requirements'' used in the Proposed Rule to include public policy
initiatives or something similar to reflect the broad, non-compulsory
nature of the policy environment.
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    \170\ E.g., New Jersey Division of Rate Counsel and Integrys.
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    178. Several commenters, including some consumer advocates and
public interest organizations, recommend that the Commission specify
the state and federal policy requirements that utilities, must, at a
minimum, take into account in their transmission planning
processes.\171\ Some suggest including: (1) Renewable portfolio
standards; (2) energy efficiency standards and mandates; (3)
CO2 emissions reduction targets/requirements; (4) NAAQS
attainment and interstate air pollution reductions; (5) EPA utility
sector regulations; and (6) federal and state land management, land
use, wildlife conservation and zoning policies and procedures intended
to facilitate the siting of renewable energy.\172\ In its reply
comments, EarthJustice endorses this view. Twenty-six Public Interest
Organizations state that comparable consideration of all resource
options available to meet various public policy requirements is
essential to minimizing utilities' opportunities for undue
discrimination. Ohio Consumers' Counsel and West Virginia Consumer
Advocate Division state that transmission providers should be required
describe the role that each ``public policy'' would play in the
transmission planning process. Michigan Citizens Against Rate Excess
state that while both reliability and public policy requirements should
be considered as part of the same plan, they should be analyzed
separately and the transmission plan should explain how these projects
may complement or contradict each other.
---------------------------------------------------------------------------

    \171\ E.g., EarthJustice; 26 Public Interest Organizations; and
National Audubon Society.
    \172\ E.g., Conservation Law Foundation; Energy Future Coalition
Group; E.ON Climate & Renewables North America; Environmental
Defense Fund; Environmental NGOs; Natural Resources Defense Council;
Sonoran Institute; and Wilderness Society and Western Resource
Advocates.
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    179. Commenters that believe that the Commission should take a
broader view of what public policy requirements are to be considered by
transmission providers and their stakeholders, argue, for example, that
the transmission planning process must be sufficiently flexible to
include reasonably foreseeable public policy objectives not yet
explicitly required by existing law or regulation and also to consider
``at risk'' generation.\173\ Atlantic Wind Connection suggests the
adoption of an unambiguous requirement to plan transmission additions
needed to accommodate public policy initiatives and suggests that the
Commission require specific tariff provisions describing how
transmission facilities that accommodate and facilitate public policy
initiatives would be planned for and evaluated. AWEA states that the
Commission should clarify that public policy requirements are not to be
narrowly construed and that expected future public policy requirements
as well as existing ones should be considered.
---------------------------------------------------------------------------

    \173\ E.g., Iberdrola Renewables.
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    180. However, in reply, a number of commenters take exception with
the suggestion that possible or likely future public policies should be
considered in the transmission planning process stating, among other
things, that it could result in constantly moving targets, unfocused
transmission planning, regulatory uncertainty, and the RTOs or the
Commission assuming the roles of Congress and the states.\174\ For
example, Exelon argues that the Final Rule should specify that planning
for public policy should not include aspirational goals. Likewise,
Large Public Power Council's reply comments state that transmission
planners should not be required to take into account anticipated public
policies. Xcel also believes that the requirement to consider public
policy directives in developing transmission plans should focus on
established policies, rather than anticipated or potential future
obligations.
---------------------------------------------------------------------------

    \174\ E.g., Ad Hoc Coalition of Southeastern Utilities;
Coalition for Fair Transmission Policy; East Texas Cooperatives;
Large Public Power Council; National Rural Electric Coops; and New
England States Committee on Electricity.
---------------------------------------------------------------------------

    181. Among those seeking flexibility and recognition of regional
differences,\175\ Edison Electric Institute and Northeast Utilities
state that the Commission should allow flexibility in defining the
types of public policy requirements; determining implementation
details, such as the process to identify public policy requirements;
and how transmission system needs would be selected once an appropriate
public policy requirement is identified. Northern Tier Transmission
Group states that to the extent that a transmission provider maintains
an obligation to serve retail load, its merchant/load-serving function
will identify and quantify the relevant public policy requirements,
which will then be accounted for in its local transmission plan. Any
additional public policy objectives should be at the discretion of
regional planning groups. Transmission Access Policy Study Group states
that the Final Rule should clarify the reference to state and federal
policy requirements, so that it includes state regulatory commission
orders and regulations and local governmental mandates on load-serving
entities; and expressly identify FPA section 217(b)(4) as a federal
public policy requirement that the regional transmission planning
process must consider.
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    \175\ E.g., ISO/RTO Council; ISO New England; PJM; New York ISO;
SPP; MISO; New York Transmission Owners; NEPOOL; and MISO
Transmission Owners.
---------------------------------------------------------------------------

