Power & Pipes

FERC, CFTC, and State Energy Law Developments

More than a decade since issuing Order No. 1000, FERC is formally developing new rules for regional transmission planning and cost allocation after what FERC calls “mounting evidence” that existing planning processes are inadequate to meet transmission needs of the future. In a notice of proposed rulemaking (NOPR) issued on April 21, 2022, FERC proposed a series of reforms to build on its existing body of landmark transmission rulemaking.

In this series of posts, we discuss each of the key pillars of FERC’s proposed reforms: long-term regional transmission planning; regional transmission cost allocation; incentives for construction work in progress (CWIP); and revisiting a federal right of first refusal.

Cost allocation for regional transmission projects has long been one of the more challenging aspects of regional transmission development because it determines who should ultimately bear the costs of the regional transmission projects and in what proportion. Litigation over these issues is not uncommon.

FERC’s NOPR recognizes that it is particularly challenging when costs are allocated across multiple states where different policy interests are in play and where siting authority may be needed in multiple states, some of which may not see the project as beneficial. The Commission is concerned that these issues may be even more pronounced for projects developed under its long-term transmission planning reforms due to differing opinions over future transmission needs and the best ways to address them—resulting in increased disputes and litigation over cost allocations.

In an effort to reduce these disputes, the NOPR proposes to provide a formal opportunity for state regulators to weigh in on the proposed cost allocation method for facilities selected through the new long-term transmission planning process.

Specifically, the NOPR proposes to require public utility transmission providers to include in their transmission tariffs either (1) a “Long-Term Regional Transmission Cost Allocation Method,” which is a predefined cost allocation method for the costs of “Long-Term Regional Transmission Facilities” that a developer would be entitled to use; (2) a “State Agreement Process” to determine the cost allocations for Long-Term Regional Transmission Facilities that would allow the applicable state commissions to agree to the allocations for a specific facility; or (3) some combination of these two options.

Regardless of the approach selected, a transmission-providing public utility would need to explain how the approach it uses either reflects the agreements of the applicable states or at least explains the good-faith efforts to reach such agreement. If one or more states elects to forgo involvement, the applicable public utility transmission providers must use the Long-Term Regional Transmission Cost Allocation Method for the costs of facilities allocated to those states.

Furthermore, if a State Agreement Process is used but the applicable state commissions cannot agree on a cost allocation by a designated deadline, then the transmission developer would be entitled to use “any ex ante regional cost allocation method that would otherwise apply for that regional transmission facility.”

Given the various ways in which this involvement of state commissions may play out, the Commission is requesting comment on how to approach circumstances where the states cannot agree on a method.

Check Power and Pipes for further updates on other key aspects of FERC’s new Transmission NOPR.