[Federal Register: June 30, 2010 (Volume 75, Number 125)]
[Proposed Rules]
[Page 37883-37916]
[DOCID:fr30jn10-21]

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Part II

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Part 35

Transmission Planning and Cost Allocation by Transmission Owning and
Operating Public Utilities; Proposed Rule

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM10-23-000]

Transmission Planning and Cost Allocation by Transmission Owning
and Operating Public Utilities

Issued June 17, 2010.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission is proposing to amend
the transmission planning and cost allocation requirements established
in Order No. 890 to ensure that Commission-jurisdictional services are
provided on a basis that is just, reasonable and not unduly
discriminatory or preferential. With respect to transmission planning,
the proposed rule would provide that local and regional transmission
planning processes account for transmission needs driven by public
policy requirements established by State or Federal laws or
regulations; improve coordination between neighboring transmission
planning regions with respect to interregional facilities; and remove
from Commission-approved tariffs or agreements a right of first refusal
created by those documents that provides an incumbent transmission
provider with an undue advantage over a nonincumbent transmission
developer. Neither incumbent nor nonincumbent transmission facility
developers should, as a result of a Commission-approved tariff or
agreement, receive different treatment in a regional transmission
planning process. Further, both should share similar benefits and
obligations commensurate with that participation, including the right,
consistent with State or local laws or regulations, to construct and
own a facility that it sponsors in a regional transmission planning
process and that is selected for inclusion in the regional transmission
plan. With respect to cost allocation, the proposed rule would
establish a closer link between transmission planning processes and
cost allocation and would require cost allocation methods for
intraregional and interregional transmission facilities to satisfy
newly established cost allocation principles.

DATES: Comments are due August 30, 2010.

ADDRESSES: You may submit comments, identified by docket number by any
of the following methods:
     Agency Web Site: http://www.ferc.gov. Documents created
electronically using word processing software should be filed in native
applications or print-to-PDF format and not in a scanned format.
     Mail/Hand Delivery: Commenters unable to file comments
electronically must mail or hand deliver an original and 14 copies of
their comments to: Federal Energy Regulatory Commission, Office of the
Secretary, 888 First Street, NE., Washington, DC 20426.
    Instructions: For detailed instructions on submitting comments and
additional information on the rulemaking process, see the Comment
Procedures Section of this document

FOR FURTHER INFORMATION CONTACT:
Russell Profozich, Federal Energy Regulatory Commission, Office of
Energy Policy and Innovation, 888 First Street, NE., Washington, DC
20426,<PHONE_NUMBER>.
John Cohen, Federal Energy Regulatory Commission, Office of the General
Counsel, 888 First Street, NE., Washington, DC 20426,<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Notice of Proposed Rulemaking

Table of Contents

                                                               Paragraph
                                                                 Nos.

I. Introduction.............................................           1
II. Background..............................................           6
    A. Order Nos. 888 and 890...............................           6
    B. Technical Conferences and Notice of Request for                13
     Comments on Transmission Planning and Cost Allocation..
    C. Additional Developments Since Issuance of Order No.            25
     890....................................................
III. The Need for Reform....................................          32
IV. Proposed Reforms: Transmission Planning.................          44
    A. Participation in the Regional Planning Process.......          45
    B. Public Policy Driven Projects........................          55
    C. Opportunities for Undue Discrimination Against                 71
     Nonincumbent Transmission Developers...................
        1. Nonincumbent Transmission Developer Participation          71
         in the Transmission Planning Process...............
        2. Proposed Reforms Regarding Nonincumbents.........          87
    D. Interregional Coordination...........................         102
        1. The Need for Interregional Planning Reforms......         102
        2. Proposed Interregional Planning Reforms..........         114
V. Proposed Reforms: Cost Allocation........................         121
    A. Introduction.........................................         121
        1. Order No. 890's Transmission Planning Principle           121
         on Cost Allocation for New Transmission Facilities.
        2. October 2009 Notice and Subsequent Comments......         129
    B. Legal Authority and Need for Reform..................         138
        1. The Cost Causation Principle.....................         139
        2. Need for Reform..................................         148
    C. Proposed Reforms.....................................         155
        1. Intraregional Cost Allocation....................         164
        2. Interregional Cost Allocation....................         170
VI. Compliance Filings......................................         179
VII. Information Collection Statement.......................         182
VIII. Environmental Analysis................................         186
IX. Regulatory Flexibility Act Analysis.....................         187
X. Comment Procedures.......................................         188
XI. Document Availability...................................         192
Regulatory Text

Appendix A: List of Short Names of Commenters on the Federal
 Energy Regulator Commission's Notice of Request for
 Comments on Transmission Planning Processes Under Order No.
 890--Docket No. AD09-8-000, October 2009
Appendix B: Pro Forma Open Access Transmission Tariff
 Attachment K

Notice of Proposed Rulemaking

Issued June 17, 2010.

I. Introduction

    1. In this Notice of Proposed Rulemaking (Proposed Rule), the
Federal Energy Regulatory Commission (Commission) is proposing to
reform its electric transmission planning and cost allocation
requirements for public utility transmission providers. The proposed
reforms are intended to correct deficiencies in transmission planning
and cost allocation processes so that the transmission grid can better
support wholesale power markets and thereby ensure that Commission-
jurisdictional services are provided at rates, terms and conditions
that are just and reasonable and not unduly discriminatory or
preferential.
    2. This Proposed Rule builds on Order No. 890,\1\ in which the
Commission reformed the pro forma open access transmission tariff
(OATT). Among other changes, Order No. 890 required each public utility
transmission provider to have a coordinated, open, and transparent
regional transmission planning process. Order No. 890 also established
nine transmission planning principles, one of which addressed cost
allocation for new projects.
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    \1\ Preventing Undue Discrimination and Preference in
Transmission Service, Order No. 890, FERC Stats. & Regs. ] 31,241,
order on reh'g, Order No. 890-A, FERC Stats. & Regs. ] 31,261
(2007), order on reh'g, Order No. 890-B, 123 FERC ] 61,299 (2008),
order on reh'g, Order No. 890-C, 126 FERC ] 61,228 (2009), order on
clarification, Order No. 890-D, 129 FERC ] 61,126 (2009).
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    3. The Commission acknowledges that significant work has been done
in recent years to enhance regional transmission planning processes.
The reforms proposed herein seek to build on this progress by improving
the effectiveness of regional transmission planning and the efficiency
of resulting transmission development. In formulating this proposal,
the Commission has sought to balance competing interests and identify a
package of reforms that, if implemented, would support the development
of transmission facilities identified by the region as necessary to
satisfy reliability standards, reduce congestion, and enable compliance
with public policy requirements established by State or Federal laws or
regulations. The Commission recognizes that opinions may differ as to
whether the proposal as formulated will best achieve the Commission's
goals. The Commission therefore seeks comment on the reforms proposed
herein and encourages commenters to identify enhancements to the
reforms that could better support the efficient and effective
development of transmission facilities.
    4. With respect to transmission planning, the reforms proposed in
this Proposed Rule would provide that: (1) Local and regional
transmission planning processes account for transmission needs driven
by public policy requirements established by State or Federal laws or
regulations; (2) coordination between neighboring transmission planning
regions is improved with respect to facilities that are proposed to be
located in both regions, as well as interregional facilities that could
address transmission needs more efficiently than separate intraregional
facilities; and (3) a right of first refusal that is created by a
document subject to the Commission's jurisdiction and that provides an
incumbent utility with an undue advantage over nonincumbent
transmission project developers is removed from that document. Neither
incumbent nor nonincumbent transmission facility developers should, as
a result of a Commission-approved OATT or agreement, receive different
treatment in a regional transmission planning process. Further, both
should share similar benefits and obligations commensurate with that
participation, including the right, consistent with State or local laws
or regulations, to construct and own a facility that it sponsors in a
regional transmission planning process and that is selected for
inclusion in the regional transmission plan. The Commission
preliminarily finds that these proposed reforms are needed to protect
against unjust and unreasonable rates, terms and conditions and undue
discrimination in the provision of Commission-jurisdictional services.
    5. With respect to transmission cost allocation, the Commission is
proposing to require public utility transmission providers to establish
a closer link between cost allocation and regional transmission
planning processes in which the beneficiaries of new transmission
facilities are identified, as well as to establish principles that cost
allocation methods must satisfy. The Commission sees these proposals as
steps that would increase the likelihood that facilities included in
regional transmission plans are actually constructed. For example,
establishing a closer link between transmission planning and cost
allocation processes would diminish the likelihood that a transmission
facility would be included in a regional transmission plan, only to
later encounter cost allocation disputes that inhibit construction of
that facility.

II. Background

A. Order Nos. 888 and 890

    6. In Order No. 888,\2\ issued in 1996, the Commission found that
it was in the economic interest of transmission providers to deny
transmission service or to offer transmission service on a basis that
is inferior to that which they provide to themselves.\3\ Concluding
that unduly discriminatory and anticompetitive practices existed in the
electric industry and that, absent Commission action, such practices
would increase as competitive pressures in the industry grew, the
Commission in Order No. 888 and the accompanying pro forma OATT
implemented open access to transmission facilities owned, operated, or
controlled by a public utility.
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    \2\ Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery
of Stranded Costs by Public Utilities and Transmitting Utilities,
Order No. 888, FERC Stats. & Regs. ] 31,036 (1996), order on reh'g,
Order No. 888-A, FERC Stats. & Regs. ] 31,048, order on reh'g, Order
No. 888-B, 81 FERC ] 61,248 (1997), order on reh'g, Order No. 888-C,
82 FERC ] 61,046 (1998), aff'd in relevant part sub nom.
Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C.
Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
    \3\ Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,682.
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    7. As part of those reforms, Order No. 888 and the pro forma OATT
set forth certain minimum requirements for transmission planning. For
example, the pro forma OATT required a public utility transmission
provider to account for the needs of its network customers in its
transmission planning activities on the same basis as it provides for
its own needs.\4\ The pro forma OATT also required that new facilities
be constructed to meet the service requests of long-term firm point-to-
point

