FERC Order No. 1000

FERC Order No. 1000 

Transmission Planning and Cost Allocation 

by Transmission Owning and Operating Public Utilities

On July 21, 2011, the Federal Energy Regulatory Commission (FERC) issued Order No. 1000 concerning final rule on Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities (Final Rule). This paper points out the parts of the order that pertain to Cost Allocation.

The reform on transmission planning is based on an ambition to increase the possibility that transmission facility will be constructed in timely manner. Perhaps it will enhance the ability of the transmission grid to support wholesale power markets. 

Moreover evidences show that the existing requirements of Order No. 890 are no longer adequate to ensure Commission-jurisdictional service provision because of several factors such as (1) the increasing pace of demands placed on the transmission grid; (2) the increasing adoption of state resource policies, such as renewable portfolio standard measures; (3) the allocation of transmission costs particularly inter-regional transmission is often contentious and prone to litigation because it is difficult to reach an allocation of costs that is perceived by all stakeholders; and (4) the lack of clear ex ante cost allocation methods that identify beneficiaries of proposed regional and inter-regional transmission facilities may be impairing the ability of public utility transmission providers to implement more efficient or cost-effective transmission solutions identified during the transmission planning process. 

The Commission realizes that there is a close relationship between transmission planning, which identifies needed transmission facilities, and the allocation of costs of the transmission facilities in the plan. However the Commission did not address cost allocation for interregional transmission facilities in the previous Order No. 890. The Commission also believes that a transparent transmission planning process is the appropriate forum to address these issues. By linking transmission planning and cost allocation through the transmission planning process, it increases the likelihood that transmission facilities in regional transmission plans are actually constructed. 

Cost Allocation Method for Regional/Interregional Transmission Facilities

The Commission does not specify how the costs of an transmission facility should be allocated. However the Final Rule requires that (1) transmission providers have in place a method, or set of methods, for allocating the costs of new transmission facilities selected in the transmission plan for purposes of cost allocation; (2) each method would have to be determined in advance for each type of facility, in case there are different method(s) for different types of transmission projects; and (3) the method(s) must be filed in the open access transmission tariff (OATT).

Furthermore the development of a cost allocation method or a set of methods in advance is intended so that developers have greater certainty about cost allocation and other stakeholders will understand the cost impacts of the transmission facilities proposed for cost allocation in transmission planning.

Use of a Principles-Based Approach for Regional and Inter-regional Cost Allocation

The six regional/interregional cost allocation principles apply to, and only to, a cost allocation method or methods for new regional transmission facilities selected in a regional/interregional (neighboring) transmission plan for purposes of cost allocation.

The Commission adopts the use of cost allocation principles because it does not want to prescribe a uniform method of cost allocation for new regional and interregional transmission facilities for every transmission planning region.

Principle 1—costs allocated in a way that is roughly commensurate with benefits

The cost of transmission facilities must be allocated to those within the transmission planning region that benefit from those facilities in a manner that is at least roughly commensurate with estimated benefits.

Principle 2— no involuntary allocation of costs to non-beneficiaries

Those that receive no benefit from transmission facilities, either at present or in a likely future scenario, must not be involuntarily allocated any of the costs of those transmission facilities.

Principle 3—benefit to cost threshold ratio 

If a benefit to cost threshold is used to determine which transmission facilities have sufficient net benefits to be selected in a transmission plan for the purpose of cost allocation, it must not be so high that transmission facilities with significant positive net benefits are excluded from cost allocation not exceeds 1.25).

Principle 4—allocation to be solely within transmission planning unless those outside voluntarily assume costs

The allocation method for the cost of a transmission facility selected in a  transmission plan must allocate costs solely within that transmission planning region unless another entity outside the region or another transmission planning region voluntarily agrees to assume a portion of those costs.

Principle 5—transparent method for determining benefits and identifying beneficiaries

The cost allocation method and data requirements for determining benefits and identifying beneficiaries for a transmission facility must be transparent with adequate documentation to allow a stakeholder to determine how they were applied to a proposed transmission facility.

Principle 6—different methods for different types of facilities

A transmission planning region may choose to use a different cost allocation method for different types of transmission facilities, such as transmission facilities needed for reliability, congestion relief, or to achieve public policy requirements. 

Application of the Cost Allocation Principles

The Commission does not agree that a pro forma cost allocation method is appropriate for the costs of extra high voltage facilities, such as 345 kV and above. The reason is that a single cost allocation method for any transmission planning region means regional flexibility would be an empty offer. However it would be possible that the costs of extra-high voltage facilities, such as 345 kV and above, should be allocated widely across the region after all stakeholders reach a consensus and then submit the method to the Commission in a compliance filing.