination across regional transmission planning processes by 
developing and implementing, through their respective regional 
transmission planning process, procedures for joint evaluation and 
sharing of information regarding the respective transmission needs of 
transmission planning regions and potential solutions to those needs. 
These procedures must provide for the identification and joint 
evaluation by neighboring transmission planning regions of 
interregional transmission facilities to determine if there are more 
efficient or cost-effective interregional transmission solutions than 
regional solutions identified by the neighboring transmission planning 
regions. To facilitate the joint evaluation of interregional 
transmission facilities, we require the exchange of planning data and 
information between neighboring transmission planning regions at least 
annually.
    9. Finally, we require public utility transmission providers to 
have in place a method, or set of methods, for allocating the costs of 
new transmission facilities selected in a regional transmission plan 
for purposes of cost allocation. We also require public utility 
transmission providers in each transmission planning region to have, 
together with the public utility transmission providers in a 
neighboring transmission planning region, a common method, or set of 
methods, for allocating the costs of a new interregional transmission 
facility that is jointly evaluated by the two or more transmission 
planning regions in their interregional transmission coordination 
procedures. Given the fact that a determination by the transmission 
planning process to select a transmission facility in a plan for 
purposes of cost allocation will necessarily include an evaluation of 
the benefits of that facility, we require that transmission planning 
and cost allocation processes be aligned. Further, all regional and 
interregional cost allocation methods must be consistent with regional 
and interregional cost allocation principles, respectively, adopted in 
this Final Rule. Nothing in this Final Rule requires either 
interconnectionwide planning or interconnectionwide cost allocation.
    10. The cost allocation reforms adopted today, and the cost 
allocation principles that each proposed regional and interregional 
cost allocation method or methods must satisfy, seek to address the 
potential opportunity for free ridership inherent in transmission 
services, given the nature of power flows over an interconnected 
transmission system. In particular, the principles-based approach 
requires that all regional and interregional cost allocation methods 
allocate costs for new transmission facilities in a manner that is at 
least roughly commensurate with the benefits received by those who will 
pay those costs. Costs may not be involuntarily allocated to entities 
that do not receive benefits.\6\ In addition, the Commission finds that 
participant funding is permitted, but not as a regional or 
interregional cost allocation method.
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    \6\ However, it is possible that the developer of a facility 
selected in the regional transmission plan for purposes of cost 
allocation might decline to pursue regional cost allocation and, 
instead rely on participant funding. See infra P 723-729.
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    11. As noted above, the various specific reforms adopted in this 
Final Rule are designed to work together to ensure an opportunity for 
more transmission projects to be considered in the transmission 
planning process on an equitable basis and increase the likelihood that 
those transmission facilities selected in a regional transmission plan 
for purposes of cost allocation are the more efficient or cost-
effective solutions available. At its core, the set of reforms adopted 
in this Final Rule require the public utility transmission providers in 
a transmission planning region, in consultation with their 
stakeholders, to create a regional transmission plan. This plan will 
identify transmission facilities that more efficiently or cost-
effectively meet the region's reliability, economic and Public Policy 
Requirements. To meet such requirements more efficiently and cost-
effectively, the regional transmission plan must reflect a fair 
consideration of transmission facilities proposed by nonincumbents, as 
well as interregional transmission facilities. The regional 
transmission plan must also include a clear cost allocation method or 
methods that identify beneficiaries for each of the transmission 
facilities selected in a regional transmission plan for purposes of 
cost allocation, in order to increase the likelihood that such 
transmission facilities will actually be constructed.
    12. The transmission planning and cost allocation requirements in 
this Final Rule, like those of Order No. 890, are focused on the 
transmission planning process, and not on any substantive outcomes that 
may result from this process. Taken together, the requirements imposed 
in this Final Rule work together to remedy deficiencies in the existing 
requirements of Order No. 890 and enhance the ability of the 
transmission grid to support wholesale power markets. This, in turn, 
will fulfill our statutory obligation to ensure that Commission-
jurisdictional services are provided at rates, terms, and conditions of 
service that are just and reasonable and not unduly discriminatory or 
preferential.
    13. We acknowledge that public utility transmission providers in 
some

[[Page 49847]]

transmission planning regions already may have in place transmission 
planning processes or cost allocation mechanisms that satisfy some or 
all of the requirements of this Final Rule. Our reforms are not 
intended to undermine progress being made in those regions, nor do we 
intend to undermine other planning activities that are being undertaken 
at the interconnection level. Rather, the Commission is acting here to 
identify a minimum set of requirements that must be met to ensure that 
all transmission planning processes and cost allocation mechanisms 
subject to its jurisdiction result in Commission-jurisdictional 
services being provided at rates, terms and conditions that are just 
and reasonable and not unduly discriminatory or preferential.
    14. The Commission appreciates the significant work that will go 
into the preparation of compliance proposals in response to this Final 
Rule. To assist public utility transmission providers in their efforts 
to comply, the Commission directs its staff to hold informational 
conferences within 60 days of the effective date of this Final Rule to 
review and discuss the requirements imposed herein with interested 
parties. Moreover, as public utility transmission providers work with 
their stakeholders to prepare compliance proposals, the Commission 
encourages frequent dialogue with Commission staff to explore issues 
that are specific to each transmission planning region. The Commission 
will monitor progress being made.