customers.\5\ While Order No. 888-A went on to encourage utilities to
engage in joint and regional transmission planning with other utilities
and customers, it did not require those actions.\6\
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    \4\ See Section 28.2 of the pro forma OATT.
    \5\ See Sections 13.5, 15.4, & 27 of the pro forma OATT.
    \6\ Order No. 888-A, FERC Stats. & Regs. ] 31,048 at 30,311.
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    8. In early 2007, the Commission issued Order No. 890 to remedy
flaws in the pro forma OATT that the Commission identified based on the
decade of experience since the issuance of Order No. 888. Among other
things, the Commission found that pro forma OATT obligations related to
transmission planning were insufficient to eliminate opportunities for
undue discrimination in the provision of transmission service. The
Commission stated that particularly in an era of increasing
transmission congestion and the need for significant new transmission
investment, it could not rely on the self-interest of transmission
providers to expand the grid in a not unduly discriminatory manner.
Among other shortcomings in the pro forma OATT, the Commission pointed
to the lack of clear criteria regarding the transmission provider's
planning obligation; the absence of a requirement that the overall
transmission planning process be open to customers, competitors, and
State commissions; and the absence of a requirement that key
assumptions and data underlying transmission plans be made available to
customers.
    9. In light of these findings, one of the primary goals of the
reforms undertaken in Order No. 890 was to address the lack of
specificity regarding how customers and other stakeholders should be
treated in the transmission planning process. To remedy the potential
for undue discrimination in transmission planning activities, the
Commission required each public utility transmission provider to
develop a transmission planning process that satisfies nine principles
and to clearly describe that process in a new attachment to its OATT
(Attachment K). The Order No. 890 transmission planning principles are:
(1) Coordination; (2) openness; (3) transparency; (4) information
exchange; (5) comparability; (6) dispute resolution; (7) regional
participation; (8) economic planning studies; and (9) cost allocation
for new projects.\7\
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    \7\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 418-601.
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    10. The transmission planning reforms adopted in Order No. 890
apply to all public utility transmission providers, including
Commission-approved regional transmission organizations (RTOs) and
independent system operators (ISOs). The Commission also stated that it
expected all non-public utility transmission providers to participate
in the planning processes required by Order No. 890. The Commission
noted that reciprocity dictates that non-public utility transmission
providers that take advantage of open access due to improved planning
should be subject to the same requirements as jurisdictional
transmission providers.\8\ The Commission stated that a coordinated,
open, and transparent regional planning process cannot succeed unless
all transmission owners participate. However, the Commission did not
invoke its authority under FPA section 211A, which allows the
Commission to require an unregulated transmitting utility (i.e., a non-
public utility transmission provider) to provide transmission services
on a comparable and not unduly discriminatory or preferential basis.\9\
The Commission instead stated that if it found on the appropriate
record that non-public utility transmission providers are not
participating in the planning processes required by Order No. 890, then
the Commission may exercise its authority under FPA section 211A on a
case-by-case basis.
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    \8\ Id. P 441.
    \9\ FPA section 211A(b) provides, in pertinent part, that ``the
Commission may, by rule or order, require an unregulated
transmitting utility to provide transmission services--(1) at rates
that are comparable to those that the unregulated transmitting
utility charges itself; and (2) on terms and conditions (not
relating to rates) that are comparable to those under which the
unregulated transmitting utility provides transmission services to
itself and that are not unduly discriminatory or preferential.'' 16
U.S.C. 824j (2006).
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    11. On December 7, 2007, pursuant to Order No. 890, most public
utility transmission providers and several non-public utility
transmission providers submitted compliance filings that describe their
proposed transmission planning processes.\10\ The Commission addressed
these filings in a series of orders that were issued throughout 2008.
Generally, the Commission accepted the compliance filings to be
effective December 7, 2007, subject to further compliance filings as
necessary for the proposed transmission planning processes to satisfy
the nine transmission planning principles. The Commission issued
additional orders on Order No. 890 transmission planning compliance
filings in the spring and summer of 2009.
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    \10\ A small number of transmission providers were granted
extensions.
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    12. As a result of these compliance filings, RTOs and ISOs have
enhanced their regional transmission planning processes, making them
more open, transparent, and inclusive. Regions of the country outside
of RTO and ISO regions have also made significant strides with respect
to transmission planning by working together to enhance existing, or
create new, regional transmission planning processes.\11\ These
improvements to transmission planning processes have given customers
and other stakeholders the opportunity to participate in the
identification of regional needs and corresponding solutions, thereby
facilitating the development of more efficient and effective
transmission expansion plans.
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    \11\ The regional transmission planning processes that public
utility transmission providers in regions outside of RTOs and ISOs
have relied on to comply with certain requirements of Order No. 890
are the North Carolina Transmission Planning Collaborative,
Southeast Inter-Regional Participation Process, SERC Reliability
Corporation, ReliabilityFirst Corporation, Mid-Continent Area Power
Pool, Florida Reliability Coordination Council, WestConnect,
ColumbiaGrid, and Northern Tier Transmission Group.
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B. Technical Conferences and Notice of Request for Comments on
Transmission Planning and Cost Allocation

    13. In several of the above-noted orders issued in 2008 and early
2009 on filings submitted to comply with the Order No. 890 transmission
planning requirements, the Commission stated that it would continue to
monitor implementation of these transmission planning processes. The
Commission also announced its intention to convene regional technical
conferences in 2009.
    14. Consistent with the Commission's announcement, Commission staff
in September 2009 convened three regional technical conferences in
Philadelphia, Atlanta, and Phoenix, respectively. The focus of the
technical conferences was to: (1) Determine the progress and benefits
realized by each transmission provider's transmission planning process,
obtain customer and other stakeholder input, and discuss any areas that
may need improvement; (2) examine whether existing transmission
planning processes adequately consider needs and solutions on a
regional or interconnection-wide basis to ensure adequate and reliable
supplies at just and reasonable rates; and (3) explore whether existing
processes are sufficient to meet emerging challenges to the
transmission system, such as the development of interregional
transmission facilities and the integration of large amounts of
location-constrained generation. Issues discussed

at the technical conferences included the effectiveness of the current
transmission planning processes, the development of regional and
interregional transmission plans, and the effectiveness of existing
cost allocation methods used by transmission providers and alternatives
to those methods.
    15. Following these technical conferences, the Commission in
October 2009 issued a Notice of Request for Comments.\12\ The October
2009 Notice presented numerous questions with respect to enhancing
regional transmission planning processes and allocating the cost of
transmission.
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    \12\ Federal Energy Regulatory Commission, Transmission Planning
Processes Under Order No. 890; Notice of Request for Comments;
Docket No. AD09-8-000, October 8, 2009 (October 2009 Notice).
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    16. In response to the October 2009 Notice, the Commission received
107 initial comments and 45 reply comments.\13\ Many of these comments
are discussed in greater detail later in this Proposed Rule, in the
context of the Commission's proposals on specific issues.
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    \13\ See Appendix A for a list of the commenters and their
abbreviated names.
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    17. In general, some commenters oppose additional Commission action
at this time with respect to transmission planning. Among these
commenters, some argue that existing transmission planning processes
are adequate to achieve the Commission's stated goals.\14\ Some of
these commenters highlight work already underway in their own
transmission planning regions, arguing that no Commission action is
needed at least in those regions. Other commenters argue that existing
processes are new or are being revised and should be given time to
mature before additional changes are proposed. Many of these commenters
state that if the Commission chooses to act, it should do so in a
manner that does not disrupt existing transmission planning processes.
Some commenters that oppose Commission action on transmission planning
at this time state that it is important to maintain what they describe
as a ``bottom-up'' approach to transmission planning, in which regional
transmission planning is based on transmission planning conducted by
the individual transmission-owning utilities in a transmission planning
region.\15\
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    \14\ E.g., Dominion, Large Public Power Council, Midwest ISO,
New York PSC, Northern Tier Transmission Group, and WECC.
    \15\ E.g., Ohio Commission, PPL, Southern Companies, and WECC.
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    18. Many other commenters support additional Commission action on
transmission planning at this time.\16\ These commenters offer a wide
range of views on why and how the planning process should be improved.
Although these commenters express diverse views, there appears to be a
consensus among those supporting action that the Commission should--at
a minimum--provide guidance about planning for large, interregional
transmission projects.
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    \16\ E.g., American Transmission, CAlifornians for Renewable
Energy, Dayton Power and Light, E.ON, LS Power, NRG, Pioneer
Transmission, San Diego Gas & Electric, and Transmission Access
Policy Study Group.
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    19. Many commenters that support Commission action on transmission
planning raise issues related to the procedural characteristics or
geographic scope of existing transmission planning processes. Some
commenters contend that the Order No. 890 transmission planning
principles should be extended to support interregional coordination,
while others argue that additional planning principles are necessary to
ensure the effectiveness of transmission planning processes. Some
commenters suggest that the type of ``bottom-up'' transmission planning
described above is insufficient,\17\ and other commenters advocate
changes such as establishing a regional or interconnection-wide
planning coordinator.\18\ A few commenters suggest that the Commission
add to the OATT a pro forma seams agreement that includes joint
collaborative planning and cost allocation across planning regions.\19\
Still other commenters support changes to transmission planning
processes, but caution against adopting a one-size-fits-all or an
interconnectionwide approach.\20\
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    \17\ E.g., Calvin Daniels (commenting as an individual).
    \18\ E.g., AEP.
    \19\ E.g., Midwest ISO Transmission Owners, National Rural
Electric Coops, and SPP.
    \20\ E.g., Pacific Gas and Electric and Transmission Agency of
Northern California.
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    20. Other commenters that support Commission action on transmission
planning argue that some existing transmission planning processes
provide an incumbent transmission owner with an unfair advantage over
merchant and independent transmission project developers, such as by
providing an incumbent transmission owner with a right of first refusal
\21\ to construct a transmission facility that is included in a
regional transmission plan and meets certain other criteria.\22\ These
commenters argue that such practices discourage other, merchant and
independent transmission developers' \23\ participation in the
transmission planning process and present a significant barrier to
transmission investment. Other commenters state that projects proposed
by merchant and independent transmission project developers need to be
included fully in regional transmission planning processes on the same
basis as other projects.\24\
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    \21\ A right of first refusal is defined, for the purposes of
this proposed rulemaking, as the right of an incumbent transmission
owner to construct, own, and propose cost recovery for any new
transmission project that is: (1) Located within its service
territory; and (2) approved for inclusion in a transmission plan
developed through the Order No. 890 planning process.
    \22\ E.g., AWEA, EPSA, LS Power, and Transmission Dependent
Utility Systems.
    \23\ Merchant transmission projects are defined as those for
which the costs of constructing the proposed transmission facilities
will be recovered through negotiated rates instead of cost-based
rates. For purposes of this proposed rulemaking, an incumbent
transmission developer is an entity that develops a project within
its own service territory. We note that a transmission owner that
proposes a project outside of its own service territory is not
considered an incumbent for purposes of that project.
    \24\ E.g., Allegheny Companies, AEP, CAlifornians for Renewable
Energy, Delaware Municipal and Southwestern Electric, E.ON Climate &
Renewables North America, Great River Energy, Sun Flower and Mid-
Kansas, National Nuclear Security Administration Service Center,
Organization of MISO States, and Transmission Agency of Northern
California.
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    21. Still other commenters that support Commission action on
transmission planning express concern that current transmission
planning processes do not adequately assess all of the potential
benefits associated with transmission project proposals.\25\ Some of
these commenters state that more attention needs to be devoted to
analyzing the benefits associated with economic-based projects and
incorporating such projects into regional transmission plans.\26\ PJM
states that generic planning principles are needed to deal with the
various social, environmental and economic impacts of regional
transmission projects. In addition, several commenters recommend that
the Commission incorporate State and Federal public policy objectives
into the transmission planning process,\27\ noting, for example, that
doing so could facilitate cost-effective achievement of those
objectives. Commenters also