    182. Other commenters have ideas on or questions about how public
policy requirements are to be included and implemented. Exelon states
that the Commission should adopt principles to help head off
stalemates: (1) Transmission planning must include likely retirements
of plants subject to environmental regulations; (2) encompass only laws
actually in effect in determining the impact on generation capacity;
(3) require transmission planners to take into account all the actual
terms of state and federal laws and regulations for which transmission
expansion is planned; (4) require a region to show that its
stakeholder-endorsed policy would not cause any harm or costs to other
regions; (5) the full cost of resources must be transparent and
considered in the transmission planning process, based on

sound economic principles; and (6) require that planning for renewable
energy resources be done with the objective of minimizing total costs.
MISO states that the proposal should be expanded to include a
requirement to, when prudent, pursue appropriate transmission expansion
initiatives to facilitate the compliance of public policy requirements
by entities within the transmission provider's footprint that are
subject to such requirements.
    183. PJM states that the actual development of transmission to
address public policy standards requires: (1) Further direction as to
how such standards should be reflected in implementable planning
assumptions; and (2) a legally empowered coordination among states with
shared policy agendas allowing regional projects to be sited and
permitted because they are ``needed'' to meet the multistate
collective's shared policy agenda. Old Dominion and Atlantic Wind
Connection support PJM's suggested holistic approach to transmission
planning. In response, however, Consolidated Edison and Orange &
Rockland argue that PJM's comments do not adequately reflect the
Proposed Rule's objective to respect regional methods and urge the
Commission to reject PJM's top down approach.
    184. Pattern Transmission states that the Commission should require
public utility transmission providers to specify when transmission
upgrade projects are categorized as public policy-driven projects and
when the transmission facilities are considered solely through the
generator interconnection process.
    185. Others offer for Commission consideration their desired
outcomes from including Public Policy Requirements in regional
transmission planning.\176\ For example, Transmission Agency of
Northern California seeks confirmation that simply characterizing a
project's purpose as meeting a public policy requirement should not
provide that project a presumption of inclusion in the regional
transmission planning process. Transmission Access Policy Study Group
states that the Commission should urge transmission providers to adopt
a ``no regrets'' strategy that focuses on constructing transmission
facilities needed under multiple potential power supply and public
policy scenarios, which lead to a ``right-sized'' grid with greater
flexibility to respond to changing technology, resource options, and
customer needs. Old Dominion also asks that the Final Rule make clear
that the directive to plan for public policy laws or regulations is for
transmission planning only, not for design and construction or to
improve power supply.
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    \176\ E.g., Pattern Transmission; Transmission Agency of
Northern California; and Transmission Access Policy Study Group.
---------------------------------------------------------------------------

    186. Western Grid Group states that, at a minimum, the Commission
should require regional plans to address a planning horizon of at least
20 years and to evaluate environmental and economic constraints and
public interest concerns over that horizon as a basis for the
development of such plans. Powerex cautions that the consideration of
public policy factors not result in transmission planning and cost
allocation processes that elevate the needs of certain customers over
others in the transmission planning process and should preserve
competitive wholesale power markets.
    187. Commenters also offer ideas on timing and scope. Some
commenters argue that only federal and state laws and regulations in
effect during the transmission planning cycle should be considered as
public policy requirements in the regional transmission planning
process.\177\ East Texas Cooperatives, however, believes that a better
approach is to let participants in the transmission planning process
advocate for their own needs and interests (which by necessity will
reflect the need to comply with policies contained in applicable
federal and state law), and then allow the transmission planning
process to sort out these interests within the existing Order No. 890
transmission planning framework. In response to such comments, however,
AEP contends that planning for only current regulatory requirements is
too narrow a formulation that would result in underinvestment in
transmission infrastructure. AEP suggests that the transmission
planning process consider reasonably foreseeable future regulatory
requirements given their likely impact on the power system, citing
NERC's analysis of potential impacts of EPA regulations on generation.
---------------------------------------------------------------------------

