Proposed Federal Transmission Rules Create Optimism, Skepticism

Published: June 10, 2022

By: Concentric Staff Writer

Federal energy regulators are pushing forward with reforming rules around planning and siting new transmission lines needed to bring planned renewable resources online. Still, as with previous efforts, there are questions about how effective the initiative will be.

The Federal Energy Regulatory Commission’s (FERC) draft notice of proposed rulemaking on transmission planning and cost allocation (NOPR), issued on April 21, is garnering much attention across the industry. Stakeholders, including electric utilities, regional transmission organizations, state public utility commissions, and environmental groups realize that new transmission facilities are needed to maintain system reliability and deliver large amounts of new renewable generation to load centers. But scrutiny around the proposed rules is intense, with questions as to whether or not they will lead to new transmission build-out and how the initiative will meet the needs of states, transmission developers, and ultimately, electricity consumers.

The NOPR is intended to build upon and correct perceived deficiencies in its Order No. 1000, issued in July 2011 and affirmed in Order No. 1000-A in May 2012. Order No. 1000 (Order 1000) has been the primary federal directive regarding transmission planning and cost allocation, but there has been broad recognition that construction of new facilities in recent years has not kept up with the grid’s needs. The new federal rulemaking is intended to address long-running roadblocks and procedural issues surrounding new transmission, and the stakes are high for consumers and investors as the U.S. navigates the transition to cleaner electricity.

FERC Chairman Richard Glick laid out the goals of the rulemaking in a statement that coincided with the release of the NOPR.

“Transmission facilities provide a broad range of benefits,” Glick said. “Planning for those facilities with a longer-term forward-looking approach, in addition to fairly allocating their costs, is essential to ensuring we are developing energy infrastructure in a manner that reduces costs and enhances reliability.”

Transmission siting in the U.S. has gotten trickier in recent decades. New facilities are often opposed by local residents who do not favor large rights-of-way, and transmission infrastructure cutting through forests, plains or desert areas. Localities will also periodically oppose related projects connected to the transmission expansion, such as substation improvements.

In the area of new transmission planning, the NOPR would require public utility transmission providers to conduct long-term regional planning to meet the changing generation and energy storage resource mix and rising electricity demand that is occurring in many places in the U.S.

As part of the proposed process, transmission providers would be required to develop long-term scenarios, including accounting for high-impact, low-frequency events such as extreme weather.

Transmission providers would also be required to consider an expanded list of benefits related to proposed transmission infrastructure over a 20-year period, marked from the date the infrastructure is sited. Additionally, they must select transmission plans that most efficiently or cost-effectively meet the identified transmission need. The draft NOPR also proposed to require that public utility transmission providers more fully consider dynamic line ratings—as opposed to static line ratings that are currently used—and advanced power-flow control devices in regional transmission planning. Dynamic line ratings, a concept that has been in discussion for a long time, refers to classifying the capacity of a transmission line based on real-time, granular data, as opposed to a static rating that only accounts for heat and other factors. This allows transmission operators to maximize power flows over transmission lines.

Danielle Powers, a Senior Vice President and Board Member at Concentric Energy Advisors and a former employee of both an investor-owned utility and ISO New England, points out that very few proposed high-voltage transmission projects have been constructed in recent years, mostly due to local opposition, she said. The FERC is attempting to address this issue by requiring increased state involvement in transmission planning and cost allocation. It remains to be seen if this will lead to more support for new transmission at the state level.

“I know what they’re trying to accomplish,” Powers said. “I think they’re thinking: ‘if we get the states more involved, they’ll be able to be better informed and maybe have some role in garnering more local support.’ I think that is a high hurdle.”

States already participate in transmission siting because it is under their jurisdiction. State regulators as well as the public have also been wary of federal intervention when siting large transmission facilities that, in some cases, do not provide local benefits.