recommend that the Commission provide for flexibility so that each
transmission planning region could determine which resources it would
use to fulfill these public policy objectives.\28\
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    \25\ E.g., AEP, AWEA, Baltimore Gas and Electric, Energy Future
Coalition, Exelon, Green Energy Express, ITC Holdings, MidAmerican,
National Audubon Society, et al., NextEra, and Public Interest
Organizations & Renewable Energy Groups.
    \26\ E.g., MidAmerican and Old Dominion.
    \27\ E.g., AWEA, Baltimore Gas and Electric, Exelon, Eastern PJM
Governors, The Brattle Group, ITC Holdings, LS Power, National
Audubon Society, et al., National Grid, NextEra, Old Dominion, PJM,
Public Interest Organizations & Renewable Energy Groups, Renewable
Energy Systems Americas, and Trans-Elect.
    \28\ E.g., Consolidated Edison, et al.
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    22. The Commission's questions in the October 2009 Notice with
respect to allocating the cost of transmission also drew wide-ranging
responses. For example, some commenters express concern that the lack
of a link between transmission planning and cost allocation procedures
may unnecessarily block or delay needed projects.\29\ Other commenters
support establishing a generic cost allocation method as a backstop
that would apply when parties or transmission planning regions cannot
agree on a cost allocation method.\30\
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    \29\ E.g., ITC Holdings, AEP, American Transmission, Green
Energy Express, and WIRES.
    \30\ E.g., American Transmission; National Grid; and NEPOOL
Participants.
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    23. Some commenters indicate that the Commission should provide
more detailed guidelines or principles for allocating the costs of new
transmission facilities.\31\ These commenters generally agree that
those who share in the benefits of transmission facilities should be
responsible for their costs. However, there is not a consensus on how
this principle should be implemented, what benefits should be
considered for purposes of cost allocation, or how to determine who is
a beneficiary.
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    \31\ E.g., APPA, Green Energy Express, ITC Holdings, NEPOOL
Participants, NextEra, Ohio Commission, Solar Energy Industries, and
Transmission Access Policy Study Group.
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    24. Some commenters urge the Commission to avoid rushing to a one-
size-fits-all approach to determining beneficiaries of transmission
projects, due to the varying nature of projects and benefits.\32\
Others express the view that it is difficult to quantify certain
benefits that they consider relevant, such as carbon emission
reduction, integration of renewable generation, or the most efficient
use of existing rights-of-way.\33\ Other commenters suggest that there
are ways to factor difficult to quantify benefits into the planning
process such that they are adequately considered.\34\
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    \32\ E.g., APPA, Bonneville, California ISO, ColumbiaGrid,
Consolidated Edison, et al., Dayton Power and Light, EEI, Entergy,
Midwest ISO, Southern Companies.
    \33\ E.g., California ISO, Electricity Consumers Resource
Council, MidAmerican, National Grid.
    \34\ E.g., AWEA, Energy Future Coalition, Entergy, Exelon, ITC
Holdings, Integrys, et al.
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C. Additional Developments Since Issuance of Order No. 890

    25. Other developments with important implications for transmission
planning have occurred amid the above-noted Order No. 890 compliance
efforts on transmission planning and as the Commission gathered
information through the technical conferences and the October 2009
Notice discussed above.
    26. For example, in February 2009, Congress enacted the American
Recovery and Reinvestment Act (ARRA), which provided $80 million for
the U.S. Department of Energy (DOE), in coordination with the
Commission, to support the development of interconnection-based
transmission plans for the Eastern, Western, and Texas
interconnections. In seeking applications for use of those funds, DOE
described the initiative as intended to: (1) Improve coordination
between electric industry participants and states on the regional,
interregional, and interconnection-wide levels with regard to long-term
electricity policy and planning; (2) provide better quality information
for industry planners and State and Federal policymakers and
regulators, including a portfolio of potential future supply scenarios
and their corresponding transmission requirements; (3) increase
awareness of required long-term transmission investments under various
scenarios, which may encourage parties to resolve cost allocation and
siting issues; and (4) facilitate and accelerate development of
renewable or other low-carbon generation resources.\35\
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    \35\ Department of Energy, Recovery Act--Resource Assessment and
Interconnection-Level Transmission Analysis and Planning Funding
Opportunity Announcement, at 5-6 (June 15, 2009).
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    27. In December 2009, DOE announced award selections for much of
this ARRA funding. In each interconnection, applicants awarded funds
under what DOE defined as Topic A are responsible for conducting
interconnection-level analysis and transmission planning. Applicants
awarded funds under Topic B are to facilitate greater cooperation among
states and stakeholders within each interconnection to guide the
analyses and planning performed under Topic A.\36\ Broad participation
in sessions to date related to this initiative suggest that the
availability of Federal funds to pursue these goals has increased
awareness of the potential for greater coordination among regions in
transmission planning.
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    \36\ Id. at 4-8.
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    28. DOE has also been involved in the development of several recent
reports that may have implications for transmission planning. In its
2008 report, 20% Wind Energy by 2030, DOE concludes that
``[s]ignificant expansion of the transmission grid will be required
under any future electric industry scenario. Expanded transmission will
increase reliability, reduce costly congestion and line losses, and
supply access to low-cost remote resources, including renewables.''
\37\
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    \37\ Department of Energy, 20% Wind Energy by 2030, at 93 (July
2008).
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    29. Similarly, in its 2009 report, Keeping the Lights On in a New
World, the DOE Electricity Advisory Committee concluded that expanding
and strengthening the nation's transmission infrastructure is becoming
increasingly important for two reasons: ``First, increasing
transmission capability will help ensure a reliable electric supply and
provide greater access to economically priced power. Second, the growth
in renewable energy development, stimulated in part by State-adopted
renewable portfolio standards (RPS) and the possibility of a national
RPS, will require significant new transmission to bring these
resources, which are often remotely located, to consumer load
centers.'' \38\
---------------------------------------------------------------------------

    \38\ Electricity Advisory Committee, Keeping the Lights On in a
New World, at 45 (Jan. 2009). The Electricity Advisory Committee was
formed to provide advice to DOE in implementing the Energy Policy
Act of 2005 and the Energy Independence and Security Act of 2007,
and in modernizing the nation's electricity delivery infrastructure.
The Electricity Advisory Committee includes representatives from
industry, academia, and state government.
---------------------------------------------------------------------------

    30. The number of states that have adopted renewable portfolio
standard measures, as well as the target levels set in those measures,
has continued to increase. Some 30 states and the District of Columbia
have now adopted renewable portfolio standard measures. These measures
typically require that a certain percentage of energy sales (MWh) or
installed capacity (MW) come from renewable energy resources, with the
target level and qualifying resources varying among the renewable
portfolio standard measures.
    31. In its role as the Commission-designated Electric Reliability
Organization, the North American Electric Reliability Corporation
(NERC) concluded that significant transmission expansion will be needed
to comply with renewable mandates. Even in the absence of a national
renewable portfolio standard, NERC has stated that ``an analysis of the
past 14 years shows that the siting and construction of transmission
lines will need to significantly accelerate to maintain reliability
over the coming years.'' \39\ In

its 2009 assessment of transmission needs, NERC found that if a
national renewable portfolio standard of 15 percent were adopted, an
additional 40,000 miles of transmission lines would be needed and
``transmission would be a key component to accommodating new resources,
linking geographically remote generation to demand centers.'' \40\
---------------------------------------------------------------------------

    \39\ North American Electric Reliability Corporation, 2009 Long-
Term Reliability Assessment: 2009-2018, October 2009, at 29.
    \40\ North American Electric Reliability Corporation, 2009
Scenario Reliability Assessment: 2009-2018, October 2009, at 9.
---------------------------------------------------------------------------

III. The Need for Reform

    32. The Commission notes that transmission planning processes,
particularly at the regional level, have seen substantial improvement
through compliance with Order No. 890. As noted above, these
improvements have increased opportunities for customers and other
stakeholders to participate in the identification of regional needs and
corresponding solutions, facilitating the development of more efficient
and effective transmission plans. The Commission believes that the
expanded cooperation and collaboration that is now occurring in
transmission planning both among transmission providers and between
transmission providers and their stakeholders is to be commended.
    33. Although Order No. 890 became effective just a few years ago,
there have been significant changes in the nation's electric power
industry in those few years that require the Commission to consider
additional reforms to transmission planning and cost allocation to
reflect these new circumstances. These changes have been widely
recognized within the industry.\41\ Our intention in this Proposed Rule
is not to disrupt the progress that is already being made with respect
to transmission planning and investment in transmission infrastructure,
but rather to address remaining deficiencies in transmission planning
and cost allocation processes so that the transmission grid can better
support wholesale power markets and thereby ensure that Commission-
jurisdictional services are provided at rates, terms and conditions
that are just and reasonable and not unduly discriminatory or
preferential.
---------------------------------------------------------------------------

    \41\ For example, a trend of increased investment in the
country's transmission infrastructure has emerged in recent years.
EEI attributes that trend to, among other factors, recognition of
the reliability and other developments discussed above, as well as
enactment of the Energy Policy Act of 2005 and the Commission's
implementation of its new transmission pricing policies. EEI has
also observed that even amid this trend of increased investment in
transmission infrastructure, transmission projects that would be
located in more than one state ``face significant challenges for
siting, permitting, cost allocation and cost recovery.''
Transmission Projects: At a Glance, Prepared by Edison Electric
Institute with assistance from Navigant Consulting, Inc., February
2010, at iii-iv. EEI has also stated that ``[t]hese challenges must
be resolved to facilitate the movement of large quantities of
renewable energy.'' Transmission Projects Supporting Renewable
Resources, Prepared by Edison Electric Institute, February 2009, at
iv.
---------------------------------------------------------------------------

    34. The siting, permitting, and cost allocation of transmission
facilities face significant challenges. These challenges may be present
whether an interstate transmission project is proposed to be located
within a single region for which transmission planning is conducted in
accordance with Order No. 890 (i.e., an intraregional transmission
facility) or is instead proposed to be located in more than one such
transmission planning region (i.e., an interregional transmission
facility). The failure to address these challenges also can lead to
increases in congestion costs. For example, PJM stated recently that
prices for new generating capacity in the eastern part of its
transmission planning region have increased due to constraints on its
transmission system. Observing that capacity prices in the western
portion of PJM were $27.73 per megawatt-day, while capacity prices in
the transmission-constrained areas of PJM were between $226.15 and
$247.14 per megawatt-day, PJM noted that ``the great difference in
prices for the eastern portion of PJM compared with elsewhere shows the
need for increased transmission line capacity into the region.
Transmission line additions and upgrades would reduce capacity price
differences.'' \42\
---------------------------------------------------------------------------

    \42\ PJM Interchange, News Release, May 14, 2010.
---------------------------------------------------------------------------

    35. In light of the comments and developments discussed above, one
deficiency that has arisen is the lack of a requirement for a regional
transmission plan, without which the construction of new transmission
facilities could be inhibited. Additionally, in the absence of such a
requirement, the facilities best suited to meet the needs of a
particular region may not be identified.
    36. Another deficiency that has arisen since the issuance of Order
No. 890 involves transmission needs driven by public policy
requirements established by State or Federal laws or regulations. For
example, State policies to promote increased reliance on renewable
energy resources, such as the renewable portfolio standard measures
discussed above, accentuate the need for transmission to deliver
electricity from location-constrained renewable energy resources to
load centers. Other State policies, such as goals for use of energy
efficiency or demand response, may lower load forecasts within a given
load zone and thereby affect transmission planning determinations. In
addition, states may adopt economic development policies associated
with meeting energy needs that may be relevant to assumptions made in a
transmission planning process. Future public policy requirements
established by Federal laws or regulations also could have a
significant effect on transmission planning.
    37. However, existing transmission planning processes generally
were not designed to account for, and do not explicitly consider, these
types of public policy requirements established by State or Federal
laws or regulations. Indeed, some comments submitted in response to the
October 2009 Notice indicate that current transmission planning
processes may not permit consideration of public policy requirements
within regional transmission plans.\43\ As discussed in greater detail
below, the Commission preliminarily finds that the failure to account
explicitly for such public policy requirements in the transmission
planning process may result in undue discrimination and rates, terms,
and conditions of service that are not just and reasonable.
---------------------------------------------------------------------------

