FERC Proposes Major Shake-Up of Electric Transmission Grid

The Federal Energy Regulatory Commission (FERC), relying on its authority under Section 206 of the Federal Power Act (FPA), issued a Notice of Proposed Rulemaking (NOPR) on April 21, 2022, laying out broad reforms to its electric regional transmission planning and cost allocation requirements. This regulatory proposal follows the Advanced Notice of Proposed Rulemaking (ANOPR) that FERC issued on these subjects on July 15, 2021. (See Holland & Knight's previous blog post, "FERC Considers Bold Electric Transmission and Interconnection Reforms to Aid Renewables," July 19, 2021.)

NOPR Overview and Highlights

With this NOPR, FERC proposes to build on its previous Order Nos. 888, 890 and 1000 – issued in 1996, 2007 and 2011, respectively – in which FERC progressively established rules governing regional transmission planning and cost allocation processes. The NOPR is driven by FERC's concern that these existing rules have led to short-term, piecemeal expansion of the transmission grid. Without reform, FERC is worried that the current regulatory regime is unlikely to identify more efficient or cost-effective solutions to transmission needs driven by changes in the resource mix and demand – including the recent growth in renewable generation, which is often located in geographically remote areas and thus requires more long-range transmission infrastructure to reach consumers.

To address these needs, the NOPR would require public utility transmission providers to conduct long-term regional transmission planning on what FERC describes as a "sufficiently forward-looking basis." More specifically, such providers would be required to:

• identify transmission needs driven by changes in the resource mix and demand through the development of long-term scenarios that satisfy the NOPR's requirements, including accounting for low-frequency, high-impact events such as extreme weather
• evaluate the benefits of regional transmission facilities to meet these needs over a time horizon that covers, at a minimum, 20 years starting from the estimated in-service date of the transmission facilities
• establish transparent and not unduly discriminatory criteria to select transmission facilities in the regional transmission plan for purposes of cost allocation that more efficiently or cost-effectively address these transmission needs in collaboration with states and other stakeholders

Additionally, the NOPR proposes that public utility transmission providers more fully consider dynamic line ratings and advanced power flow control devices in regional transmission planning processes. Notably, FERC is not proposing to change existing requirements for public utility transmission providers, established by Order No. 1000, related to reliability and economic planning requirements.

Regarding transmission cost allocation, the NOPR would require that public utility transmission providers in each transmission planning region seek the agreement of relevant state entities on the cost allocation method or methods that will apply to transmission facilities selected in any given regional transmission plan. Once chosen, providers would be required to include the selected cost allocation method or methods in their tariffs. Additionally, the NOPR would prevent public utility transmission providers from taking advantage of the "construction-work-in-progress" rate-enhancing incentive when engaged in long-term regional transmission planning, as FERC is concerned that the incentive would shift too much financial risk to consumers for facilities that may not ultimately be placed in service, if at all, for many years.

In a somewhat surprising development, FERC further proposes in the NOPR to partially resurrect the federal right of first refusal historically enjoyed by incumbent transmission providers (and removed by Order No. 1000) to build transmission facilities selected in regional transmission plans within their service territories or footprints. This right would be conditioned on the incumbent providers establishing joint ownership of such transmission facilities with unaffiliated, non-incumbent entities.

Finally, with respect to interregional transmission coordination and cost allocation, the NOPR would require that public utility transmission providers revise their existing interregional transmission coordination procedures to reflect the long-term regional transmission planning reforms established by the NOPR.

Next Steps and Public Comments

Notably, the NOPR does not propose any reforms concerning certain subjects on which the ANOPR solicited comment, including cost allocation for interconnection-related network upgrades, interconnection queue processes, interregional transmission coordination and planning, and oversight of transmission planning and costs. However, FERC stated that it would continue to review the record already developed on these issues and may propose further reforms at a later time.

The NOPR seeks comment on the proposed reforms and encourages commenters to identify enhancements to those reforms that could better support development of more efficient or cost-effective transmission facilities. Comments are due on the NOPR 45 days after its publication in the Federal Register, which is pending.

For questions about the NOPR and how it could specifically impact your organization or for assistance in submitting comments on the proposed reforms, contact the author.