A. Order Nos. 888 and 890

    15. In Order No. 888,\7\ 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 to others on a 
basis that is inferior to that which they provide to themselves.\8\ 
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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    \7\ 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, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. ] 
31,036 (1996), order on reh'g, Order No. 888-A, 62 FR 12274 (Mar. 
14, 1997), 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 (DC Cir. 2000), 
aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
    \8\ Order No. 888, FERC Stats. & Regs. at 31,682.
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    16. 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.\9\ The pro forma OATT also required that new facilities 
be constructed to meet the transmission service requests of long-term 
firm point-to-point customers.\10\ 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.\11\
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    \9\ See Section 28.2 of the pro forma OATT.
    \10\ See Sections 13.5, 15.4, and 27 of the pro forma OATT.
    \11\ Order No. 888-A, FERC Stats. & Regs. at 30,311.
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    17. 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.
    18. 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 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.\12\
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    \12\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 418-601.
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    19. The transmission planning reforms adopted in Order No. 890 
apply to all public utility transmission providers, including 
Commission-approved RTOs and ISOs. The Commission stated that it 
expected all non-public utility transmission providers to participate 
in the local transmission planning processes required by Order No. 890, 
and 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 public utility 
transmission providers.\13\ 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.\14\ The Commission instead stated that if it found, on the 
appropriate record, that non-public utility transmission providers are 
not participating in the transmission 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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    \13\ Id. P 441.
    \14\ 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.
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    20. 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

[[Page 49848]]

planning processes.\15\ 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 on December 
7, 2007, subject to further compliance filings as necessary for the 
proposed transmission planning processes to satisfy the nine Order No. 
890 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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    \15\ A small number of public utility transmission providers 
were granted extensions.
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    21. As a result of these compliance filings, regional transmission 
organization (RTO) and independent system operators (ISO) have enhanced 
their regional transmission planning processes, making them more open, 
transparent, and inclusive. Regions of the country outside of RTO and 
ISO regions also have made significant strides with respect to 
transmission planning by working together to enhance existing, or 
create new, regional transmission planning processes.\16\ These 
improvements to transmission planning processes have given stakeholders 
the ability to participate in the identification of regional 
transmission needs and corresponding solutions, thereby facilitating 
the development of more efficient and cost-effective transmission 
expansion plans. This Final Rule expands upon the reforms begun in 
Order No. 890 by addressing new concerns that have become apparent in 
the Commission's ongoing monitoring of these matters.
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    \16\ 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

    22. 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.
    23. 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 interconnectionwide basis to ensure adequate and reliable 
supplies at just and reasonable rates; and (3) explore whether existing 
transmission planning 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 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.
    24. Following these technical conferences, the Commission in 
October 2009 issued a Notice of Request for Comments.\17\ The October 
2009 Notice presented numerous questions with respect to enhancing 
regional transmission planning processes and allocating the cost of 
transmission. In response to the October 2009 Notice, the Commission 
received 107 initial comments and 45 reply comments.
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    \17\ Federal Energy Regulatory Commission, Notice of Request for 
Comments, Transmission Planning Processes under Order No. 890; 
Docket No. AD09-8-000, October 8, 2009 (October 2009 Notice).
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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: Improve coordination between 
electric industry participants and states on the regional, 
interregional, and interconnectionwide levels with regard to long-term 
electricity policy and planning; 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; increase awareness of required 
long-term transmission investments under various scenarios, which may 
encourage parties to resolve cost allocation and siting issues; and 
facilitate and accelerate development of renewable energy or other low-
carbon generation resources.\18\
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    \18\ 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 within each interconnection to guide the analyses and planning 
performed under Topic A.\19\ 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.
---------------------------------------------------------------------------

    \19\ Id. at 4-8.
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    28. In describing the activities undertaken under this transmission 
analysis and planning initiative, DOE staff leading the project has 
explained that its activities are based on the premise that the 
electricity industry faces a major long-term challenge in ensuring an 
adequate, affordable and environmentally sensitive energy supply and 
that an open, transparent, inclusive, and collaborative process for 
transmission planning is essential to securing this energy supply.\20\ 
To that end, DOE staff has stressed that all stakeholders need to be 
involved in