    \43\ E.g., Baltimore Gas and Electric, Eastern PJM Governors,
ITC Holdings, LS Power, National Grid, Old Dominion, PJM, and Trans-
Elect.
---------------------------------------------------------------------------

    38. A third deficiency involves obstacles to nonincumbent
transmission project developers' participation in regional transmission
planning processes. The Commission in recent years has seen increasing
interest in transmission investment among these developers. Such
interest, however, often has been coupled with expressions of concern
about the treatment of merchant and independent transmission project
developers in relevant transmission planning processes.\44\ Many
commenters raised similar concerns in response to the October 2009
Notice, describing what they see as remaining opportunities for undue
discrimination against nonincumbent transmission project developers in
transmission planning processes. Such undue discrimination could
discourage these developers from presenting projects in regional
transmission planning processes, which, in turn, could inhibit
development of beneficial transmission facilities.
---------------------------------------------------------------------------

    \44\ See, e.g., Green Energy Express LLC, 129 FERC ] 61,165
(2009); Western Grid Dev., LLC, 130 FERC ] 61,056 (2010); Pioneer
Transmission LLC, 126 FERC ] 61,281 (2009).
---------------------------------------------------------------------------

    39. A fourth deficiency involves the relative lack of coordination
between transmission planning regions. In Order No. 890, the Commission
found that when transmission providers engage in

regional transmission planning, they may identify solutions to regional
needs that are more efficient than those that would have been
identified if needs and potential solutions were evaluated only
independently by each individual transmission provider.\45\ Similarly,
in the absence of coordination between transmission planning regions,
transmission providers may not identify more efficient and cost-
effective solutions to the individual needs identified in their
respective utility-level and regional transmission planning processes,
potentially including interregional transmission projects. In the few
years since the issuance of Order No. 890, interest in multiregional
facilities has grown significantly.\46\ The October 2009 Notice
observed that the lack of coordinated planning over the seams of
current transmission planning regions could be needlessly increasing
costs for customers of individual transmission providers. Accordingly,
the Order No. 890 transmission planning requirements may not be just
and reasonable in that they may not be sufficient to address the need
for greater coordination in interregional transmission planning.
---------------------------------------------------------------------------

    \45\ ``The coordination of planning on a regional basis will
also increase efficiency through the coordination of transmission
upgrades that have region-wide benefits, as opposed to pursuing
transmission expansion on a piecemeal basis.'' Order No. 890, FERC
Stats. & Regs. ] 31,241 at P 524.
    \46\ See, e.g., Pioneer Transmission LLC, 126 FERC ] 61,281
(2009); Green Power Express, 127 FERC ] 61,031 (2009).
---------------------------------------------------------------------------

    40. Finally, we preliminarily conclude that existing methods for
allocating the costs of new transmission may not be just and reasonable
because they may inhibit the development of efficient, cost-effective
transmission facilities necessary to produce just and reasonable rates.
While challenges associated with allocating the cost of transmission
are not new, those challenges appear to have become more acute as the
need for transmission infrastructure has grown. For example, the
expansion of regional power markets and the increasing adoption of
State policies to promote increased reliance on renewable energy
resources have led to a growing need for regional or interregional
transmission facilities. Meanwhile, determining the benefits of adding
transmission infrastructure to the grid is a complex process,
particularly for projects that affect multiple utilities' transmission
systems and therefore may have multiple beneficiaries. In such
circumstances, any individual beneficiary of a project has an incentive
to defer investment in the hopes that other beneficiaries will value
the project enough to fund its development.
    41. Moreover, as stated in the October 2009 Notice, constructing
new transmission facilities requires a significant amount of capital.
Therefore, a threshold consideration for any company considering
investing in transmission is whether it will have a reasonable
opportunity to recover its costs. However, there are few rate
structures in place today that provide for the allocation and recovery
of costs for projects that are proposed to be located either within a
transmission planning region that is outside of an RTO or ISO, or in
more than one transmission planning region. The lack of such rate
structures creates significant risk for transmission project developers
that they will have no identified group of customers from which to
recover the cost of their investment.
    42. Therefore, the Commission proposes to reform transmission
planning and cost allocation processes as described in the following
sections of this Proposed Rule. Although focused on discrete aspects of
the transmission planning and cost allocation processes, these reforms
are integrally related and should be understood as a package. With
these related reforms, more transmission projects would be considered
in the transmission planning process on an equitable basis, and more
facilities that are included in transmission plans are likely to move
forward to construction.
    43. The Commission recognizes that many of the existing regional
transmission planning processes are comprised of both public utility
and non-public utility transmission providers. Consistent with the
approach taken in Order No. 890,\47\ the Commission expects all public
utility and non-public utility transmission providers to participate in
the regional transmission planning and cost allocation processes
proposed by this Proposed Rule. Reciprocity dictates that non-public
utility transmission providers that take advantage of open access,
including improved regional transmission planning and cost allocation,
should be subject to the same requirements as public utility
transmission providers. We are encouraged, based on the efforts that
followed Order No. 890, that both public utility and non-public utility
transmission providers collaborate in a number of regional transmission
planning processes. We therefore do not believe it is necessary at this
time to invoke our authority under FPA section 211A, which allows us to
require non-public utility transmission providers to provide
transmission services on a comparable and not unduly discriminatory or
preferential basis. However, if the Commission finds on the appropriate
record that non-public utility transmission providers are not
participating in the regional transmission planning and cost allocation
processes proposed in this Proposed Rule, the Commission may exercise
its authority under FPA section 211A on a case-by-case basis.
---------------------------------------------------------------------------

    \47\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 441.
---------------------------------------------------------------------------

IV. Proposed Reforms: Transmission Planning

    44. Transmission planning is a critical component of the provision
of transmission service in interstate commerce. Among other purposes,
transmission planning is the means by which the transmission needs of a
given area and the facilities that are best suited to meet those needs
are identified. Based on the comments received in response to the
October 2009 Notice and the other developments and considerations
discussed above, the Commission believes that further steps with
respect to transmission planning may be necessary to protect against
unjust and unreasonable rates, terms and conditions and undue
discrimination in the provision of Commission-jurisdictional services.

A. Participation in the Regional Planning Process

    45. In Order No. 890, the Commission adopted a regional
participation principle as a necessary component of a public utility
transmission provider's transmission planning process. To meet that
principle, the Commission required that each public utility
transmission provider coordinate with interconnected systems to: (1)
Share system plans to ensure that the plans are simultaneously feasible
and otherwise use consistent assumptions and data; and (2) identify
system enhancements that could relieve congestion or integrate new
resources.\48\ This requirement for coordination at the regional level
can be contrasted with the separate requirement in Order No. 890 that
each public utility transmission provider use an open and transparent
process to develop a transmission plan for its own control area.\49\ In
other words, by adopting the regional participation principle, the
Commission

did not require development of a comprehensive regional transmission
plan.
---------------------------------------------------------------------------

    \48\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 523.
    \49\ Id. P 494, 523.
---------------------------------------------------------------------------

    46. The Commission explained that in complying with the regional
participation principle, the specific features of a public utility
transmission provider's regional transmission planning process should
take account of and accommodate, where appropriate, existing
institutions, as well as historical practices and the physical
characteristics of the region.\50\ The Commission recognized that
regional transmission planning already occurs, for example, as part of
the NERC Regional Entity planning process.\51\ The Commission urged
public utility transmission providers to closely examine whether
improvements in these regional transmission planning processes could be
implemented to satisfy the requirements of Order No. 890 imposed on
individual transmission providers.\52\
---------------------------------------------------------------------------

    \50\ Id. P 524.
    \51\ Id. P 528.
    \52\ Id. P 526.
---------------------------------------------------------------------------

    47. The Commission also stated that to satisfy the regional
participation principle, an existing transmission planning process must
be open and inclusive and address both reliability and economic
considerations.\53\ The Commission required each public utility
transmission provider to participate in a transmission planning process
that facilitates regional participation and that is open to all
interested customers and stakeholders.\54\ However, the Commission did
not require each regional transmission planning process to comply with
each of the nine transmission planning principles established in Order
No. 890.\55\
---------------------------------------------------------------------------

    \53\ Id. P 528.
    \54\ Order No. 890-A, FERC Stats. & Regs. ] 31,261 at P 226.
    \55\ See, e.g., Entergy Services, Inc., 124 FERC ] 61,268, at P
104 (2008).
---------------------------------------------------------------------------

    48. On compliance with these Order No. 890 requirements, many
public utility transmission providers relied on existing regional
entities and transmission planning processes, modified as necessary, to
comply with the regional participation principle.\56\
---------------------------------------------------------------------------

    \56\ As we note above, the regional transmission planning
processes that public utility transmission providers in regions
outside of RTOs and ISOs have relied on to comply with certain
requirements of Order No. 890 are North Carolina Transmission
Planning Collaborative, Southeast Inter-Regional Participation
Process, SERC Reliability Corporation, ReliabilityFirst Corporation,
Mid-Continent Area Power Pool, Florida Reliability Coordination
Council, WestConnect, ColumbiaGrid, and Northern Tier Transmission
Group.
---------------------------------------------------------------------------

    49. Since the issuance of Order No. 890, it has become apparent to
the Commission that Order No. 890's regional participation principle
may not be sufficient, in and of itself, to ensure an open,
transparent, inclusive, and comprehensive regional transmission
planning process. Without such a process, each transmission provider
will not have information needed to assess proposed projects and
determine which project or group of projects could satisfy local and
regional needs more efficiently and cost-effectively. As a result, the
rates, terms and conditions of transmission services may not be just
and reasonable. For example, greater regional coordination in
transmission planning would expand opportunities for transmission
providers, their transmission customers, and other stakeholders to
identify and implement regional solutions to local and regional needs
that are more cost-effective than those proposed in the transmission
planning process of individual transmission providers. In addition,
more effective regional transmission planning could better facilitate
the integration of location-constrained renewable energy resources,
which may be needed to fulfill public policy requirements such as the
renewable portfolio standards adopted by many states.
    50. Given this concern, we propose to require that each public
utility transmission provider participate in a regional transmission
planning process that produces a regional transmission plan and that
meets the following transmission planning principles established in
Order No. 890: (1) Coordination; (2) openness; (3) transparency; (4)
information exchange; (5) comparability; (6) dispute resolution; and
(7) economic planning studies.\57\
---------------------------------------------------------------------------

    \57\ This proposal does not include the regional participation
principle and cost allocation for new projects principle of Order
No. 890 because we address interregional coordination in
transmission planning and cost allocation for transmission
facilities included in a regional transmission plan elsewhere in
this Proposed Rule.
---------------------------------------------------------------------------

    51. More specifically, we propose to require that each regional
transmission planning process consider and evaluate transmission
facilities and other non-transmission solutions that may be proposed
and develop a regional transmission plan that identifies the
transmission facilities that cost-effectively meet the needs of
transmission providers, their transmission customers, and other
stakeholders.\58\ When an individual transmission provider engages in
local transmission planning, it considers and evaluates transmission
facilities and non-transmission solutions that are proposed and then
develops a local transmission plan that identifies what transmission
facilities are needed to meet the needs of its native load (if any),
transmission customers, and other stakeholders. Likewise, the regional
transmission planning process would consider and evaluate transmission
facilities and non-transmission solutions that are proposed and develop
a regional transmission plan that identifies what transmission
facilities are needed to meet the needs of transmission customers and
other stakeholders in the region.\59\
---------------------------------------------------------------------------