    \177\ E.g., National Rural Electric Coops; City of Santa Clara;
Michigan Citizens Against Rate Excess; Exelon; East Texas
Cooperatives; and Coalition for Fair Transmission Policy.
---------------------------------------------------------------------------

    188. A number of commenters believe either that existing regional
transmission planning processes already consider public policy
requirements and thus OATT revisions may therefore be unnecessary.\178\
East Texas Cooperatives state that they agree with the Commission's
preliminary finding, but disagree as to the need for any revisions to
the OATT as transmission planning already takes into account public
policy requirements established by state or federal laws or regulations
in accordance with Order No. 890's transmission planning requirements,
as well as with Commission policy that has evolved over the years. Many
commenters in ISO and RTO regions argue that the transmission planning
processes administered by those entities already address or largely
address public policy issues.\179\ For example, New York ISO supports
the Commission's proposal but states that existing transmission
planning rules already provide for consideration of public policy
requirements in many regions. Transmission Dependent Utility Systems
recommend that the Commission clarify that nothing in the existing pro
forma OATT prohibits the consideration of public policy requirements in
the transmission planning processes and, to the extent a transmission
provider believes its particular OATT does preclude such
considerations, the Final Rule should direct compliance filings to
remove the language allegedly prohibiting such consideration.
---------------------------------------------------------------------------

    \178\ E.g., Washington Utilities and Transportation Commission;
Alliant Energy; Xcel; Bonneville Power; Westar; Sacramento Municipal
Utility District; National Rural Electric Coops; East Texas
Cooperatives; WECC; WestConnect; Georgia Transmission Corporation;
Southern Companies; and Ad Hoc Coalition of Southeastern Utilities.
    \179\ E.g., New England Transmission Owners; Alliant Energy; and
New York ISO.
---------------------------------------------------------------------------

    189. Some commenters raise additional concerns, including how
public policy considerations would be incorporated into a transmission
provider's local and regional transmission planning process including
whether the proposal is intended to modify or incorporate generator
interconnection requests into the ``local and regional transmission
planning process;'' whether a project proposed to satisfy transmission
needs driven by public policy requirements are to be planned for and
considered separately from reliability and economic projects; whether
regional transmission planning organizations are required to create a
separate category of public policy-driven transmission projects or
whether they are to be in concert with reliability and economic
criteria during the transmission planning process.\180\
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    \180\ E.g., NV Energy; Long Island Power Authority; and
Bonneville Power.
---------------------------------------------------------------------------

    190. Coalition for Fair Transmission Policy is concerned that the
Proposed Rule might be interpreted as requiring transmission planning
processes to make decisions as to how best to meet applicable public
policy requirements on behalf of those entities on whom the

requirements are placed. Therefore, it states that decisions on how
load-serving entities within regions should meet state or federal
public policy requirements should continue to be made by those with
responsibilities to meet the requirements, based on federal and state
law and applicable regulations, and recommends that the Final Rule make
this clear.
    191. PPL Companies state that basing transmission planning
decisions on state public policy directives may lead to undue
discrimination among generators and, thus, run afoul of the FPA
requirement that all users of the transmission system be treated in a
non-discriminatory manner. It states that the Commission should direct
transmission planners to make sure that pre-existing rights are
preserved and accommodated under the Proposed Rule's transmission
planning principles, just as the Commission preserved grandfathered
transmission contracts under Order No. 888 and grandfathered
interconnection agreements under Order No. 2000.
    192. New Jersey Board believes there needs to be recognition of
planning for public policy goals in terms of reliability. It asserts
that focusing solely on public policy goals as the driving force in the
transmission planning process would raise issues as to which policy
should receive the greatest emphasis, and would cause conflict in the
transmission planning process over which goals to incorporate. New
Jersey Board recommends that transmission plans incorporate public
policy goals in a fashion that has these projects evaluated similarly
for reliability and economic purposes.
    193. Some commenters generally oppose the proposal to require
public policy considerations in transmission planning.\181\ PSEG
Companies state that the Commission's public policy planning approach
should not be adopted, arguing that the proposal would result in public
utility transmission providers establishing an unduly preferential
practice favoring renewable energy resources over other types of
resources. Finally, PSEG Companies are concerned that the proposal
could result in overbuilding or underbuilding the transmission grid. Ad
Hoc Coalition of Southeastern Utilities asserts that there is no
dependable means to translate abstract notions of public policy into
the transmission planning process, except to the extent it has a
bearing on transmission demand. Energy Consulting Group states that
interregional planning should not be used as an instrument of public
policy but should incent development of transmission improvements to
afford the public access to all types of generation that is economic
and minimizes its power costs. APPA believes that any transmission
provider wishing to incorporate specific state policy requirements or
other objectives into its transmission planning protocols should do so
through case-by-case tariff filings under FPA section 205.
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    \181\ E.g., PSEG Companies; First Energy Service Company; Ad Hoc
Coalition of Southeastern Utilities; National Rural Electric Coops;
Southern Companies; Large Public Power Council; Nebraska Public
Power District; and Long Island Power Authority.
---------------------------------------------------------------------------