[[Page 49849]]

assessing options to meeting this future need and that ARRA funds are 
``seed money'' to help establish capabilities to address transmission 
planning issues.\21\ In DOE staff's view, the goal of this funding is 
to help planners develop a portfolio of long-term energy supply and 
demand for future needs and associated transmission requirements to 
assess the implications of these alternative future energy scenarios 
and identify facilities appropriate for consideration in the 
development of long-term infrastructure plans. Key deliverables of the 
DOE-funded planning activities are 10- and 20-year plans that analyze 
the transmission needs of each interconnection under a range of 
scenarios.
---------------------------------------------------------------------------

    \20\ Department of Energy, ``DOE Initiative Regarding 
Interconnection-Level Transmission Analysis and Planning;'' 
presented at the NGA Transmission Roundtable by David Meyer of DOE's 
Office of Electricity Delivery and Energy Reliability, January 25, 
2011.
    \21\ Id.
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    29. While the results of these planning efforts are not yet 
available, there is already a growing body of evidence that, in DOE's 
words, ``[s]ignificant expansion of the transmission grid will be 
required under any future electric industry scenario.'' \22\ In its 
most recent Long-Term Reliability Assessment, North American Electric 
Reliability Corporation (NERC) identifies 39,000 circuit-miles of 
projected high-voltage transmission over the next 10 years.\23\ NERC 
estimates that roughly a third of these transmission facilities will be 
needed to integrate variable and renewable generation.\24\ Much of this 
investment in renewable generation is being driven by renewable 
portfolio standards adopted by states. Some 28 states and the District 
of Columbia have now adopted renewable portfolio standard measures. In 
addition, there are 9 states with non-binding goals. The key difference 
is that the states with requirements usually have financial penalties 
for non-compliance, known as alternative compliance payments. States 
with non-binding goals usually have no financial penalty, although some 
have instituted financial incentives for meeting the goal (e.g., 
Virginia). 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. Most of these 
portfolio standards are set to increase annually, further amplifying 
the potential need for transmission facilities.
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    \22\ Department of Energy, 20% Wind Energy by 2030, at 93 (July 
2008).
    \23\ NERC 2010 Assessment at 22.
    \24\ Id. at 24.
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II. The Need for Reform

A. Proposed Rule

    30. In light of the changes occurring within the electric industry, 
and based on the Commission's experience in implementing Order No. 890 
and comments submitted in response to the October 2009 Notice, the 
Commission issued the Proposed Rule on June 17, 2010 identifying 
further reforms to the pro forma OATT in the areas of transmission 
planning and cost allocation. These reforms, discussed in detail below, 
were aimed at ensuring that the transmission planning and cost 
allocation requirements established in Order No. 890 continue to result 
in the provision of Commission-jurisdictional service at rates, terms 
and conditions that are just and reasonable and not unduly 
discriminatory or preferential. The Commission received roughly 5,700 
pages of initial and reply comments in response. Based on these 
comments, the Commission concludes that amendment of the transmission 
planning and cost allocation requirements established in Order No. 890 
is necessary at this time to ensure that Commission-jurisdictional 
services are provided at rates, terms and conditions that are just and 
reasonable and not unduly discriminatory or preferential.
    31. The Commission noted in the Proposed Rule that transmission 
planning processes, particularly at the regional level, have seen 
substantial improvement through compliance with Order No. 890. However, 
the Commission explained that changes in the nation's electric power 
industry since issuance of Order No. 890 required the Commission to 
consider additional reforms to transmission planning and cost 
allocation to reflect these new circumstances. The Commission stated 
its intention was not to disrupt the progress 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.