    \58\ When evaluating potential solutions to identified needs,
transmission providers must evaluate proposals for transmission,
generation, and demand resources against one another based on
criteria set forth in their tariffs. See Order No. 890, FERC Stats.
& Regs. ] 31,241 at P 494-95; Order No. 890-A, FERC Stats. & Regs. ]
31,261 at P 216. The Commission also has recognized that in
appropriate circumstances alternative technologies may be eligible
for treatment as transmission for ratemaking purposes. Western Grid,
130 FERC ] 61,056 (2010).
    \59\ As noted in Order No. 890, the planning obligations
proposed here do not address or dictate which investments identified
in a transmission plan should be undertaken by transmission
providers. Order No. 890, FERC Stats. & Regs. ] 31,241 at P 438. As
also noted in Order No. 890, the ultimate responsibility for
transmission planning remains with transmission providers. With that
said, the Commission fully intends that the transmission planning
processes provide for the timely and meaningful input and
participation of customers into the development of transmission
plans. Id. P 454.
---------------------------------------------------------------------------

    52. In addition, because of the increased importance of regional
transmission planning that is designed to produce a regional
transmission plan, transmission customers and other stakeholders must
be provided with an opportunity to participate meaningfully in that
process. Therefore, we propose to apply the above-noted Order No. 890
transmission planning principles to the regional transmission planning
process, which would ensure that transmission customers and other
stakeholders can express their needs before a regional transmission
plan is finalized and thus help to identify solutions that more
efficiently address the region's needs. Similarly, ensuring access to
the models and data used in the regional transmission planning process
would allow transmission customers and other stakeholders to determine
if their needs are being addressed in a cost-effective manner. Greater
access to information and transparency would also help transmission
customers and other stakeholders to recognize and understand the
benefits that they will receive from a transmission facility that is
included in a regional transmission plan. This consideration is
particularly important in light of our proposal below to require that
each public utility transmission provider have a cost allocation method
for transmission

facilities included in its regional transmission plan that reflects the
benefits that those facilities provide.
    53. Although the explicit requirement for a public utility
transmission provider to participate in a regional transmission
planning process that complies with the Order No. 890 transmission
planning principles identified above would be new, we note that the
existing regional transmission planning processes that many utilities
relied upon to comply with the requirements of Order No. 890 may
require only modest changes to fully comply with these requirements.
    54. We seek comment on any issue of interest or concern related to
the requirements proposed in this section of the Proposed Rule.

B. Public Policy Driven Projects

    55. In Order No. 890, the Commission included an Economic Planning
Studies principle among the nine transmission planning principles. The
Commission stated that its primary objective in adopting that principle
was ``to ensure that the transmission planning process encompasses more
than reliability considerations.'' \60\ The Commission explained that
although planning to maintain reliability is a critical priority,
transmission planning also involves economic considerations.\61\
---------------------------------------------------------------------------

    \60\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 542.
    \61\ Id.
---------------------------------------------------------------------------

    56. More specifically, the Commission stated that when conducting
transmission planning to serve native load customers, a prudent
vertically integrated transmission provider will plan not only to
maintain reliability, but also consider whether transmission upgrades
or other investments can reduce the overall costs of serving native
load.\62\ The Commission identified this potential for undue
discrimination among a transmission provider's customers as a
justification to implement the Economic Planning Studies principle
requiring transmission providers to make available to their customers
services that are comparable to those they are performing on behalf of
their native loads.\63\
---------------------------------------------------------------------------

    \62\ The Commission further stated that such upgrades could, for
example, reduce congestion (redispatch) costs or integrate efficient
new resources (including demand resources) and new or growing loads.
Id.
    \63\ Order No. 890-A, FERC Stats. & Regs. ] 31,261 at P 240.
---------------------------------------------------------------------------

    57. The Economic Planning Studies principle requires that
stakeholders be given the right to request a defined number of high
priority studies annually through the transmission planning process. As
defined in Order No. 890, these high priority studies are intended to
identify solutions that could relieve transmission congestion or
integrate new resources and loads, including upgrades to integrate new
resources or loads on an aggregated or regional basis.\64\
---------------------------------------------------------------------------

    \64\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 547-48.
---------------------------------------------------------------------------

    58. In Order No. 890, the Commission also required each public
utility transmission provider to coordinate its transmission planning
activities with the relevant State and local regulatory authorities
that choose to participate in the transmission planning process and
stated its expectation that ``all transmission providers will respect
states' concerns.'' \65\ As such, State and local regulatory
authorities may fully participate in the existing Order No. 890
transmission planning process and identify, among other issues, public
policy requirements established by State or Federal laws or regulations
that they see as relevant to transmission needs. However, when choosing
whether to include a proposed transmission project in its local or
regional transmission plan, a public utility transmission provider has
no explicit obligation under Order No. 890 or the pro forma OATT to
evaluate the project based on its potential to facilitate the
achievement of public policy requirements established by State or
Federal laws or regulations.
---------------------------------------------------------------------------

    \65\ Id. P 574.
---------------------------------------------------------------------------

    59. The October 2009 Notice observed that some areas are struggling
with how to adequately address transmission expansion necessary to, for
example, integrate renewable generation resources into the transmission
system. The October 2009 Notice attributed these difficulties in part
to the fact that planning transmission facilities necessary to meet
State resource requirements, such as the renewable portfolio standard
measures discussed above, must be integrated with existing transmission
planning processes that are based on metrics or tariff provisions
focused on reliability or in some cases production cost savings.\66\
Drawing on these observations, the October 2009 Notice sought comment
as to whether reliability impact studies are properly aligned with
evaluations of economic-based projects or projects proposed to satisfy
renewable energy standards. To the extent that assessments of various
possible project benefits are not properly aligned, the October 2009
Notice sought comment as to how reliability assessments, economic
evaluations and assessments of a project's ability to meet public
policy goals could be aligned to better identify options that meet all
of these regional needs.\67\
---------------------------------------------------------------------------

    \66\ October 2009 Notice at 3.
    \67\ Id. at 4.
---------------------------------------------------------------------------

    60. The Commission received a number of comments on these issues,
expressing a range of opinions. Several commenters argue that the
existing transmission planning and stakeholder processes properly align
reliability impact studies with evaluations of other projects designed
to meet economic-based or public policy requirements.\68\ Other
commenters suggest that it would be inappropriate for the Commission to
require that renewable energy standards be incorporated into the
transmission planning process.\69\ For example, Public Power Council
contends that the Commission lacks jurisdiction to require that the
resources necessary to comply with State renewable energy standards are
accounted for in the transmission planning process, as such standards
are State-level policies.\70\
---------------------------------------------------------------------------

    \68\ E.g., Dominion, Entergy, Large Public Power Council,
Midwest ISO, New York PSC, Northern Tier Transmission Group,
Southern Companies, WestConnect Planning Parties, and WECC. In
addition, PSEG Companies state that while it is true that
reliability impact studies are performed independently of economic
planning, such a distinction is appropriate because ensuring
reliability is the primary objective of the planning process.
    \69\ E.g., Massachusetts Departments and Public Power Council.
    \70\ Massachusetts Departments share a similar concern.
---------------------------------------------------------------------------

    61. In addition, several commenters recommend that the Commission
incorporate public policy objectives into the transmission planning
process.\71\ For example, PJM argues that ``additional guidance from
the Commission is needed if public policy imperatives such as
aggressive integration of renewable resources are to be met.'' \72\ PJM
states that while ensuring system reliability should remain the primary
goal of the transmission planning process, providing for incorporation
of public policy objectives, where applicable, could facilitate cost-
effective achievement of those objectives. In particular, PJM suggests
that the Commission move beyond a strict application of ``bright line''
criteria currently used for reliability and economic projects and allow
transmission providers more flexibility

to take into account the multiple reliability, economic, or public
policy-based benefits a single project may be able to provide.\73\
---------------------------------------------------------------------------

    \71\ E.g., AWEA, Baltimore Gas and Electric, Public Interest
Organizations & Renewable Energy Groups, Exelon, Eastern PJM
Governors, ITC Holdings, LS Power, National Grid, NextEra, Old
Dominion, PJM, Renewable Energy Systems Americas, Trans-Elect, and
The Brattle Group.
    \72\ PJM Order No. 890 Technical Conference Comments, op. cit.
at 6.
    \73\ Citing, PJM Interconnection, L.L.C., 119 FERC ] 61,265
(2007) (directing PJM to adopt a formulaic approach to applying
metrics used to choose economic projects).
---------------------------------------------------------------------------

    62. Other commenters propose various approaches to incorporating
public policy objectives into the transmission planning process. Some
of these commenters argue that if the goal of the transmission planning
process is to allow load-serving entities to satisfy their resource
needs, such needs could include resources required to comply with State
and Federal public policy objectives.\74\ Still other commenters
recommend that the Commission provide flexibility in the transmission
planning process so that each region can determine which resources it
will use to fulfill any applicable public policy objectives.\75\
---------------------------------------------------------------------------

    \74\ E.g., APPA and Bay Area Municipal Transmission Group.
    \75\ E.g., Consolidated Edison, et al.
---------------------------------------------------------------------------

    63. To ensure that each public utility transmission provider's
transmission planning process supports rates, terms, and conditions of
transmission service in interstate commerce that are just and
reasonable and not unduly discriminatory or preferential, the
Commission preliminarily finds that transmission needs driven by public
policy requirements established by State or Federal laws or regulations
should be taken into account in the transmission planning process.
Indeed, consideration of such public policy requirements raises issues
similar to those raised in the Commission's discussion in Order No. 890
of the Economic Planning Studies principle.\76\ When conducting
transmission planning to serve native load customers, a prudent
transmission provider will not only plan to maintain reliability and
consider whether transmission upgrades or other investments can reduce
the overall costs of serving native load, but also consider how to
enable compliance with relevant public policy requirements established
by State or Federal laws or regulations in a cost-effective manner.
Therefore, we propose to find that, to avoid acting in an unduly
discriminatory manner, a public utility transmission provider must
consider these same needs on behalf of all of its customers. In
addition, providing for incorporation of public policy requirements
established by State or Federal laws or regulations in transmission
planning processes, where applicable, could facilitate cost-effective
achievement of those requirements.
---------------------------------------------------------------------------

    \76\ In Order No. 890, the Commission intended the economic
planning studies principle to be sufficiently broad to identify
solutions that could relieve transmission congestion or integrate
new resources and loads, including upgrades to integrate new
resources and loads on an aggregated or regional basis. The
Commission recognizes that its statements with respect to the
economic planning studies principle may have contributed to
confusion as to whether public policy requirements may be considered
in the transmission planning process.
---------------------------------------------------------------------------

    64. To address these issues, we propose to revise the requirements
established in Order No. 890 with respect to local and regional
transmission planning processes.\77\ Specifically, we propose to
require each public utility transmission provider to amend its OATT
such that its local and regional transmission planning processes
explicitly provide for consideration of public policy requirements
established by State or Federal laws or regulations that may drive
transmission needs. After consulting with stakeholders, a public
utility transmission provider may include in the transmission planning
process additional public policy objectives not specifically required
by State or Federal laws or regulations. This proposed requirement
would be a supplement to, and would not replace, any existing
requirements with respect to consideration of reliability needs and
application of the economic studies principle in the transmission
planning process.
---------------------------------------------------------------------------

