By Energy Regulatory & Markets Practice

On July 21, 2011, the Federal Energy Regulatory Commission (FERC) issued Order No. 1000. As previously discussed in our Clean Energy Law Report and in a previous Client Alert, Order No. 1000 introduced several significant reforms FERC’s transmission and cost allocation processes. One key aspect of Order No. 1000 is that it requires each public utility transmission provider to develop procedures for considering transmission needs driven by public policy requirements established by state or federal laws and regulations (Public Policy Requirements). The order also requires transmission providers to conform their cost allocation processes to a set of six cost allocation principles.

Order No. 1000 grants transmission providers significant discretion in complying with its directives rather than mandating specific tariff changes. Compliance filings were made by all transmission providers between October 10 and November 13, 2012. Overall, most transmission providers assert in their compliance filings that their existing transmission planning process and cost allocation methods  already comply with Order No. 1000. However, as discussed below, some Regional Transmission Organizations/Independent System Operators propose significant new procedures to address how transmission needs driven by Public Policy Requirements will be incorporated into transmission planning and cost allocation procedures.

PJM Interconnection, L.L.C. (PJM) — In its compliance filing, PJM provides that while many of the existing planning provisions in its Tariff contribute to its compliance with Order No. 1000’s public policy requirements, it is proposing a new “State Agreement” mechanism to identify public policy projects in addition to its existing compliance efforts. Rather than define a specific class of public policy projects that satisfy Public Policy Requirements, PJM’s plan calls for states (or groups of states) to submit proposals for projects that address such requirements, referred to as “state public policy projects.” The proposing state(s) must voluntarily assume responsibility for the recovery of costs for state public policy projects they propose (with these costs recovered from customers in the proposing state(s)). PJM will study these proposed projects and evaluate them for possible inclusion within the Regional Transmission Expansion Plan (RTEP). If approved as a “state public policy project, . . . costs will be allocated as proposed by the sponsoring state(s) and recovered pursuant to a FERC-accepted cost allocation either filed by the PJM Transmission Owners under section 205 of the FPA or by the state sponsor(s) under section 206 of the FPA.”

Midwest Independent Transmission System Operator, Inc. (MISO) — In its compliance filing, the MISO states that “the current versions of [its] Tariff and the Transmission Owners Agreement are already largely compliant.” The MISO proposes to leave its transmission expansion planning process (MTEP) largely unchanged, maintaining that transmission needs driven by Public Policy Requirements are given adequate consideration through its existing provisions for consideration of and cost allocation for proposed Multi-Value Projects (MVPs).  With regard to MVPs, the MISO Tariff requires consideration, on a portfolio basis, of the regional benefits of MVPs relating to Public Policy Requirements, or combinations of economic and/or reliability needs or benefits.  Costs for MVPs are allocated system-wide.

California Independent System Operator Corporation (California ISO) — In its compliance filing, the California ISO provides that the provisions it included in its Tariff over the past two years for consideration of public policy projects satisfy the requirements of Order No. 1000. Under the California ISO’s existing Tariff provisions, it first works with  its stakeholders to identify public policy needs, and then provides an approval process for public policy projects, which are distinct from other types of transmission projects intended to address reliability or economic needs.  Also, under the existing Tariff provisions, the California ISO allocates the costs of transmission facilities at voltage levels of 200 kV or higher to all California ISO customers through the California ISO’s regional transmission access charge (while for transmission facilities under 200 kV it allocates the costs to the participating transmission owner who builds them and who recovers their costs their transmission owner tariff from its low voltage transmission customers).  

Southwest Power Pool (SPP) – In its compliance filing, the SPP leaves its provisions for planning and cost allocation for projects driven by public policy requirements mainly unaltered. The SPP states that existing provisions of its Integrated Transmission Planning process which require consideration of “Policy, Reliability, and Economic Input Requirements” satisfy Order No. 1000. These already included “among other things, renewable energy standards, energy efficiency requirements, [and] other relevant environmental and government mandates.” In its compliance filing, the SPP further proposes adding “transmission needs driven by Public Policy Requirements identified by the Transmission Provider and stakeholders” to this list. The SPP adds a new definition of Public Policy Requirements which mirrors Order No. 1000’s language, stating that they are requirements established by local, state or federal laws or regulations. The SPP plans on maintaining its current Highway/Byway method for cost allocation.

ISO New England, Inc. (ISO-NE) — In its compliance filing, ISO-NE proposes substantive changes to its planning process to comply with Order No. 1000.  ISO-NE  describes a new public policy transmission planning process whereby states will take a leading role in identifying Public Policy Requirements that drive the need for public policy projects. Once such a need is identified, ISO-NE will conduct a Public Policy Study to identify high level solutions. The costs of this preliminary investigation will be allocated throughout the region as an ISO-NE operating expense. Next, competitive proposals to construct and own a public policy project may be put forth through a two-stage process. In the first stage, project sponsors describe generally how a project will satisfy an identified Public Policy Requirement . Costs of stage one are generally borne by project sponsors. Stage two provides for the development of public policy projects into engineering plans. Costs for this stage will likely be greater, and are allocated to those states that communicated their desires for the project to move to stage two.

Compliance efforts with Order No. 1000 will continue in the coming year. Compliance filings for interregional transmission coordination and interregional cost allocation are due in April 2013.