    194. Electricity Consumers Resource Council and the Associated
Industrial Groups are concerned with mandatory interjection of state
public policy considerations into the transmission planning process and
how, in practice, this is expected to work, given public policy
differences among states, and they are concerned that the Proposed Rule
delegates to ISOs and RTOs the authority to impose the public policy
requirements of one state on another without sufficient democratic or
procedural checks and balances.
    195. Some commenters agree with the proposal to coordinate
identification of public policy requirements. These commenters
generally state that flexibility is needed given the regional variation
in: public policy objectives; types and location of resources; and
regional needs, provided that transmission providers seek input from
state authorities and other stakeholders.\182\ MISO Transmission Owners
ask that the Commission not mandate what public policy requirements
must be considered, but should allow individual transmission providers
to work with stakeholders to identify public policy requirements
applicable to the state(s) or region in which the transmission provider
is located; they also state that transmission planning regions should
not be required to plan for or contribute to the costs of enabling
compliance with public policy requirements enacted outside of their
region without the agreement of all regions affected.
---------------------------------------------------------------------------

    \182\ E.g., American Transmission; Atlantic Grid; Consolidated
Edison and Orange & Rockland; Edison Electric Institute; Energy
Consulting Group; MISO Transmission Owners; NEPOOL; New England
Transmission Owners; New York Transmission Owners; and Northeast
Utilities.
---------------------------------------------------------------------------

    196. Some commenters agree that public utility transmission
providers should be required to specify the procedures and mechanisms
for evaluating transmission projects proposed to achieve public policy
requirements. 26 Public Interest Organizations assert that the
Commission should require all transmission providers to incorporate
certain best practices in the OATT to achieve the Commission's goal.
These include: (1) Minimum coordination agreement requirements for plan
development; (2) required actions to assure robust participation in
regional plan development by non-market participant stakeholders; and
(3) minimum requirements to ensure fair and comparable consideration of
all options to meet public policy requirements. Clean Energy Group
states that transmission planners should be required to identify the
specific public policy goals that would be considered in the planning
cycle after consultation with stakeholders, including state policy
makers. Additionally, it states that transmission providers should be
required to disclose and document how public policy considerations were
taken into account.
    197. Other commenters would like flexibility in this regard. Edison
Electric Institute states that the Commission should not require
transmission providers to identify in their tariff each specific public
policy requirement that may be taken into consideration but should
allow flexibility. ISO New England and Kansas City Power & Light and
KCP&L Greater Missouri similarly argue that the Commission should
specify that it would not become a requirement within the tariff to
list each specific public policy requirement. However, in reply,
Conservation Law Foundation argues that the policies should be
reflected in the OATT and asks that the Final Rule hold planning
authorities responsible for applying those policies that are germane to
a given process or decision. In their reply comments, Maine Parties
point to MISO tariff provisions that show that ISOs and RTOs can
develop tariff provisions that include criteria for identifying public
policy projects, and request that the Commission be explicit about the
role it expects ISOs and RTOs to play in identifying state and federal
public policies and in identifying criteria for selecting projects.
    198. In response to the Commission's question regarding the use of
``bright line'' metrics when evaluating potential transmission
projects, the majority of commenters that provided input on this issue
support a flexible approach.\183\

They generally agree that transmission providers should be provided
flexibility to take into account the multiple reliability, economic,
and public policy-based benefits a single project may provide. They
express concern that projects that address reliability, economic, and
public policy initiatives may not be pursued because the transmission
provider may not be allowed to include the project in the regional plan
because of the technical failure to meet a bright line test. AWEA notes
that existing transmission planning processes that rely on bright line
criteria do not accommodate well the integration of renewable resources
into the grid. NRECA states that bright line metrics are unnecessary
because load-serving entities' planning requirements implicitly include
established public policy requirements.
---------------------------------------------------------------------------