Regarding federal rights of first refusal, the draft NOPR proposes to amend Order 1000 “to permit the exercise of federal rights of first refusal for transmission facilities selected in a regional transmission plan for purposes of cost allocation, conditioned on the incumbent transmission provider establishing joint ownership of the transmission facilities.” This means that incumbent transmission providers will be permitted a federal right of first refusal as long as the facilities are jointly owned with unaffiliated, non-incumbent entities.

The NOPR would partially resurrect a federal right of first refusal that previously had been granted to transmission providers but was removed by Order 1000. Order 1000 required that public utility transmission providers eliminate a federal right of first refusal for an incumbent transmission developer with respect to entirely new facilities selected in a regional plan for purposes of cost allocation. But the Order 1000 right of first refusal elimination does not apply to local transmission facilities built solely within an incumbent provider’s footprint or to incumbents building, owning, and recovering costs of upgrades to its existing facilities. Order 1000 also does not remove or limit an incumbent provider’s use and control of its existing rights-of-way.1

In the new NOPR, FERC noted that there were also exemptions from the right of first refusal for reliability projects with an immediate need. FERC said that recent transmission investment trends suggest that despite increased investment in transmission facilities overall. However, in many planning regions there has been comparatively limited investment in transmission facilities selected in a regional plan for purposes of cost allocation as the result of a competitive process. Transmission development has largely been concentrated in local transmission projects that are generally not subject to competitive transmission development processes.

During transmission planning, regional transmission organizations or independent system operators issue requests for proposals for competitive transmission projects. Transmission developers respond to the requests with project proposals, some of which are approved for interconnection studies. If the projects meet certain thresholds, they are included in regional transmission plans and once projects are selected, transmission developers move forward with getting state permits.

“Taken together, the reforms proposed in this draft NOPR would work to remedy deficiencies in the Commission’s existing regional transmission planning and cost allocation requirements,” FERC said in a statement. “This, in turn, would fulfill the Commission’s statutory obligation to ensure that Commission-jurisdictional rates remain just and reasonable and not unduly discriminatory or preferential.”

In light of the longer planning horizons, the draft NOPR also proposes to eliminate a construction work in progress financial incentive (CWIP Incentive) for transmission facilities that allows transmission providers to recover investment costs as the projects are being built. In the NOPR, FERC states that it had previously found the CWIP Incentive to be beneficial to ease financial pressures by providing up-front regulatory certainty, rate stability, and improved cash flow, which can result in higher credit ratings and lower capital costs. But those are benefits to corporations and shareholders, not utility customers who are not yet enjoying the benefit of the new facilities. If the facilities are not placed into service, ratepayers shoulder the cost without gaining any benefit, the NOPR says.

“We are concerned that the CWIP Incentive, if made available for Long-Term Regional Transmission Facilities, may shift too much risk to consumers to the benefit of public utility transmission providers in a manner that renders Commission-jurisdictional rates unjust and unreasonable,” FERC said.

One forum addressing the NOPR is the FERC Joint Federal-State Task Force on Electric Transmission, which includes state regulators from around the country and has several meetings remaining this year. The task force was formed in a partnership between FERC and the National Association of Regulatory Utility Commissioners.

FERC is taking comments on the NOPR and encouraged commenters to identify improvements to the proposal that will support development of more efficient and cost-effective transmission facilities (R22-32). Comments are due 75 days from date of publication in the Federal Register, and reply comments are due 30 days after the initial comment deadline. Members of the public requiring assistance in filing comments should email FERC’s Office of Public Participation at opp@ferc.gov, the agency said.

All views expressed by the contributors are solely the contributors’ current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The contributors’ views are based upon information the contributors consider reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.

1 FERC’s Order 1000 distinguished between incumbent transmission developers and nonincumbents. An incumbent developer builds transmission within its own retail distribution territory or footprint, while nonincumbents are either developers that have no retail distribution territory or footprint, or a utility transmission provider that proposes a transmission facility outside its existing territory or footprint.

 

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