    \77\ By ``local'' transmission planning process, we mean the
transmission planning process that a pubic utility transmission
provider performs for its individual service territory or footprint
pursuant to the requirements of Order No. 890.
---------------------------------------------------------------------------

    65. The Commission does not propose to identify the public policy
requirements established by State or Federal laws or regulations that
must be considered in individual local and regional transmission
planning processes. Instead, we propose to require each public utility
transmission provider to coordinate with its customers and other
stakeholders to identify public policy requirements established by
State or Federal laws or regulations that are appropriate to include in
its local and regional transmission planning processes.
    66. We propose to require each public utility transmission provider
to specify in its OATT the procedures and mechanisms in its local and
regional transmission planning processes for evaluating transmission
projects proposed to achieve public policy requirements established by
State or Federal laws or regulations. If a public utility transmission
provider believes that its existing transmission planning processes
satisfy these requirements, then it must make that demonstration in its
compliance filing.
    67. This proposed requirement is intended to clarify the objectives
that would be considered in local and regional transmission planning
processes. As we stated in Order No. 890, we believe that the
transparency provided under open transmission planning processes can
provide useful information that would help states to coordinate
transmission and generation siting decisions, allow consideration of
regional resource adequacy requirements, facilitate consideration of
demand response and load management programs at the State level, and
address other factors states wish to consider.
    68. Another benefit of this proposed requirement to consider public
policy requirements established by State or Federal laws or regulations
within the transmission planning process is that adherence with this
proposed requirement may eventually increase the proportion of
transmission network investment that is constructed pursuant to
proactive transmission planning processes, thereby reducing the
proportion of network upgrades that would otherwise be triggered by
individual generator interconnection requests, which can be time
consuming and inefficient. If more of the transmission network were
expanded under the type of regional transmission planning process
described above, then the network upgrades triggered by interconnection
requests should be less significant in size and cost than they have
been in the past and the associated differences in cost allocation
provisions may become less significant as well.
    69. This proposed requirement is not intended in any way to
infringe upon State authority with respect to integrated resource
planning.\78\ In addition, to the extent that a public utility
transmission provider has an obligation to comply with public policy
requirements established by State or Federal laws or regulations, such
as the State renewable portfolio standard measures discussed above,
this proposed requirement is not intended to convert a failure to
satisfy that obligation into a violation of its OATT. In other words,
while a public utility transmission provider would be required to
identify and consider public policy requirements established by State
or Federal laws or regulations in its local and regional transmission
planning processes, this proposed requirement would not establish an

independent obligation to satisfy those requirements.
---------------------------------------------------------------------------

    \78\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 479,
n.274.
---------------------------------------------------------------------------

    70. We seek comment on any issue of interest or concern related to
the requirements proposed in this section of the Proposed Rule. In
particular, we seek comment as to whether public policy requirements
established by State or Federal laws or regulations should be
considered in the transmission planning process. Further, we seek
comment on how planning criteria based on public policy requirements
should be formulated, including whether it is more appropriate to use
flexible criteria instead of ``bright line'' metrics when determining
which projects are to be included in the regional transmission plan,
whether the use of flexible criteria would provide undue discretion as
to whether a project is included in a regional transmission plan, and
whether the use of ``bright line'' metrics may inappropriately result
in alternating inclusion and exclusion of a single project over
successive planning cycles and therefore create inappropriate
disruptions in long-term transmission planning.

C. Opportunities for Undue Discrimination Against Nonincumbent
Transmission Developers

1. Nonincumbent Transmission Developer Participation in the
Transmission Planning Process
    71. As discussed above, Order No. 890 sought to reduce
opportunities for undue discrimination and preference in the provision
of transmission service. With regard to the transmission planning
process, the Commission established nine transmission planning
principles to prevent undue discrimination. However, Order No. 890 did
not specifically address the potential for undue preference to
incumbent utilities over nonincumbent transmission developers through
practices applied within transmission planning processes.
    72. The October 2009 Notice observed that in some areas, when a
nonincumbent transmission developer participates in the transmission
planning process, it may lose the opportunity to construct its proposed
project to the incumbent transmission owner if that owner has a right
of first refusal to construct any transmission facility in its service
territory. The October 2009 Notice also observed that in some areas,
merchant transmission developers choose to plan proposed facilities
outside of the transmission providers' planning processes.\79\
---------------------------------------------------------------------------

    \79\ October 2009 Notice at 3.
---------------------------------------------------------------------------

    73. The October 2009 Notice posed several questions relating to
merchant and independent transmission developers' participation in the
regional transmission planning process. The October 2009 Notice sought
comment on how projects proposed by merchant or independent
transmission developers should be treated in the regional transmission
planning process. The October 2009 Notice also asked whether these
types of developers should be required to participate in the regional
transmission planning process and, if so, at what point they should be
required to engage in that process. In addition, the October 2009
Notice asked whether the right of first refusal for incumbent
transmission owners unreasonably impedes the development of merchant
and independent transmission and, if so, how that impediment could be
addressed. Finally, the October 2009 Notice asked whether there are
barriers to merchant and independent transmission developers'
participation in the regional transmission planning process other than
rights of first refusal.\80\
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    \80\  Id. at 4.
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    74. These questions generated extensive comments. For example, many
commenters argue that a project proposed by a merchant or independent
transmission developer should be treated on the same basis as all other
proposed projects.\81\ Also, a number of commenters assert that
merchant and independent developers should be required to participate
in the transmission planning process.\82\ For example, Southern
Companies asserts that it would be discriminatory if the Commission did
not require merchant and independent developers to participate in the
transmission planning process, as jurisdictional and non-jurisdictional
transmission providers are required to do.
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    \81\ E.g., Allegheny Companies, AEP, CAlifornians for Renewable
Energy, Delaware Municipal and Southwestern Electric, E.ON Climate &
Renewables North America, Great River Energy, Sun Flower and Mid-
Kansas, National Nuclear Security Administration Service Center,
Organization of MISO States, and Transmission Agency of Northern
California.
    \82\ E.g., APPA, CAlifornians for Renewable Energy, Delaware
Municipal and Southwestern Electric, Dominion, Exelon, Integrys, Old
Dominion, Sun Flower and Mid-Kansas, Large Public Power Council,
Midwest ISO, National Nuclear Security Administration Service
Center, National Rural Electric Coops, New England States' Committee
on Electricity, New York PSC, Organization of MISO States, Pacific
Gas and Electric, Ohio Commission, SPP, San Diego Gas & Electric,
South Carolina Electric & Gas, Transmission Access Policy Study
Group, Transmission Agency of Northern California, Transmission
Dependent Utility Systems, and Xcel.
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    75. Other commenters state that merchant and independent developers
should not be treated similarly or required to participate in the
transmission planning process. For example, Chinook and Zephyr and ITC
Holdings state that because the business model of merchant and
independent transmission developers is different from that of
vertically-integrated utilities, different transmission planning
requirements are appropriate for them. Chinook and Zephyr also argue
that regional transmission planning requirements should apply to a
merchant developer only after it is operating under a Commission-
approved OATT. Dayton Power and Light contends that while any
transmission facility that is necessary to meet NERC reliability
criteria, regardless of ownership, should be required to be included in
the transmission planning process, merchant and independent projects
planned for nonreliability reasons can be developed independently of
the transmission planning process, subject to appropriate
interconnection requirements.
    76. Other commenters emphasize the importance of allowing merchant
and independent developers to participate actively in the transmission
planning process.\83\ Generally, these commenters argue that merchant
and independent transmission developers should either participate in
the transmission planning process as early as practical, at the
beginning of the transmission planning cycle, or as soon as they have a
proposal that is developed well enough to be considered. Pattern
Transmission also suggests that the Commission should better define the
transmission planning process and the roles of its participants to
ensure a level playing field for independent transmission developers.
---------------------------------------------------------------------------

    \83\ E.g., Green Energy Express, ITC Holdings, Pattern
Transmission, and Starwood.
---------------------------------------------------------------------------

    77. The questions about whether an incumbent transmission owner's
right of first refusal unreasonably impedes merchant or independent
transmission development and, if so, how this impediment could be
addressed, also generated extensive comments. Many commenters state
that a right of first refusal does not unreasonably impede merchant and
independent transmission development.\84\ Various commenters

present a range of reasons that it is appropriate for an incumbent
transmission provider to have a right of first refusal, including that
the incumbent transmission owner: (1) Has a legally enforceable
obligation to maintain reliability on its systems and faces penalties
for noncompliance; (2) is obligated under State law to provide reliable
service at the lowest reasonable cost; (3) may be required to build
facilities included in an RTO's or ISO's regional plan, an obligation
that merchant and independent transmission developers lack; (4) is best
situated to develop transmission facilities within its service
territory, as it is most familiar with the design and operation of its
system, its customers' needs, and State and local permitting and siting
processes; and (5) may be able to provide transmission services at a
lower cost than a merchant or independent transmission developer
because it enjoys economies of scale with respect to the staff and
resources necessary to maintain and operate new transmission
facilities.
---------------------------------------------------------------------------

    \84\ E.g., Allegheny Companies, AEP, Ameren, Baltimore Gas and
Electric, Dominion, EEI, Great River Energy, Integrys, et al., Sun
Flower and Mid-Kansas, Large Public Power Council, MidAmerican,
Midwest ISO Transmission Owners, National Grid, Northern Tier
Transmission Group, Old Dominion, PPL, PSEG Companies, Ohio
Commission, San Diego Gas & Electric, Southern California Edison,
Southern Companies, WestConnect Planning Parties, and Xcel. However,
Old Dominion suggests that the Commission could eliminate the right
of first refusal if merchant and independent transmission developers
were subject to the same rules and had the same responsibilities as
incumbent transmission owners, and could recover their costs through
the RTO/ISO tariff.
---------------------------------------------------------------------------

    78. Some commenters contend that the right of first refusal should
be preserved because an incumbent transmission owner that voluntarily
joined an RTO or ISO did so with the understanding that it would retain
the right to invest in and earn a return on new facilities within its
system.\85\ According to Midwest ISO Transmission Owners, eliminating a
right of first refusal could provide a disincentive for RTO membership.
Similarly, the California ISO asserts that without a right of first
refusal, a transmission owner may have less incentive to participate in
an RTO or ISO.
---------------------------------------------------------------------------

    \85\ E.g., Ameren, MidAmerican, and Midwest ISO Transmission
Owners.
---------------------------------------------------------------------------

    79. However, other commenters argue that a right of first refusal
impedes transmission development and provides an undue advantage to an
incumbent transmission owner.\86\ Such commenters present a number of
reasons for eliminating a right of first refusal, including the
following: (1) A right of first refusal provides a disincentive for a
merchant or independent developer to propose a project, especially a
proposal for a transmission facility that spans multiple utilities'
service territories, because any investment that it makes in developing
a proposal may be lost if an incumbent transmission owner can exercise
its right of first refusal or otherwise delay the project or prevent
construction of the project; (2) by discouraging competition and new
entry, a right of first refusal likely increases costs to ratepayers;
and (3) a merchant or independent transmission developer may have
difficulty obtaining financing if investors perceive that its proposed
project could be subject to a right of first refusal or is otherwise at
a disadvantage compared to a project sponsored by an incumbent
transmission owner.
---------------------------------------------------------------------------