    \183\ E.g., Anbaric and PowerBridge; Atlantic Grid; AWEA; First
Wind; Integrys; National Rural Electric Coops; New Jersey Division
of Rate Counsel; New York ISO; New York Transmission Owners;
NextEra; Northeast Utilities; Northern Tier Transmission Group;
Organization of MISO States; PJM; SPP; WECC; and Westar.
---------------------------------------------------------------------------

    199. While expressing the need for flexibility, some commenters
note that the Commission should establish in the Final Rule some level
of specificity as to how the regional plan should consider projects
designed to meet public policy requirements. NEPOOL suggests that the
Commission grant deference to the states in a planning region with
regard to how they would want public policy requirements to be
considered in the context of regional planning. SPP echoes this,
stating that the Commission should afford transmission providers, state
regulatory commissions, and stakeholders flexibility to develop
strategies and metrics that appropriately consider the needs and
reflect the existing structure of the transmission system in the
region. First Wind recognizes that certain public policy considerations
could require a bright line metric to ensure they be included in a
regional plan, while others could be more general and flexible.
    200. Others, however, argue that bright line metrics are necessary
to avoid discrimination in the transmission planning process.\184\ City
and County of San Francisco and LS Power both assert that removing
bright line criteria would lead to unfair results. City and County of
San Francisco assert that without bright line criteria, end-users could
be penalized because of different cost allocation methods associated
with each distinct criterion.
---------------------------------------------------------------------------

    \184\ E.g., City and County of San Francisco; LS Power; New
Jersey Division of Rate Counsel; and Western Independent
Transmission Group.
---------------------------------------------------------------------------

    201. Some commenters support a balanced approach of using both
bright line and flexible metrics. While Organization of MISO States
cautions against the establishment of rigid bright line metrics, it
notes that an overly flexible approach could allow for higher cost
projects than are actually needed. It states that the Commission should
seek a reasonable balance by ordering transmission planners to start
with defined criteria and then look further into more flexible options
that could provide an optimal solution to a number of perceived needs.
Dominion states that both flexible and bright line criteria may be
needed for some multi-purpose projects. Dominion explains that the
benefit of reliability projects must be assessed against bright line
criteria. However, when considering other benefits, Dominion states
that more flexibility is needed. Minnesota PUC and Minnesota Office of
Energy Security recommend that bright line metrics be used as a first
pass in the transmission planning process, but more flexible criteria
could be used to assess each project further.
    202. Finally, there are some commenters that argue that the
Commission's proposal may lead to undesirable outcomes. Large Public
Power Council states that requiring each public utility transmission
provider to coordinate with customers and other stakeholders to
identify relevant state and federal laws and regulations would be
unnecessary, potentially confusing, and ultimately counterproductive.
Long Island Power Authority states that the Proposed Rule did not
identify how a regional transmission planning group encompassing
multiple states is to decide which state's ``public policy
requirements'' must be satisfied through the transmission planning
process. It expresses concern that the apparent default solution of
incorporating every state's public policy requirements into the
transmission planning process to the extent feasible, may distort the
transmission planning process, lead to over-construction of
transmission facilities and consequently increase the costs to be
allocated. Nebraska Public Power District states that the discretion
that this approach would interject into the transmission planning
process would seem to be an open door to potential discrimination, and
a nightmare to enforce, as parties debate whether planning adequately
responds to a variety of potentially competing policies.
c. Commission Determination
    203. The Commission requires public utility transmission providers
to amend their OATTs to describe procedures that provide for the
consideration of transmission needs driven by Public Policy
Requirements in the local and regional transmission planning
processes.\185\ As discussed in section II above, the reforms adopted
below are intended to ensure that the local and regional transmission
planning processes support the development of more efficient or cost-
effective transmission facilities to meet the transmission needs driven
by Public Policy Requirements, which will help ensure that the rates,
terms and conditions of jurisdictional service are just and reasonable.
Moreover, these reforms will remedy opportunities for undue
discrimination by requiring public utility transmission providers to
have in place processes that provide all stakeholders the opportunity
to provide input into what they believe are transmission needs driven
by Public Policy Requirements, rather than the public utility
transmission provider planning only for its own needs or the needs of
its native load customers. Our decision here to require transmission
planning to include the consideration of transmission needs driven by
Public Policy Requirements is supported by the numerous commenters who
generally agree with the proposed reforms.\186\
---------------------------------------------------------------------------

