FERC Launches Major Initiative to Reform Transmission Policy

Last week, the Federal Energy Regulatory Commission (FERC) issued an Advanced Notice of Proposed Rulemaking (ANOPR) setting in motion a rulemaking process that may fundamentally change the rules governing planning and expansion of the nation’s electric transmission system. The ANOPR expresses concern that the current rules for planning, cost allocation, and interconnection of generation, all of which were adopted a decade or more ago, are no longer resulting in economically efficient transmission expansion that reflects the need to add large amounts of renewable generation to the grid in the next two decades to achieve aggressive decarbonization goals laid down by both the Biden Administration and many states. The ANOPR suggests that FERC will consider policy changes that will fundamentally alter the way in which upgrades to the electric grid are planned and paid for, and could substantially reduce the burdens faced by new generation projects seeking to interconnect with the transmission grid. Comments on the ANOPR are due 75 days from its publication in the Federal Register, which should occur in the next few days, and reply comments are due 105 days after Federal Register publication.

Key Takeaways

• FERC has embarked on a formal top-to-bottom review of its policies related to transmission, seeking input from interested parties on a broad array of questions.

• FERC is considering fundamental changes to its current approach to transmission planning, cost allocation, and generator interconnection aimed at encouraging substantial new investment in electric transmission.

• The ANOPR arises from widespread concerns that significant additional transmission capacity is necessary to accommodate the substantial amounts of new renewable resources that will be necessary to meet aggressive goals for reducing greenhouse gas emissions associated with the nation’s electric power grid.

• The ANOPR is the first step in an administrative rulemaking process that is likely to take 18-24 months to complete.

• Given the importance of the issues being considered, any entity with an interest in electric transmission or in other aspects of the energy system should consider filing comments with FERC.

Background

FERC’s new initiative grows from a concern that substantial additions to the nation’s electric transmission grid are necessary to move large volumes of renewable energy from areas with high renewable energy potential to load centers that may be hundreds or even thousands of miles away. Further, the ANOPR expresses concern that FERC’s current rules were adopted during a period when traditional central-station generation dominated the generation landscape and transmission congestion was relatively moderate. In recent years, the generation system has shifted decidedly toward renewable energy, while transmission congestion has grown. The ANOPR suggests that the current rules no longer serve the nation’s needs and require thorough-going reforms.

Specifically, the ANOPR suggests that transmission planning should be more forward-looking and holistic, so that it reflects, for example, anticipated needs from new generation likely to be constructed in the future in areas with high potential for renewable energy development. Further, the ANOPR suggests, those needs should be integrated more closely with transmission needs driven by reliability concerns and economic needs and expresses concern that these needs are currently considered in “silos” that do not reflect all the benefits of new transmission expansion.

The ANOPR suggests existing rules for allocating the costs for new transmission may be inefficient in that there is a disconnect between planning for local transmission needs and regional transmission needs that results in inefficient cost allocation. Similarly, the ANOPR suggests that current interconnection rules, which require new generation to pay the entire costs of upgrades to the transmission network upfront subject to refund (the “crediting policy”) or which, in certain RTOs and ISOs, depend on participant funding, may be inefficient and may unnecessarily discourage new generation.

The ANOPR also provides some guidance on the alternatives the Commission may be considering and invites comments from interested parties on these and a host of related questions. For example, the ANOPR suggests that the crediting policy and participant funding should be abandoned either entirely or in part in favor of a system that places more of the burden for funding transmission network upgrades on the transmission utility, with planning for transmission upgrades driven by a planning process that is focused on future needs rather than on simply accommodating generation projects that have already entered the queue for new service. 

Finally, the ANOPR seeks comments on a number of innovative policies. For example, the ANOPR suggest that an independent “transmission monitor,” apparently modeled on the independent market monitors that review the markets administered by many ISOs and RTOs and provide regular reports on whether they are functioning properly. The transmission monitor would review and provide an independent evaluation of proposed transmission expansion projects and other functions related to transmission expansion and cost allocation. Similarly, the Commission seeks comments on rules that might provide improved incentives for incorporating new technologies that improve the operations of the transmission system. 

Conclusion

The ANOPR signals the start of a formal process that is likely to result in far-reaching changes to FERC’s rules governing transmission planning, cost allocation, and generation interconnection. Anyone with an interest in the nation’s electricity system should pay careful attention to this proceeding and provide comments to FERC to try to shape the rules that FERC ultimately adopts.

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