FERC Adopts Transmission Reform; Commissioner Cries Foul
There has been a growing consensus in recent years that the transmission planning process must be reformed to ensure reliability in the face of a rapidly changing grid. Despite the need for new transmission to integrate record numbers of interconnection requests and to address emerging reliability challenges, investment in new transmission facilities has been relatively flat, or declined, in many regions over the past several years. For instance, the “National Transmission Needs Study” issued by the Department of Energy in October 2023 found that transmission investment has steadily declined since 2015 in multiple regions around the country.
Order No. 1920
The disconnect between system needs and investment has made efforts to address shortcomings in existing transmission and interconnection planning processes a top priority for the Federal Energy Regulatory Commission (FERC). On May 13, 2024, FERC approved its much-anticipated final rule on transmission planning and cost allocation: Order No. 1920. The final rule, which was approved 2-to-1 over the objections of the sole Republican commissioner, directs numerous reforms intended to require more proactive and efficient transmission planning and establish a cost allocation framework capable of supporting investment in new transmission facilities. Transmission providers are required to submit compliance filings revising their tariffs to comply with the final rule approximately 12 months after it is published in the Federal Register.
COMMENTARY
One of the central reforms of the final rule is the requirement that transmission providers participate in a long-term regional planning process, one that evaluates long-term transmission needs and benefits over a minimum planning horizon of 20 years. The process would use planning scenarios that account for factors driving future transmission needs, such as state and federal regulations promoting decarbonization, generator interconnection requests, and generation retirements.
The regional planning process must include procedures for the evaluation and selection of long-term regional transmission facilities for purposes of cost allocation. Order No. 1920 also directs transmission providers to adopt one or more default ex ante cost allocation methods for transmission facilities selected through the long-term regional planning process. The final rule provides transmission providers the flexibility to adopt a “State Agreement Process,” which would provide state regulators the ability to voluntarily agree to a cost allocation method for a long-term regional transmission facility either before, or up to six months after, selection in a regional transmission plan.
In addition to these reforms, Order No. 1920 also requires transmission providers to: (1) evaluate solutions to address transmission needs identified through the interconnection process in multiple study cycles; (2) consider certain advanced transmission technologies in their planning processes; and (3) require transmission providers to consider whether transmission facilities anticipated to be replaced in the following 10 years could be “right sized” to increase the facility’s transfer capability.
Focus on Standardization
Order No. 1920 stands out from prior efforts at transmission reform in terms of the commission’s willingness to prescribe specific criteria and methodologies to identify and evaluate solutions to transmission needs. FERC’s last effort at transmission planning reform in Order No. 1000, issued in 2011, placed a premium on regional flexibility. Order No. 1920 reflects an interest in greater uniformity, including the use of minimum planning horizons, mandatory use of planning scenarios, and standard criteria for evaluating the benefits of transmission facilities.
Order No. 1920 also is noteworthy for the commission’s departure from aspects of the proposed rule that would have given state regulators greater oversight over aspects of the long-term regional transmission planning process. For example, the final rule abandons the proposal to require transmission providers to seek agreement of state regulators to their long-term regional transmission cost allocation methodology; instead, the final rule establishes a six-month engagement period in which state regulators would have the opportunity to communicate and negotiate with transmission providers about their cost allocation methodology.
Long-Term Effects Uncertain
While Chairman Willie Phillips and Commissioner Allison Clements praised the historic significance of the final rule, Commissioner Mark Christie issued a lengthy dissent, arguing the rule will raise costs for consumers to “serve the profit-making interests of developers of politically preferred generation, primarily wind and solar, and to serve corporate ‘green energy’ preferential purchasing policies.” Commissioner Christie also criticized the commission’s decision to depart from the proposed rule in a manner that he believes diminishes the role of state regulators in the long-term planning process.
The partisan division reflected in Christie’s dissent raises questions about the long-term durability of Order No. 1920. The politicization of Order No. 1920 is likely to place the order in the crosshairs of any subsequent Republican administration. And Christie’s dissent provides a pathway for parties that wish to challenge the order on appeal—with reviewing courts likely to take more seriously arguments that have been endorsed by a FERC commissioner. Ultimately, Order No. 1920 and its ability to survive these challenges will have a significant impact on the long-term trajectory of investment in and expansion of the transmission grid.
—Stephen Hug is a partner, Scott Johnson is a senior counsel, and Ben Reiter is a counsel at Akin.