    \185\ To the extent public utility transmission providers within
a region do not engage in local transmission planning, such as in
some ISO/RTO regions, the requirements of this Final Rule with
regard to Public Policy Requirements apply only to the regional
transmission planning process.
    \186\ E.g., Allegheny Energy Companies; American Transmission;
Anbaric and PowerBridge; Arizona Corporation Commission; Arizona
Public Service Company; Atlantic Grid; AWEA; California Commissions;
California ISO; Clean Energy Group; Connecticut & Rhode Island
Commissions; Consolidated Edison and Orange & Rockland; DC Energy;
Delaware PSC; Dominion; Duke; Duquesne Light Company; EarthJustice;
Exelon; First Wind; Iberdrola Renewables; Integrys; ISO New England;
ISO/RTO Council; Maine PUC; Massachusetts Departments; Massachusetts
Municipal and New Hampshire Electric; MISO; MISO Transmission
Owners; National Audubon Society; National Grid; New England States'
Committee on Electricity; New Jersey Board; New Jersey Division of
Rate Counsel; New York PSC; NextEra; Northeast Utilities; Northern
Tier Transmission Group; Ohio Consumers' Counsel and West Virginia
Consumer Advocate Division; Old Dominion; Pacific Gas & Electric;
Pattern Transmission; Pennsylvania PUC; PHI Companies; PJM; PUC of
Nevada; San Diego Gas & Electric; Southern California Edison;
Sunflower and Mid-Kansas; Transmission Dependent Utility Systems;
Transmission Access Policy Study Group; Transmission Agency of
Northern California; Western Grid Group; and Wind Coalition.
---------------------------------------------------------------------------

    204. Under the existing requirements of Order No. 890, there is no
affirmative obligation placed on public utility transmission providers
to consider in the transmission planning process the effect that Public
Policy Requirements may have on local and regional transmission
needs.\187\ We agree with

the concerns of many commenters that, without having in place
procedures to consider transmission needs driven by Public Policy
Requirements, the needs of wholesale customers may not be accurately
identified.\188\ While we understand that some public utility
transmission providers already do have processes in place to determine
whether transmission needs reflect Public Policy Requirements, others
do not. We correct this deficiency through the requirements below,
which are intended to enhance, rather than replace, existing
transmission planning obligations under Order No. 890. Moreover, as
with other reforms adopted in this Final Rule, these requirements are
intended to be an additional set of minimum obligations for public
utility transmission providers and are not intended to preclude
additional transmission planning related activities.
---------------------------------------------------------------------------

    \187\ In response to Transmission Dependent Utility Systems, we
note that nothing in the existing pro forma OATT affirmatively
prohibits consideration of the effect of Public Policy Requirements
on transmission needs.
    \188\ E.g., National Grid; NextEra; AWEA; Atlantic Grid;
Delaware PSC; Anbaric and PowerBridge; and Conservation Law
Foundation.
---------------------------------------------------------------------------