B. Comments

    32. A number of commenters generally support the Commission's 
decision to initiate a rulemaking proceeding that proposes reforms to 
the transmission planning and cost allocation processes.\25\ Several of 
these commenters state that inadequate transmission planning and cost 
allocation processes have impeded the development of transmission 
infrastructure.\26\
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    \25\ E.g., 26 Public Interest Organizations; AEP; American 
Transmission; AWEA; Anbaric and PowerBridge; Atlantic Grid; Colorado 
Independent Energy Association; Conservation Law Foundation; Duke; 
East Texas Cooperatives; Energy Future Coalition; Exelon; 
Gaelectric; Green Energy Express and 21st Century; Iberdrola 
Renewables; Imperial Irrigation District; Integrys; ISO New England; 
ITC Companies; MidAmerican; Multiparty Commenters; National Audubon 
Society; National Grid; New York ISO; New York PSC; NextEra; 
Northwest & Intermountain Power Producers Coalition; Old Dominion 
Electric Cooperative; Pennsylvania PUC; Ignacio Perez-Arriaga; 
Senators Dorgan and Reid; SPP; Transmission Access Policy Study 
Group; Transmission Dependent Utility Systems; Western Grid Group; 
Wind Coalition; WIRES; and Wisconsin Electric.
    \26\ E.g., AEP; AWEA; Exelon; Iberdrola Renewables; ITC 
Companies; MidAmerican; and NextEra.
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    33. For example, Transmission Dependent Utility Systems state that 
they support the primary objective of the Proposed Rule to correct 
deficiencies in transmission planning and cost allocation processes so 
that the transmission grid can better support wholesale markets and 
ensure that jurisdictional services are provided at rates, terms, and 
conditions that are just and reasonable and not unduly discriminatory 
or preferential. Exelon argues that the current system of disconnected 
priorities and mixed criteria is simply not working. Pennsylvania PUC 
encourages the Commission to eliminate the current uncertainty 
regarding planning and paying for future transmission expansion and 
upgrades.
    34. MidAmerican adds that transmission has grown from an industry 
sector focused on rebuilds, reliability improvements on existing 
infrastructure, and construction of generation-dependent 
interconnection facilities, to one where new and upgraded transmission 
infrastructure is necessary to effectuate the expansion of regional 
power markets, promote a more reliable transmission system, accommodate 
increasing reliance on renewable generation sources, and address the 
uncertainty of the future role of existing conventional generation. 
AWEA contends that existing processes for planning and paying for 
transmission are not sufficient to meet the emerging challenges to the 
transmission system. AWEA argues that many cost allocation 
methodologies, as they are applied today, are flawed, which together 
with the fragmented and short-term transmission planning regimes 
prevalent today, have often

[[Page 49850]]

stifled investment in, or otherwise led to the inefficient use and 
inadequate expansion of the nation's transmission network. Senators 
Dorgan and Reid state that better coordination of regional transmission 
planning and clarifying cost allocation are two important steps in 
overcoming hurdles to developing the nation's vast renewable energy 
resources and providing clean energy jobs. National Grid contends that 
the creation of a robust transmission system is imperative to achieving 
important policy goals, environmental objectives, market efficiencies, 
and the integration of renewable and distributed resources into 
electric power markets.
    35. NextEra agrees on reply that there is a need for generic reform 
at this time, stating that there is a sufficient basis for the 
Commission to proceed with a rulemaking proceeding and that there is 
ample evidence of the pressing need to enhance the transmission grid. 
NextEra states that the Proposed Rule demonstrates how and why existing 
transmission planning and cost allocation rules are inadequate.
    36. A number of commenters provide specific examples of 
developments that further demonstrate the need for reform. Colorado 
Independent Energy Association states that, in WestConnect, regional 
transmission providers are not ignoring the problem of transmission 
constraints, but that development of transmission facilities is not 
being undertaken and, second, transmission facilities are not being 
properly sized. In its view, the problems can be traced to the absence 
of cost allocation methods or the lack of means for identifying the 
most needed projects and pursuing them to completion.
    37. Iberdrola Renewables contends that the lack of transmission 
expansion in the MISO has led to significant congestion in areas with 
extensive operating wind generation. It states that the MISO has 
reported that wind curtailments primarily caused by congestion averaged 
five percent for the first six months of 2010 compared with 2 percent 
on average in 2009. Exelon adds that the lack of coordination between 
the MISO and PJM transmission planning regions has resulted in a 
significant increase in the out-of-merit dispatch of generation on the 
Commonwealth Edison system to maintain NERC reliability requirements. 
Exelon states that these events have increased from 31 in 2006 to 280 
in 2009, and they result in higher costs on the system and excessive 
wear and tear on equipment.
    38. Brattle Group states that it has identified approximately 130 
mostly conceptual and often overlapping planned transmission projects 
throughout the country with a total cost of over $180 billion.\27\ It 
contends that a large portion of these projects will not be built due 
to overlaps and deficiencies in transmission planning and cost 
allocation processes. Brattle Group states that many of the benefits 
associated with economic and public policy projects are difficult to 
quantify and, without changes to transmission planning and cost 
allocation processes, many of these projects may fail to gain the 
needed support for approval, permitting, and cost recovery.
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    \27\ Brattle Group, Attachment at 5.
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    39. Other commenters question the need for Commission action at 
this time, urging the Commission to be more rigorous in its proposed 
findings and holdings and arguing that the Proposed Rule is not 
supported by substantial evidence.\28\ Large Public Power Council 
disagrees with the Commission's assertions in the Proposed Rule that 
state that renewable portfolio standards have contributed to the need 
for new transmission. Large Public Power Council states that the 
Commission offers no factual evidence to support its assertions \29\ 
and that the evidence avai