A big transmission planning rule will be released May 13, 2024. Here are the key decisions to watch for.
Federal Energy Regulatory Commission (FERC) Open Meeting "Sunshine Notice" on May 13 will 2 key items on the Agenda.
Big ticket items on FERC’s Open Meeting agenda for May 13, 2024, include -
Building for the Future Through Electric Regional Transmission Planning and Cost Allocation (RM21-17), and Applications for Permits to Site Interstate Electric Transmission Facilities (RM22-7).
RM21-17 docket has 808 comments last time I checked.
RM22-7 docket has 95 comments last time I checked.
Remember, these rules do not apply to ERCOT.
The long saga of making federal regulations is slowly coming to an end. FERC first released an Advanced Notice of Proposed Rulemaking (ANOPR) in July 2021. Several orders were released after that, including Order 2023 for the generator interconnection queue reform and several others, but not on transmission planning and cost allocation or the siting aspects of transmission lines.
In April 2022, FERC issued a Notice of Proposed Rulemaking (NOPR).
Now, in May 2024, FERC is expected to issue the final rules on transmission planning cost allocation and siting. I believe the focus now shifts to courts if rehearing requests are filed and rejected after the Order is published in the Federal Register.
Key aspects of this regulation to watch for include -
Whether FERC mandates an Independent Transmission Monitor?
Many state agencies do not have the staff to conduct power flow analysis and determine whether a transmission project is needed. Many transmission project cost estimates increase after the transmission provider has approved them. Proponents of an ITM argue that FERC must establish an ITM to keep customer costs just and reasonable. Opponents of an ITM, transmission owners and regional transmission organizations argue that there are enough checks and balances built into the current transmission planning and cost allocation procedures that there is no need for another entity.
“Industrial Customer Organizations support a Commission requirement that Independent Market Monitors actively monitor transmission providers’ (including RTOs’/ISOs’) compliance with tariff obligations in transmission planning, transmission service, and new service interconnections.”
I wish FERC would establish an ITM because most transmission utilities are seeing an opportunity to build more transmission with the data center load and artificial intelligence-related tools. We need to have some entity ensure that transmission costs are allocated appropriately because the regional transmission organizations have a vested interest in ensuring their transmission owners get a bigger piece of the pie.
Case in point - MISO Tranche 1 - the incumbents got 80% of the pie. Read a story about MISO’s reasoning here. MISO asked FERC for an “exception from the Competitive Transmission Process for such short segments or conductor-only facilities that do not qualify as upgrades when a high percentage of the total project cost is attributed upgrades to existing facilities.”
Whether FERC brings back a federal Right of First Refusal?
Some states, like Minnesota, have ROFR laws that restrict competitive transmission developers from building transmission projects approved by the MISO Board. Opponents of state ROFR laws are worried that FERC will institute a federal ROFR law so that incumbent transmission owners have the right to refuse competitive transmission proposals.
FERC Order 1000 removed the federal ROFR and brought in a competitive transmission development process.
“The Commission directs public utility transmission providers, subject to the modifications to the Proposed Rule discussed below and subject to the framework discussed and adopted below, to eliminate provisions in Commission-jurisdictional tariffs and agreements that establish a federal right of first refusal for an incumbent transmission provider with respect to transmission facilities selected in a regional transmission plan for purposes of cost allocation.” Para 313, 18 CFR Part 35, FERC Order 1000. https://www.ferc.gov/sites/default/files/2020-04/OrderNo.1000.pdf
The U.S. Department of Justice and the Federal Trade Commission are in favor of competition.
“we urge FERC not to abandon competition, through the reinstatement of a federal right of first refusal, but to first evaluate the effects of its other proposals, which are consistent with competition, on achieving its goals.” - Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division. https://www.justice.gov/opa/pr/justice-department-and-federal-trade-commission-issue-joint-comment-federal-energy-regulatory
Proponents of a federal ROFR law, the transmission owners, argue that they are in a much better position to build the transmission projects not independent transmission companies who don’t know the transmission system like the incumbent transmission owner.
