POWER July 2012 - 20

FERC Rule 1000: What Does It Mean?
The Federal Energy Regulatory Commission (FERC) has the
responsibility for ensuring just and reasonable rates and
preventing undue discrimination by public utility transmission
providers. Last year FERC defined a new framework for
public utilities and regional transmission organizations planning
new transmission networks. The framework is provided
in Order No. 1000-Transmission Planning and Allocation by
Transmission Owning and Operating Public Utilities. The Final
Rule was issued on July 21, 2011, and reaffirmed by Order No.
1000-A on May 17, 2012.
Order 1000 provides the framework for planning large-scale
transmission projects, particularly those that will carry renewable
electricity across the nation. Generally, FERC has adopted a
process where, in general, those who derive the benefits of new
transmission lines must shoulder the cost burden.
Changes to Transmission Planning
We see four main requirements in the new rule. FERC 1000A, at its
core, is about access and cost allocation, as of May 2012.
Develop an Interregional Transmission Plan. Developing
transmission plans between regions has long been recognized
as an issue, as few interties have been constructed
between regions due to the limited authority of a developer
to interact with other organizations, called " external entities "
by FERC. Order 1000 changes this. Through existing regional
planning organizations, utilities, state governments,
and merchant transmission developers have been mandated
to develop and propose transmission projects that exchange
power with regions outside their normal boundaries and help
reduce transmission costs.
Incorporate Public Policy Requirements into Local and
Regional Transmission Planning Processes. Transmission
projects that support public policy requirements may now be
considered in the same arena as reliability projects. In order
to fulfill a public policy requirement, a series of transmission
line plans must be developed, estimates of the benefits for
each line made, and the projects prioritized. When the best
line option is selected, the cost to build that line is to be
proportionally shared by the ratepayers. Reliability upgrades
are determined in the same manner.
Remove a Federal Right of First Refusal for Certain
New Transmission Facilities. This rule removes from commission-approved
tariffs and agreements a federal right of
first refusal for certain new transmission facilities and allows
non-incumbent companies to propose new transmission lines
and upgrades to existing lines.
Allowing non-incumbent entities to propose alternative
lines will be a big plus for consumers, as exploring more
options makes the most cost-effective solution more likely
to be implemented. Independent electric transmission companies
have already made proposals to have the regional
transmission organization evaluate their proposals. Once
built and operating, these companies will recoup their investment
in the same manner utilities do now: through increased
electric rates.
Require the Development of Regional and Interregional
Cost Allocation Methods for Projects That Are
Reliability Based as Well as for Projects That Support
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Public Policy. Order 1000 describes four cost allocation
principles that will be used by the regional planning authority
in determining who pays:
■ Costs will be allocated in a way that is roughly commensurate
with benefits.
■ There will be no involuntary costs allocated to those who don't
benefit.
■ If a benefit to cost threshold ratio is used to make that determination,
then the ratio must be reasonable within the context
of that region.
■ Allocation of costs will be solely within transmission planning
regions(s) unless those outside voluntarily assume costs.
Cost allocation methods for reliability projects are well developed
in each region that require each public utility transmission
provider to participate in a regional transmission
planning process.
Utilities and states have yet to develop a method that determines
the relative benefits for each region and then allocates
costs on that basis. Currently, economic costs are
directly assigned by reliability levels, which are measured in
terms of an outage over a number of years. The more years
between expected outages, the higher the system reliability
will be. Increasing the number of years between expected outages
from one in five years to one in 10 years is measurable,
and the costs are allocated based on relative benefits to the
different regions.
Open Questions
Many questions remain unanswered. If a transmission project
is deemed required to fulfill a public policy requirement in
one region, how would it benefit the other region? If no benefits
are seen by one region, does the other region pay for the
entire transmission line? How does one measure the economic
benefit of exporting renewable power from one region to fulfill
the public policy requirements of another?
FERC describes this order as " blind " to technology. In theory,
a transmission line could be authorized and built under
these rules that would carry electricity generated by hydro
or fossil fuel (natural gas, coal, or oil) as well as renewable
energy (wind, solar, or geothermal).
Order No. 1000 also allows many other non-utility organizations
to be involved in deciding what transmission lines
get built and where. The discussion among these entities will
also be open to for-profit independent electric transmission
companies and state politicians wishing to export or import
renewable electricity.
However, a rule that was designed with the underlying motive
of reducing roadblocks to moving renewable electricity
long distances may have an unexpected use. The rapid rise in
the availability of shale gas has driven down the cost of producing
electricity in many regions. It also appears that the
rate at which coal plants are closing is increasing, principally
caused by historically low natural gas prices. The net effect
is lower electricity costs, but at the cost of a reduction in
system reliability and operating reserve margins, as discussed
in North American Electric Reliability Corp.'s 2012 State of
Reliability report, released in May 2012. Neither of these rewww.powermag.com
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POWER July 2012

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