By Michael Gergen, Jared Johnson and Shannon Torgerson

On July 21, 2011, the Federal Energy Regulatory Commission (FERC) issued Order No. 1000 (the “Final Rule”), which reforms FERC’s transmission planning and cost allocation requirements by requiring public utility transmission providers to improve transmission planning processes and allocate costs for new transmission facilities to the beneficiaries of those facilities.  Key elements of the Final Rule are highlighted below, and a Client Alert with a more extensive summary and analysis will be issued shortly.

FERC issued, on June 17, 2010, a Notice of Proposed Rulemaking (NOPR) seeking comment on proposed changes to its transmission planning and cost allocation requirements to remove barriers to development of transmission facilities.  (For more information on the NOPR, see our previous Client Alert.)  The proceeding garnered significant industry attention, with FERC receiving over 200 comments from various stakeholders. 

Among other things, the Final Rule:  (1) requires all public utility transmission providers to participate in a regional planning process to produce a regional transmission plan that considers needs driven by state or federal policy (such as specific renewable portfolio mandates) and provides for coordination among neighboring regions; (2) establishes new cost allocation requirements, including compliance with new regional and interregional cost allocation methods; and (3) directs public utility transmission providers to remove from FERC-approved tariffs and agreements a federal right of first refusal (ROFR) for a transmission facility selected in a regional transmission plan for purposes of cost allocation, subject to some defined limitations and exceptions (as noted below). 

Planning Reforms
The Final Rule, which FERC states builds on its open access reforms of Order No. 888 (1996) and the planning reforms of Order No. 890 (2007), requires each public utility transmission provider to participate in a regional transmission planning process that satisfies existing FERC planning principles and produces a regional transmission plan.  In addition, local and regional planning processes must consider transmission needs driven by state or federal public policy requirements (e.g., renewable portfolio mandates, or local reliability requirements), and each public utility transmission provider must establish procedures to identify transmission needs driven by policy requirements and evaluate proposed solutions.  The Final Rule also directs public utility transmission providers in each pair of neighboring transmission planning regions to coordinate to determine if there are more efficient or cost-effective solutions to their mutual transmission needs.

Cost Allocation Reforms
The Final Rule establishes cost allocation requirements, which include the development of regional and interregional cost allocation methods that satisfy certain principles.  Participant-funding of new transmission facilities is permitted under the rule but cannot be used as the regional or interregional cost allocation method.  The Final Rule requires public utility transmission providers in neighboring transmission planning regions to establish a common interregional cost allocation method for new interregional transmission facilities that the regions determine to be efficient or cost-effective, and the method must satisfy six similar interregional cost allocation principles.

Non-Incumbent Developer Reforms
Pursuant to the Final Rule, public utility transmission providers must remove from FERC-approved tariffs and agreements a federal ROFR for a transmission facility selected in a regional transmission plan for purposes of cost allocation, subject to specific limitations:  the requirement does not apply to a transmission facility that is not selected in a regional transmission plan for purposes of cost allocation, or to upgrades to transmission facilities, such as tower change outs or reconductoring; public utility transmission providers in a transmission planning region are permitted but not obligated to use competitive bidding to solicit transmission projects or project developers; and the ROFR removal requirement does not affect state or local laws or regulations regarding the construction of transmission facilities, including but not limited to authority over siting or permitting of transmission facilities.

The Final Rule takes effect within 60 days of publication in the Federal Register.  The rule requires each public utility transmission provider to, within 12 months of the effective date, amend its tariff to require reevaluation of the regional transmission plan to determine if delays in the development of a transmission facility require evaluation of alternative solutions.  Interregional transmission coordination and cost allocation compliance filings are required within 18 months of the effective date.  Public utility transmission providers must consult with stakeholders in the region in developing and implementing their compliance filings.