This is the argument Joann Thompson, Vice President of Transmission at Otter Tail Power Corporation in Minnesota, made during a recent Minnesota Senate hearing on whether Minnesota should repeal the state ROFR law.
If a federal ROFR law comes into effect with this FERC rule on May 13, it could significantly impact the competitive transmission developer industry. LS Power, NextEra and other competitive transmission developers could be impacted. I have no clue which way FERC is going to go. There is no split the baby here as far as I can tell. Let the states decide - it could be a non-controversial approach.
Keeping the future composition of FERC Commissioners in perspective, I speculate that Judy Chang, a nominee to be a Commissioner on the Federal Energy Regulatory Commission, would vote in favor of competition since she was one of the co-authors of a Brattle report on the impacts of competition “Cost Savings Offered by Competition in Electric Transmission Experience to Date and the Potential for Additional Customer Value.”
Will the FERC change the current cost allocation principle for regional transmission projects?
The billions-of-dollars question is, will FERC change how regional transmission costs are allocated? This is called “cost allocation.” The cost allocation question is, who pays for the transmission projects? The answer depends on who benefits from that transmission—this is the beneficiary principle.
FERC's cost allocation proposal aims to involve states more directly in the process, requiring them to agree on cost-sharing methods for transmission projects. Current FERC Commissioner Christie likes the State Agreement Approach in PJM. He is a big proponent of state rights—he says states should not be forced to pay for regional transmission. Read this “big sugar daddy” comment here.
“Moving forward, a far better option for FERC (and consumers) is to adopt the principle of voluntary state agreement for transmission cost allocation, which I not only have already supported, but the Commission has too.” FERC Commissioner Christie.
FERC may likely order a similar approach across all states. The draft NOPR mandates that public utility transmission providers work with relevant state entities in each region to agree on cost allocation methods and update their OATTs accordingly.
However, questions remain regarding how FERC will proceed if states are unwilling to participate actively. Some states, like those with Regional Transmission Organizations (RTOs), may already be content with FERC assigning costs or prefer the current process. Others, particularly states without RTOs like Georgia, may resist changes due to different regulatory structures and interests.
According to Ari Peskoe (director of Harvard Law School’s Electricity Law Initiative) - if state regulators can't agree, FERC may need to establish a process for determining project funding. Currently, if states can't agree, utilities handle cost allocation, but FERC has the authority to impose its own solution if it disagrees with the utilities' approach. Historically, though, FERC has been hesitant to do this, according to Ari Peskoe in a podcast interview.
Thus, it's unclear who supports or opposes this proposal, particularly in states like Minnesota with existing RTOs. What happens to MISO’s Long Range Transmission Planning cost allocation if MISO must go back to each state and ask for permission to allocate costs? For states without RTOs, FERC's proposal could set principles similar to those applied in RTO states. Still, it remains to be seen how these changes will be received, especially by utility companies that have historically opposed RTOs.
Source - https://www.ferc.gov/power-sales-and-markets/rtos-and-isos
For a refresher, here are the six cost allocation principles from FERC Order 1000 -
“Cost Allocation Principle 1—costs allocated in a way that is roughly commensurate with benefits
Cost Allocation Principle 2—no involuntary allocation of costs to non-beneficiaries
Cost Allocation Principle 3—benefit to cost threshold ratio
Cost Allocation Principle 4—allocation to be solely within transmission planning region(s) unless those outside voluntarily assume costs
Cost Allocation Principle 5—transparent method for determining benefits and identifying beneficiaries
Cost Allocation Principle 6—different methods for different types of facilities.”
Will FERC become the siting authority for inter-state transmission lines?
FERC does not have transmission line siting authority today. FERC has the authority for siting natural gas pipelines, not interstate transmission lines. Proponents of this siting authority argue that one reason transmission lines are not getting built in this country is that multiple state and federal agencies are involved in siting and permitting. Hence, FERC should be given that role to smooth out the siting for transmission lines. Opponents of this sitting authority argue that it is going to run against state siting authority if FERC has this power.
