TOPIC #2
FERC Expands Planning Horizons
New FERC rules seek to revisit Order 1000 approaches and facilitate transmission siting.
FERC Moves Ahead on Transmission Reform
In April 2022, FERC opened a docket captioned “Building for the Future Through Electric Regional Transmission Planning and Cost Allocation and Generator Interconnection” to address halting progress in transmission development and generator interconnection. FERC was concerned that even with the Order 1000 requirements and related processes:
- Transmission planning was not sufficiently long term and forward looking to meet needs driven by a changing demand and resource mix.
- The absence of longer-term planning was resulting in piecemeal transmission expansion to serve near-term needs, causing inefficient investments in infrastructure and potentially higher costs for customers.
The FERC docket resulted in the promulgation on May 13, 2024, of Order 1920, which the Commission deemed needed to identify long-term transmission needs, account for “determinants” of those needs, and consider a broader set of benefits in meeting those needs.
KEY TAKEAWAYS
FERC commissioners have been unified in their concern about the pace of transmission development and have been actively pursuing transmission reform for several years. This has led to several important rulemakings in spring 2024.
Order 1920’s transmission planning and cost allocation reforms are the first significant rules on this topic since Order 1000, but the potential friction between federal and state domains will likely lead to continued debate over the rule’s implementation.
It remains to be seen whether and how FERC’s second attempt at backstop siting authority for interstate facilities will be enforced, given the frictions mentioned above and absence of a track record on its use under 2005’s Energy Policy Act.
FERC commissioners have been unified in their concern about the pace of transmission development and have been actively pursuing transmission reform for several years. This has led to several important rulemakings in spring 2024.
Order 1920’s transmission planning and cost allocation reforms are the first significant rules on this topic since Order 1000, but the potential friction between federal and state domains will likely lead to continued debate over the rule’s implementation.
It remains to be seen whether and how FERC’s second attempt at backstop siting authority for interstate facilities will be enforced, given the frictions mentioned above and absence of a track record on its use under 2005’s Energy Policy Act.
Requiring Long-Range Planning
The central requirement of Order 1920 was to mandate regional planning, using best available data, that looks ahead at least 20 years to develop projections of long-term transmission needs.
- This long-term planning must occur at least every five years. Transmission facilities in this process must be selected (if at all) within three years of the beginning of a planning cycle.
- Several RTOs, including the Midcontinent ISO, PJM, and ISO New England, already prepare long-term studies to inform planning needs. This would apply these processes to all FERC-jurisdictional transmission providers.
These long-range plans must be derived from at least three “plausible and diverse long-term scenarios.” FERC defines plausible as “reasonably captur[ing] probable future outcomes.” Diverse means that providers must distinguish distinct facilities or benefits in each scenario.
- To recognize impacts of weather-related reliability issues, each scenario must run at least one sensitivity analysis of high-impact, low-frequency events, such as wide-area generator or transmission outage due to extreme weather.
- Scenarios must incorporate seven categories of factors that may affect transmission needs (see Figure 2.1). Three of these may not be discounted, but four may be weighed (i.e., some discretion in application).
Figure 2.1: Seven Scenario Factors for Long-Range Transmission Planning
Source: Order 1920
Evaluation Process and Transparency
Once scenarios are examined, planners must develop an evaluation process and selection criteria for long-term facilities. This process must include “good faith efforts” to engage state authorities and seek (but not necessarily obtain) support.
- Evaluation processes must measure at least seven specific economic and reliability benefits (see Figure 2.2).
- Processes must be “transparent, not unduly discriminatory, and seek to maximize benefits accounting for costs over time without overbuilding facilities.”
For transparency, the process must define certain decision-making points in the process and clarify the scorecard.
Specifically, it must:
- Specify when providers will accept facility proposals, including from non-incumbents
- Estimate costs and benefits of proposed facilities
- Designate a point in the evaluation process to determine whether to select identified long-term facilities (note: the process may result in no facility selection)
- Ensure determinations are “sufficiently detailed” for stakeholders to understand why a facility was or was not selected
Figure 2.2: Long-Term Transmission Facilities Benefits to Be Evaluated Under Order 1920
Figure 2.3: Illustrative Overview of Advanced Grid Technologies (Including Grid-Enhancing Technologies)
Order 1920 requires consideration of grid-enhancing technologies (GETs). Some examples are shown below.
Meanwhile, in Q1 2024, states including VA, ME, MN, and NY are assessing GETs, while CT and NH are considering initiating studies of these technologies.
Source: DOE
Figure 2.3: Illustrative Overview of Advanced Grid Technologies (Including Grid-Enhancing Technologies)
Order 1920 requires consideration of grid-enhancing technologies (GETs). Some examples are shown below.
Meanwhile, in Q1 2024, states including VA, ME, MN, and NY are assessing GETs, while CT and NH are considering initiating studies of these technologies.
Source: DOE
Cost Allocation: State Agreement Encouraged But Not Mandated
Order 1920 does not require state agreement on cost allocation for regional transmission facilities. However, transmission providers must have a one-time, six-month engagement period to serve as a forum for negotiation on a cost-allocation method or state agreement process that allows for meaningful participation by state entities.