    \86\ E.g., American Forest and Paper, AWEA, CAlifornians for
Renewable Energy, EPSA, Indicated Partners, Modesto Irrigation
District, NationalWind, NextEra, Renewable Energy Systems Americas,
Startrans, Starwood, Transmission Access Policy Study Group,
Transmission Agency of Northern California, and Transmission
Dependent Utility Systems.
---------------------------------------------------------------------------

    80. Among other comments on this issue, Startrans claims that for
an incumbent transmission owner, a Commission-approved right of first
refusal effectively creates a Federal franchise for transmission
development derived from a State franchise for retail electricity.
Transmission Agency of Northern California contends that a right of
first refusal also may ``diminish the incentive for the incumbent
utilities to conceive projects in their own service territory.'' \87\
---------------------------------------------------------------------------

    \87\ Transmission Agency of Northern California at 3.
---------------------------------------------------------------------------

    81. Responding to arguments in favor of a right of first refusal,
some commenters argue that concerns about the reliability of a merchant
or independent transmission developer's project are unfounded, as the
merchant or independent transmission developer will be subject to NERC
reliability standards and to the same penalties for noncompliance as an
incumbent transmission owner.\88\ Pattern Transmission states that a
merchant or independent developer has a financial incentive to
construct and operate facilities safely and reliably in accordance with
all applicable regulatory and industry standards, as its investment is
at risk if it does otherwise. With regard to an incumbent transmission
owner's obligation to build, some commenters assert that it is not a
burden, but rather a privilege, as the incumbent transmission owner is
assured the opportunity to recover its costs and earn a return on its
investment through the rate base. These commenters argue that a
merchant or independent developer would be willing to compete for such
an obligation.\89\ In response to concerns that a merchant or
independent developer would submit an inaccurately low bid to construct
a proposed transmission facility, some commenters claim that such a
developer is no more likely to do so than an incumbent transmission
owner.\90\ These same commenters argue that, contrary to what some
commenters assert, an incumbent transmission owner will not leave an
RTO or ISO if the right of first refusal is eliminated.
---------------------------------------------------------------------------

    \88\ E.g., Green Energy Express and Pattern Transmission.
    \89\ E.g., Indicated Partners and Startrans.
    \90\ E.g., Indicated Partners.
---------------------------------------------------------------------------

    82. While some commenters advocate elimination of all rights of
first refusal, other commenters support more limited restrictions. For
example, Exelon states that ``where an independent developer bids on
transmission expansion that is justified under existing planning
criteria and will be included in rate base, the incumbent transmission
owner should be required to match the bid to invoke its right of first
refusal.'' \91\ Several commenters argue that a right of first refusal
should be allowed for reliability-based projects, but may not be
necessary for economic-based or other projects.\92\ While AWEA and LS
Power both maintain that the right of first refusal should be
eliminated, they contend that if the right of first refusal is
preserved then those practices should apply only to local reliability
projects. Moreover, AWEA asserts that a right of first refusal should
be required to be exercised within ninety days. Similarly, ITC Holdings
contends that a right of first refusal will continue to impede
transmission development if the time for exercising it is allowed to
continue indefinitely, and Pacific Gas and Electric argues that any
right of first refusal should be exercised in a timely manner.
Transmission Access Policy Study Group, however, states that the
Commission may need to take other steps in addressing this issue in
addition to limiting the time in which a right of first refusal may be
exercised. In addition, several commenters contend that placing
restrictions on a right of first refusal makes the practice no less
discriminatory.\93\
---------------------------------------------------------------------------

    \91\ Exelon at 12.
    \92\ E.g., Allegheny Companies, Dominion, Large Public Power
Council, and SPP.
    \93\ E.g., Indicated Partners.
---------------------------------------------------------------------------

    83. EEI argues that while ``in general, applicability of a right of
first refusal does not create an impediment to transmission planning or
development'' and that in many cases, ``incumbent transmission owners
are better situated to build needed transmission within their
franchised service territories,'' if

the Commission finds it necessary to address the exercise of a right of
first refusal, it should do so on a case-specific basis.\94\ Similarly,
the California ISO recommends that the Commission allow the right of
first refusal to be addressed through individual RTO and ISO
stakeholder processes, rather than adopting generic right of first
refusal regulations. Pacific Gas and Electric states that this
proceeding should not preempt the California ISO's development of a
right of first refusal proposal. In contrast, SPP states that
additional clarification and a generally applicable policy regarding
the right of first refusal is necessary. The Organization of MISO
States argues that, while a right of first refusal may limit
competition, any modifications must recognize various State regulatory
structures and respect State jurisdiction and statutes. The Alabama PSC
argues that the Commission should adopt policies that encourage
merchant transmission development only if the State commissions in a
region support such policies.
---------------------------------------------------------------------------

    \94\ EEI at 9-10.
---------------------------------------------------------------------------

    84. In response to the question in the October 2009 Notice
regarding barriers to merchant and independent transmission developers'
participation in the regional transmission planning process other than
a right of first refusal, several commenters state that there are none
or that they are unaware of any.\95\ However, Pattern Transmission
suggests that the uncertainty of recovering the costs associated with
participation in the transmission planning process can be a barrier to
participation by merchant and independent transmission developers,
particularly if the planning process is inefficient and deadlines are
not met. Pattern Transmission also asserts that an incumbent
transmission owner has an advantage in developing proposals as it has
priority access to data. Green Energy Express states that the
Commission should ensure ``a level playing field with regard to the
flow of information, the determination of need, and related
interactions between an RTO or ISO or other transmission planning
region, incumbent transmission owners and developers, and independent,
nonincumbent developers.'' \96\
---------------------------------------------------------------------------

    \95\ E.g., Allegheny Companies, CAlifornians for Renewable
Energy, Integrys, et al., Maine PUC and Public Advocate, New York
PSC, and Xcel.
    \96\ Green Energy Express at 10.
---------------------------------------------------------------------------

    85. LS Power states that there are several additional barriers to
third party developers' participation in regional transmission planning
processes, some of which are unique to certain markets. For example, LS
Power states that there are regions in which an independent developer
cannot become a transmission owner until it has completed a project and
owns the resulting transmission facility. Additionally, LS Power states
that it is difficult to develop a project in a region where the load-
serving entity is also a transmission owner, as the incumbent utility
is often responsible for both generation and transmission planning and
resource procurement and may have an incentive to expand its rate base
by investing in transmission infrastructure rather than support
independent transmission development.
    86. Northern Tier Transmission Group suggests that some merchant
transmission developers self-impose a barrier to successful
participation in the transmission planning process in that they do not
submit comparable planning data. As such, Northern Tier Transmission
Group is unable to include their projects in its analytical studies.
2. Proposed Reforms Regarding Nonincumbents
    87. Based on the comments submitted in response to the October 2009
Notice, there appear to be opportunities for undue discrimination and
preferential treatment against nonincumbent transmission developers
within existing regional transmission planning processes. Where an
incumbent transmission provider has a right of first refusal, a
nonincumbent transmission developer risks losing its investment in
developing a proposal for submittal to the regional transmission
planning process, even if that proposal is selected for inclusion in
the regional transmission plan. We are concerned that it may be unduly
discriminatory or preferential to deny a nonincumbent transmission
developer that sponsors a project that is included in a regional
transmission plan the rights of an incumbent transmission provider that
are created by a transmission provider's OATT or agreements subject to
the Commission jurisdiction.
    88. In addition, under these circumstances, nonincumbent
transmission developers may be less likely to participate in the
regional transmission planning process. If the regional transmission
planning process does not consider and evaluate projects proposed by
nonincumbents, it cannot meet the principle of being ``open.''
Moreover, such a planning process may not result in a cost-effective
solution to regional transmission needs and projects that are included
in a transmission plan therefore may be developed at a higher cost than
necessary. The result may be that regional transmission services may be
provided at rates, terms and conditions that are not just and
reasonable.
    89. To address these issues, we propose a framework that reflects
the following reforms, including the elimination from a transmission
provider's OATT or agreements subject to the Commission's jurisdiction
of provisions that establish a Federal right of first refusal for an
incumbent transmission provider with respect to facilities that are
included in a regional transmission plan. Neither incumbent nor
nonincumbent transmission facility developers should, as a result of a
Commission-approved OATT or agreement, receive different treatment in a
regional transmission planning process. Further, both should share
similar benefits and obligations commensurate with that participation,
including the right, consistent with State or local laws or
regulations, to construct and own a facility that it sponsors in a
regional transmission planning process and that is selected for
inclusion in the regional transmission plan. The Commission proposes
that the tariff changes to implement these proposed reforms would be
developed through an open and transparent process involving the public
utility transmission provider, its customers, and other stakeholders.
    90. First, we propose to require that each public utility
transmission provider must revise its OATT to demonstrate that the
regional transmission planning process in which it participates has
established appropriate qualification criteria for determining an
entity's eligibility to propose a project in the regional transmission
planning process, whether that entity is an incumbent transmission
owner or a nonincumbent transmission developer. These criteria must be
included in the public utility transmission provider's OATT and must
not be unduly discriminatory or preferential. However, it would not be
unduly discriminatory or preferential to have appropriate qualification
criteria for all potential transmission owners. Such criteria should be
designed to demonstrate that each potential transmission owner has the
necessary financial and technical expertise to develop, construct, own,
operate, and maintain transmission facilities.\97\ Any such criteria
must be approved by the Commission. Although we do not

propose here to establish a single set of qualification criteria that
would apply in all regional transmission planning processes, we seek
comment on whether we should do so and if so, what these criteria
should be. Instead, we propose that each public utility transmission
provider, in cooperation with customers and other stakeholders in its
transmission planning region, must participate in a regional
transmission planning process that develops qualification criteria that
satisfy the requirements of this Proposed Rule.
---------------------------------------------------------------------------

    \97\ Nothing would preclude the incumbent transmission owner
from agreeing to operate and maintain the facilities. Additionally,
nothing in this Proposed Rule is intended to change existing RTO and
ISO operational procedures and practices.
---------------------------------------------------------------------------

    91. Second, we propose to require that each public utility
transmission provider must revise its OATT to include a form by which a
prospective project sponsor would provide information in sufficient
detail to allow the proposed project to be evaluated in the regional
transmission planning process.\98\ In connection with the other aspects
of the framework discussed in this section, we also propose to require
that all proposals to be considered in a given transmission planning
cycle must be submitted by a single, specified date, to minimize the
opportunity for other entities to propose slight modifications to
already submitted projects.
---------------------------------------------------------------------------

    \98\ The information about its proposed project that a sponsor
provides also should include, as relevant, engineering studies, cost
analyses, and any other detailed reports completed by the project
sponsor as needed to facilitate evaluation of the project in the
regional transmission planning process.
---------------------------------------------------------------------------

    92. Third, we propose to require that each public utility
transmission provider participate in a regional transmission planning
process that evaluates the proposals submitted to the regional planning
process through a transparent and not unduly discriminatory or
preferential process. Each public utility transmission provider would
be required to describe in its OATT the process used for evaluating
whether to include a proposed transmission facility in the regional
transmission plan.\99\
---------------------------------------------------------------------------