This is another tough one for FERC. If FERC takes this siting authority, then states that don’t have clean energy goals will file for rehearing. For example, I speculate that Lindsay S. See, a nominee to be a Commissioner on the Federal Energy Regulatory Commission, does not want FERC to have this authority since she comes from West Virginia, one of the coal-heavy states. But I can see renewable advocates in states that do have clean energy goals, want FERC to have this siting authority. And I don’t know whether California, New York, Minnesota, Michigan, and other states that have Democrat-led governments want FERC to have this sitting authority. An open question is, does FERC need this sitting authority if DOE is the lead agency for all transmission line permitting?
To read more -
https://kleinmanenergy.upenn.edu/podcast/ferc-transmission-reform-a-new-years-resolution/ - FERC Transmission Reform: A New Year’s Resolution?
https://elibrary.ferc.gov/eLibrary/filelist?accession_number=20240325-4000&optimized=false - Commissioner Mark C. Christie's response to U.S. Congress Member Andrew R. Garbarino's et al. 02/09/2024 letter requesting FERC to finalize its regional transmission planning and cost allocation rule etc. under RM21-17.
https://www.ferc.gov/what-ferc-does - What FERC Does
https://www.renewableenergyworld.com/wind-power/state-rofr-laws-are-holding-back-transmission-buildout-in-miso-and-must-go-away/ - State ROFR laws are holding back transmission buildout in MISO and must go away
https://www.renewableenergyworld.com/policy-regulation/ferc-seeks-comments-on-the-role-of-independent-transmission-monitors/ - FERC seeks comments on the role of Independent Transmission Monitors
https://www.renewableenergyworld.com/solar/utility-integration/why-ferc-should-mandate-an-independent-monitor-at-pjm/ - Why FERC should mandate an independent monitor at PJM
https://law.lclark.edu/live/blogs/243-right-of-first-refusal-laws-are-unconstitutional - Right-of-First-Refusal Laws are Unconstitutional and Hinder our Clean Energy Transition - Anne Thrall-Nash
https://www.utilitydive.com/news/bills-transmission-rofr-first-refusal-nextera-ls-power-evergy-itc/643414/ - State bills spur debate over who should build transmission: incumbent utilities or independent companies
https://insideclimatenews.org/news/26042023/transmission-utilities-right-first-refusal/ - Utilities Seize Control of the Coming Boom in Transmission Lines
https://mostpolicyinitiative.org/science-note/electric-transmission-right-of-first-refusal/ - Electric Transmission- Right of First Refusal
https://www.nrdc.org/bio/cullen-howe/ferc-can-speed-switch-clean-energy-right-transmission-planning-rule - FERC Can Speed the Switch to Clean Energy with the Right Transmission Planning Rule
It isn't clear that the Order 1000 cost allocation principles are either internally consistent or lead to fair, long-run efficient outcomes. For example, within some RTOs, NITS rates vary by an order of magnitude across transmission providers. It is reasonably arguable the marginal cost of transmission capacity is relatively the same in most regions. There may be differences in the cost of land acquisition, etc., and some terrain may be more expensive to erect towers on. Still, I wonder if that difference is anywhere near as significant as the differences in NITS service charges across transmission provider footprints. For many of these transmission providers, these cost differences are only reflective of high costs in particular areas of the transmission system, not their system as a whole. For example, PSE&G's rates are more reflective of the high costs in and around Newark than they are reflective of the costs of constructing transmission in, say, the southern part of their service territory. However, the NITS rates basically socialize the costs across their entire footprint.
These rate differences have implications for the siting of future resources. Location is not material, with the exception of congestion, if all a resource is doing is bidding into the day-ahead market. Most renewable resource financing, however, requires some form of a contract with a party for the output. That may include the costs of acquiring NITS services.
The current version of transmission pricing mixes marginal costs in the short-run, i.e., LMPs, and embedded cost pricing in the long-run, that is, the NITS service, and does the latter pricing geographically. It may be a bad analogy, but NITS service is like a highway system that everyone participates in, while point-to-point is like a toll road. We don't differentiate how we provide or pay for the highway system across users except on the basis of potential wear and tear, trucks vs. cars, for example, or vehicle weight, and certainly not geographically. However, we do for the transmission system, even though it is equally a kind of public good.