Transmission providers are, however, required to provide one or more long-term regional transmission cost-allocation methods for a single facility, or portfolio of facilities, as an ex-ante (assumed) regional cost-allocation method for long-term transmission facilities proposed through the planning process.
Through these provisions, FERC is managing state involvement and ability to object to allocation. So, while transmission providers are permitted to include a state agreement process for cost allocation, it cannot be the sole cost-allocation method. In the absence or failure of a state agreement process or if the state agreement process is found by FERC to be unreasonable, unjust, or unduly discriminatory or preferential, the ex-ante long-term regional cost-allocation method will serve as a “backstop.”
Any proposed ex-ante backstop cost-allocation methods must conform to Order 1000 cost-allocation principles, with some key exceptions:
- Costs may not be allocated according to project type (i.e., reliability vs. economic vs. public policy needs driven), a key change from Order 1000 principles. This raises concerns that individual state policy preferences will be socialized across a region.
- Cost allocations based on state agreement need not meet Order 1000 principles but must be shown to allocate costs in a manner “at least roughly commensurate with estimated benefits,” a key Order 1000 principle.
Figure 2.4: Best Case Order 1920 Implementation Timeline
Source: DOE
- FERC denied rehearing of Order 1920; however, substantial litigation of the rule is expected. Many criticisms of Order 1920 made by Commissioner Christie in dissent are likely to be made in litigation over the rule.
- Much current debate focuses on whether FERC exceeded its jurisdiction given the reversal of the Chevron doctrine (deferring to agency interpretation of statute) and the major questions doctrine (agencies cannot regulate matters of “vast political or economic significance” without clear authorization from Congress).
- Transmission providers are to submit compliance plans by end of May 2025. With three new FERC commissioners, it will bear watching how those plans are received and how Order 1920 is fleshed out in commission decisions.
- Even if no lengthy litigation ensues, the earliest beginning of transmission development and construction would not occur until 2027 (see Figure 2.4).
Industry Reactions
The rule is controversial, with Commissioner Christie dissenting, claiming it shifts the interconnection and network upgrade costs of projects driven by public policies or corporate preferences onto ratepayers who may not have agreed to those policies or preferences. He also argues that the order infringes on the authority of states over energy resource mixes.
NARUC expressed disappointment, citing a significantly diminished state role envisioned by the order.
Some positions supporting and critiquing the rule are summarized in Figure 2.5.
Figure 2.5: Reactions to Order 1920 as Promulgated
Sources: Press releases; industry news; Order 1920
Order 1977: Another Crack at Federal Backstop Siting
Siting transmission facilities has been a perennial challenge for transmission, especially long-distance interstate projects. In Order 1977, FERC, supported by terms of the Inflation Reduction Act of 2022 (IRA), issued a rule to reinvigorate FERC’s limited transmission siting authority.
Under Order 1977, FERC can issue siting permits for proposed interstate transmission facilities located in DOE-designated national interest electric transmission corridors (NIETCs) (see Figure 2.6) in the following circumstances:
- A state does not have the authority to approve the siting of the facilities or consider the interstate or interregional benefits.
- The applicant is a transmitting utility that does not qualify to apply in a state.
- A state has not decided on an application within one year or has denied an application.
- FERC finds that the facilities are in the public interest, are used for interstate commerce, reduce transmission congestion, are consistent with national energy policy and enhance energy independence, and maximize the transmission capabilities of existing towers or structures.
FERC is interested in stakeholder and landowner engagement in the siting and permitting process. Applicants for Order 1977 permits must show stakeholder engagement, a plan for engagement with environmental justice communities and Indian tribes, timely notice to affected landowners, and 14 reports on emissions, air quality, and other impacts of the facilities.
FERC’s original backstop siting authority (from the Energy Policy Act of 2005) was never acted upon. The IRA attempts to make clear that FERC jurisdiction takes effect upon state denial of a transmission siting application. So, it is unclear how states will react to developers who proceed with a project pursuant to FERC ruling following state denial of a siting request. The 2005 backstop authority was challenged in the courts, and Order 1977 may face those same legal challenges.
Figure 2.6: DOE’s Preliminary NIETC Designations (as of August 2024)
Source: DOE
Figure 2.7: NIETC Designation Process and Status
Source: DOE
IMPLICATIONS
Several RTO/ISOs have already been conducting studies of long-term trends and scenarios to inform transmission needs and considerations for prioritizing location and types of grid infrastructure. Order 1920 seeks to formalize that with specific requirements and factors that must be considered. Its broad application will require all transmission providers to consider plausible scenarios, planning processes, tools and techniques, stakeholder engagement, and other factors as they consider their respective compliance plans.
While designated transmission infrastructure, even on the most optimistic timeline, will not be identified for years, the planning cycle will come quickly and require adaptation and change management to implement regional compliance plans. Many hope some existing approaches will only require tweaking to satisfy Order 1920. It bears watching how a new panel of FERC commissioners will receive these plans.
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