    205. In response to commenters seeking greater clarity as to how
transmission needs driven by Public Policy Requirements must be
considered by public utility transmission providers, we clarify that by
considering transmission needs driven by Public Policy Requirements, we
mean: (1) The identification of transmission needs driven by Public
Policy Requirements; and (2) the evaluation of potential solutions to
meet those needs. We therefore direct public utility transmission
providers to amend their OATTs to describe the procedures by which
transmission needs driven by Public Policy Requirements will be
identified in the local and regional transmission planning processes
and how potential solutions to the identified transmission needs will
be evaluated in the local and regional transmission planning processes.
We discuss each of these requirements in turn.
    206. First, public utility transmission providers must establish,
in consultation with stakeholders, procedures under which public
utility transmission providers and stakeholders will identify those
transmission needs driven by Public Policy Requirements for which
potential transmission solutions will be evaluated. Various commenters
express concern that a public utility transmission provider should not
have an open-ended obligation to undertake costly and time-consuming
studies to evaluate the potential impact that every Public Policy
Requirement might have on transmission development. As noted by
Connecticut & Rhode Island Commissions, for example, entities subject
to particular requirements may intend to meet them in ways that do not
involve the planning of transmission within the local or regional
transmission planning processes. In other circumstances, there may be
disagreement among the various entities subject to competing Public
Policy Requirements as to whether it is appropriate to consider the
impact of complying with those laws and regulations in the transmission
planning process.
    207. We do not in this Final Rule require the identification of any
particular transmission need driven by any particular Public Policy
Requirements. Instead, we require each public utility transmission
provider to establish procedures for identifying those transmission
needs driven by Public Policy Requirements for which potential
transmission solutions will be evaluated in the local or regional
transmission planning processes. As part of the process for identifying
transmission needs driven by Public Policy Requirements, such
procedures must allow stakeholders an opportunity to provide input, and
offer proposals regarding the transmission needs they believe are
driven by Public Policy Requirements. To the extent such procedures
identify no transmission needs driven by a Public Policy Requirement,
the relevant public utility transmission providers are under no
obligation to evaluate potential transmission solutions.
    208. We allow for local and regional flexibility in designing the
procedures for identifying the transmission needs driven by Public
Policy Requirements for which potential solutions will be evaluated in
the local or regional transmission planning processes. The effects of
Public Policy Requirements on transmission needs are highly variable
based on geography, existing resources, and transmission constraints.
We therefore conclude that it is appropriate to require public utility
transmission providers, in consultation with their stakeholders, to
design the appropriate procedures for identifying and evaluating the
transmission needs that are driven by Public Policy Requirements in
their area, subject to our review on compliance. At a minimum, however,
we require that all such procedures allow for input from stakeholders,
including but not limited to those responsible for complying with the
Public Policy Requirement(s) at issue and developers of potential
transmission facilities that are needed to comply with one or more
Public Policy Requirements.
    209. We decline to require that transmission needs driven by Public
Policy Requirements be identified by a particular entity or subset of
stakeholders. However, all stakeholders must have an opportunity to
provide input and offer proposals regarding the transmission needs they
believe should be so identified, as discussed above. In other words,
while the procedures adopted by public utility transmission providers
in response to this Final Rule must allow all stakeholders to bring
forth any transmission needs they believe are driven by Public Policy
Requirements, those procedures must also establish a just and
reasonable and not unduly discriminatory process through which public
utility transmission providers will identify, out of this larger set of
needs, those needs for which transmission solutions will be evaluated.
Some public utility transmission providers might conclude, in
consultation with stakeholders, to develop procedures that rely on a
committee of load-serving entities, a committee of state regulators, or
a stakeholder group to identify those transmission needs for which
potential solutions will be evaluated in the transmission planning
processes.\189\ Another example would be the case where a public
utility transmission provider identifies such transmission needs itself
on behalf of its customers, following consultation with stakeholders,
including participating state regulators. However, to ensure that
requests to include transmission needs are reviewed in a fair and non-
discriminatory manner, we require public utility transmission providers
to post on their Web sites an explanation of which transmission needs
driven by Public Policy Requirements will be evaluated for potential
solutions in the local or regional transmission planning process, as
well as an explanation of why other suggested transmission needs will
not be evaluated. We conclude that this posting requirement is
necessary to provide the Commission and interested parties with
information as to how the identification procedures are

implemented by public utility transmission providers.
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    \189\ As noted below, we strongly encourage states to
participate actively in the identification of transmission needs
driven by Public Policy Requirements. Public utility transmission
providers, for example, could rely on committees of state regulators
or, with appropriate approval from Congress, compacts between
interested states to identify transmission needs driven by Public
Policy Requirements for the public utility transmission providers to
evaluate in the transmission planning process.
---------------------------------------------------------------------------