    \99\ The description would need to provide sufficient detail so
that an entity that proposed a project could determine why the
project was included or not included in the regional transmission
plan. In addition to addressing concerns about undue discrimination
or preference, the description would facilitate understanding of the
relative weight placed on various benefits associated with competing
proposals (e.g., one proposal might address only a reliability-
driven transmission need, while another proposal might also provide
greater benefits in terms of congestion relief or advancement of
public policy requirement established by State or Federal laws or
regulations that a transmission planning region has identified).
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    93. Fourth, with respect to facilities that are included in a
regional transmission plan, we propose to require removal from a
transmission provider's OATT or agreements subject to the Commission's
jurisdiction provisions that establish a Federal right of first refusal
for an incumbent transmission provider.\100\ We also propose to require
each public utility transmission provider to amend its OATT to describe
how the regional transmission planning process in which it participates
provides for the sponsor (whether an incumbent transmission provider or
a nonincumbent transmission developer) of a facility that is selected
through the regional transmission planning process for inclusion in the
regional transmission plan to have a right, consistent with State or
local laws or regulations, to construct and own that facility.
---------------------------------------------------------------------------

    \100\ If a Commission-approved tariff or agreement contains a
reference to a right provided under state or local laws or
regulations, such a provision would not be subject to this
requirement.
---------------------------------------------------------------------------

    94. Moreover, because a regional transmission planning process may
result in modifications to proposed projects in order to better meet
the needs of the region, the public utility transmission provider must
ensure that its regional transmission planning process has a mechanism
to determine which proposal the modified project is most similar to,
with the sponsor of the most similar project having the right,
consistent with State or local laws or regulations to construct and own
the facilities.
    95. Fifth, we propose to require that if a proposed project is not
included in a regional transmission plan and if the project's sponsor
resubmits that proposed project in a future transmission planning
cycle, that sponsor would have the right to develop that project under
the foregoing rules even if one or more substantially similar projects
are proposed by others in the future transmission planning cycle. The
OATT must state that this priority to develop the proposed facility
continues for a defined period of time (e.g., for resubmission annually
in subsequent transmission planning cycles over a 5-year period).
    96. Sixth, we propose to require that, if an incumbent transmission
project developer may recover the cost of a transmission facility for a
selected project through a regional cost allocation method, a
nonincumbent transmission project developer must enjoy that same
eligibility. More specifically, each public utility transmission
provider must participate in a regional planning process that provides
that, when a project proposed by a nonincumbent transmission developer
is included in a regional transmission plan, that developer must have
an opportunity comparable to that of an incumbent transmission owner to
recover the costs associated with developing the project and
constructing the transmission facility. Costs associated with a project
that is not included in the regional transmission plan, whether
proposed by an incumbent or by a nonincumbent transmission provider,
may not be recovered through a transmission planning region's cost
allocation process.
    97. We emphasize that these proposed reforms would apply only to
facilities that are evaluated in a regional transmission planning
process and selected for inclusion in a regional transmission plan. We
do not propose to modify any existing obligation for an incumbent
transmission owner to build unsponsored projects that are identified as
necessary in a regional transmission plan.\101\ In addition, where an
incumbent transmission owner has the right to build, own, and recover
costs for upgrades to its own existing transmission facilities (e.g.,
tower change out and reconductoring), such right would not be affected
by the reforms proposed here.
---------------------------------------------------------------------------

    \101\ For example, in some RTO and ISO regions, transmission
owners have obligations to build certain transmission facilities
identified by the RTO or ISO. As new transmission owners, including
nonincumbent transmission owners, join the RTO or ISO, they will
incur the obligations accompanying that status in the RTO or ISO's
tariff and other governing documents. We note that provisions
imposing such obligations may need to be modified to reflect how
they will apply to nonincumbent transmission project developers. We
also note that before turning to a transmission owner with such an
obligation, the RTO or ISO could conduct a competitive bidding
process to assign construction rights for an unsponsored project in
its regional transmission plan.
---------------------------------------------------------------------------

    98. We also emphasize that these proposed reforms would affect only
a right of first refusal established in a transmission provider's OATT
or agreements subject to the Commission's jurisdiction. This Proposed
Rule does not address, propose to change, or seek to preempt any State
or local laws or regulations.
    99. Finally, we do not propose here to require a transmission
developer that does not seek to use the regional cost allocation
process to participate in the regional transmission planning process,
as some commenters recommend. For example, because a merchant
transmission developer assumes all financial risk for developing its
project and constructing the proposed facilities, it is unnecessary to
require such a developer to participate in a regional transmission
planning process for purposes of identifying the beneficiaries of its
project or securing eligibility to use a regional cost allocation
method. A

developer that does not seek to use the regional cost allocation
process nevertheless would be required to comply with all reliability
requirements applicable to facilities in the transmission planning
region in which its project would be located. In addition, such a
developer is not prohibited from participating--and, indeed, is
encouraged to participate--in the regional transmission planning
process.
    100. As discussed above, in response to the October 2009 Notice,
many commenters link the right of first refusal for an incumbent
utility to its obligation to construct new facilities if called upon to
do so. While the Commission acknowledges these comments, we
preliminarily find that these two practices are not, and should not be,
linked within regional transmission planning processes. That is, while
a public utility transmission owner may have accepted an obligation to
build in relation to its membership in an RTO or ISO, this obligation
is not directly dependent on that transmission provider having a
corresponding right of first refusal with regard to a proposal to
construct and own a new transmission facility located in that region.
What is important from the Commission's perspective is that the
documents approved by the Commission must not be unduly discriminatory.
The Commission preliminarily finds that neither incumbent nor
nonincumbent transmission facility developers should, as a result of a
Commission approved OATT or agreement, receive different treatment in
the transmission planning and selection process, and both should share
similar benefits and obligations commensurate with that participation.
    101. We seek comment on how the reforms proposed in this section of
the Proposed Rule would affect the rights, obligations, and
responsibilities of incumbent and nonincumbent transmission providers.
In particular, we seek comment on the relationship or lack of
relationship between a right of first refusal and an obligation to
build. We also seek comment on whether it would be appropriate to
retain a Federal right of first refusal in an OATT or other documents
subject to the Commission's jurisdiction. If not, why not? If so, would
it be appropriate to retain an obligation to build for an incumbent
transmission provider while removing a Federal right of first refusal
for that incumbent?

D. Interregional Coordination

1. The Need for Interregional Planning Reforms
    102. As discussed above, the transmission planning principles
established in Order Nos. 890 and 890-A establish a framework for
transmission planning at the local and regional levels. In Order No.
890-A, the Commission emphasized that effective regional planning
should include coordination among regions. Further, the Commission
stated that regions and subregions should coordinate as necessary to
share data, information and assumptions to maintain reliability and
allow customers to consider the resource options that span the
regions.\102\ In several of the Order No. 890 compliance orders, the
Commission requested more detailed information regarding compliance
with this aspect of the regional participation principle.\103\
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    \102\ Order No. 890-A, FERC Stats. & Regs. ] 31,261 at P 226.
    \103\ See, e.g., Southern Co. Servs., Inc.; 124 FERC ] 61,265,
at P 70 (2008); United States Department of Energy--Bonneville Power
Administration, 124 FERC ] 61,054, at P 65 (2008); Southwest Power
Pool, Inc., 124 FERC ] 61,028, at P 49 (2008).
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    103. Within that Order No. 890 and 890-A framework, transmission
providers in certain parts of the country have organized subregional
transmission planning groups for the purpose of collectively developing
plans for upgrades on their combined transmission systems. These
subregional transmission plans are then analyzed at a regional level to
ensure that, if implemented, they will be simultaneously feasible and
meet reliability requirements.\104\ Additionally, some neighboring
transmission providers have undertaken joint transmission planning
pursuant to bilateral agreements.\105\ However, as observed in the
October 2009 Notice, there are few processes in place to analyze
whether alternative interregional solutions would more efficiently or
effectively meet the needs identified in individual regional
transmission plans.\106\
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    \104\ Such analysis is consistent with one aspect of the
Regional Participation transmission planning principle that the
Commission established in Order No. 890. On that issue, the
Commission stated: ``[I]n addition to preparing a system plan for
its own control area on an open and nondiscriminatory basis, each
transmission provider will be required to coordinate with
interconnected systems to: (1) Share system plans to ensure that
they are simultaneously feasible and otherwise use consistent
assumptions and data, and (2) identify system enhancements that
could relieve congestion of integrate new resources * * *'' Order
No. 890, FERC Stats. & Regs. ] 31,241 at P 523.
    \105\ See, e.g., Joint Operating Agreement Between the Midwest
Independent Transmission System Operator, Inc. and PJM
Interconnection, L.L.C. (Midwest Independent Transmission System
Operator, Inc., Second Revised Rate Schedule FERC No. 5; PJM
Interconnection, L.L.C. Second Revised Rate Schedule FERC No. 38).
    \106\ October 2009 Notice at 2.
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    104. The October 2009 Notice posed several questions related to
this issue, including whether existing transmission planning processes
are adequate to identify and evaluate potential solutions to needs
affecting the systems of multiple transmission providers. The October
2009 Notice also sought comment as to what processes should govern the
identification and selection of projects that affect multiple
systems.\107\
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    \107\ Id. at 3.
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    105. In response to the October 2009 Notice, some commenters state
that the need for supplemental interregional transmission planning
processes cannot be evaluated until stakeholders gain more experience
with the regional transmission planning processes conducted pursuant to
Order No. 890, and thus oppose Commission action on this issue at this
time.\108\ Other commenters state that the lack of interregional
planning is a considerable problem and that transmission planning could
be enhanced by increasing the amount of coordination that occurs
between neighboring transmission planning regions.\109\
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    \108\ E.g., American Transmission, Consolidated Edison, et al.,
Dominion, Eastern Interconnection Planning Collaborative Analysis
Team, Imperial Irrigation District, New York ISO, Public Power
Council, South Carolina Electric & Gas, and Southern Companies.
    \109\ E.g., Duke, Exelon, NextEra, Ohio Commission, Old
Dominion, Organization of MISO States, PSEG Companies, Transmission
Access Policy Study Group, and Transmission Dependent Utility
Systems.
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    106. More specifically, several commenters advocate expansion of
interregional transmission planning, but disagree as to the extent to
which interregional coordination should be institutionalized. Proposals
range from requiring regional transmission planning entities to comply
with Order No. 890 transmission planning principles,\110\ to requiring
greater coordination among existing transmission planning regions,\111\
to expanding the authorities of regional transmission planning
entities.\112\ Some

commenters suggest that the Commission should require interregional
transmission planning or develop pro forma seams agreements that
describe the requirements for coordinating transmission planning with a
neighboring transmission planning region.\113\
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    \110\ E.g., Old Dominion.
    \111\ E.g., AWEA, Pioneer Transmission, PSEG Companies, Public
Interest Organizations & Renewable Energy Groups, Transmission
Access Policy Study Group, and Transmission Dependent Utility
Systems.
    \112\ Regional transmission planning entities would be empowered
``to make specific project recommendations at the end of the
planning process and to enter binding, near-juridical findings of
fact and conclusions related to the need and economic benefits of
specific projects or solutions.'' San Diego Gas & Electric at 6.
    \113\ E.g., AEP, Energy Future Coalition, Old Dominion, Pioneer
Transmission, Public Interest Organizations & Renewable Energy
Groups, SPP, Transmission Access Policy Study Group, and
Transmission Dependent Utility Systems.
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    107. San Diego Gas & Electric, for example, states that, in the
West, transmission planning is a hodgepodge of balkanized processes
resulting in a flood of proposed interstate transmission facilities but
with virtually no consideration given to which of the proposed