    210. We decline in this Final Rule to require the identification of
any particular set of transmission needs driven by any particular
Public Policy Requirements in the local and regional transmission
planning processes of public utility transmission providers. To the
extent that implementation of the procedures required here results in a
suggested transmission need not being evaluated for potential solutions
in the local or regional transmission planning process, the relevant
public utility transmission provider(s) are under no obligation under
this Final Rule to evaluate the potential effect of the associated
Public Policy Requirement on transmission development. This includes
proposals to evaluate the need for particular transmission facilities
proposed by transmission developers to comply with Public Policy
Requirements. While these entities may continue to offer their proposed
transmission facilities in the local or regional transmission planning
process as a potential solution to transmission needs, such proposals
would not be evaluated in the transmission planning process as driven
by a Public Policy Requirement.
    211. With regard to the evaluation of potential solutions to the
identified transmission needs driven by Public Policy Requirements, we
again leave to public utility transmission providers to determine, in
consultation with stakeholders, the procedures for how such evaluations
will be undertaken, subject to the Commission's review on compliance
and with the objective of meeting the identified transmission needs
more efficiently and cost-effectively.\190\ As noted in our discussion
of regional transmission planning in section III.A above, there are
many ways potential upgrades to the transmission system can be
evaluated, ranging from the use of scenario analyses to production cost
or power flow simulations. At a minimum, however, this process must
include the evaluation of proposals by stakeholders for transmission
facilities proposed to satisfy an identified transmission need driven
by Public Policy Requirements.\191\ However, as with any proposed
solution offered in the local or regional transmission planning
processes for transmission needs driven by reliability issues or
economic considerations, there is no assurance that any proposed
transmission facility will be found to be an efficient or cost-
effective solution to meet local or regional needs.
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    \190\ To the extent a public utility transmission provider
determines that existing provisions of its OATT must be amended in
order to implement its evaluation process, it may include such
tariff revisions in its compliance filing. For example, evaluation
of transmission needs driven by a particular Public Policy
Requirement could require the gathering of additional information
from interconnected generators regarding retirements or from network
customers regarding resource preferences.
    \191\ This requirement is consistent with the existing
requirements of Order Nos. 890 and 890-A which permit sponsors of
transmission and non-transmission solutions to propose alternatives
to identified needs. See supra note 149.
---------------------------------------------------------------------------

    212. In response to commenters that urge us to recognize the role
of the states in transmission planning, especially as it relates to
compliance with Public Policy Requirements, we clarify that nothing in
this Final Rule is intended to alter the role of states in that regard.
Through this Final Rule, we are requiring public utility transmission
providers to provide an opportunity to all stakeholders, including
state regulatory authorities, to provide input on those transmission
needs they believe are driven by Public Policy Requirements, to the
extent they are not already doing so. We are not dictating any
substantive result with regard to compliance with Public Policy
Requirements. In Order No. 890, the Commission stated its expectation
that ``all transmission providers will respect states' concerns'' when
engaging in the regional transmission planning process.\192\ This is
equally true with regard to the consideration of transmission needs
driven by Public Policy Requirements. We strongly encourage states to
participate actively in both the identification of transmission needs
driven by Public Policy Requirements and the evaluation of potential
solutions to the identified needs.
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    \192\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 574.
---------------------------------------------------------------------------

    213. We therefore do not believe our reforms are inconsistent with
state authority with respect to integrated resource planning, as
suggested by some commenters. Indeed, we believe that the requirements
imposed herein complement state efforts by helping to ensure that
potential solutions to identified transmission needs driven by Public
Policy Requirements of the states can be evaluated in local and
regional transmission planning processes. To be clear, however, while a
public utility transmission provider is required under this Final Rule
to evaluate in its local and regional transmission planning processes
those identified transmission needs driven by Public Policy
Requirements, that obligation does not establish an independent
requirement to satisfy such Public Policy Requirements. In other words,
the requirements established herein do not convert a failure of a
public utility transmission provider to comply with a Public Policy
Requirement established under state law into a violation of its OATT.
    214. We do not require public utility transmission providers to
consider in the local and regional transmission planning processes any
transmission needs that go beyond those driven by state or federal laws
or regulations or to specify additional public policy principles or
public policy objectives as some commenters have suggested. Based on
the record before us, we believe it is sufficient to ensure just and
reasonable rates and to avoid the potential for undue discrimination to
restrict the requirement for public policy consideration to state or
federal laws or regulations that drive transmission needs. Likewise, we
will not require restrictions on the type or number of Public Policy
Requirements to be considered as long as any such requirements arise
from state or federal laws or regulations that drive transmission needs
and as long as the requirements of the procedures required herein are
met.
    215. Some commenters request that we specify EPA regulations or FPA
section 217 as Public Policy Requirements driving potential
transmission needs relevant for consideration in the transmission
planning process. While we decline to mandate the consideration of
transmission needs driven by any particular Public Policy Requirement,
we intend that the procedures required above be flexible enough to
allow for stakeholders to suggest consideration of transmissions needs
driven by any Public Policy Requirement, including potential
consideration of requirements under EPA regulations, FPA section 217,
or any other federal or state law or regulation that drive transmission
needs. Because we are not mandating the consideration of any particular
transmission need driven by a Public Policy Requirement, we disagree
with PSEG Companies that we are favoring renewable energy resources
over other types of resources.
    216. We reiterate here and clarify a statement of the Proposed Rule
that generated significant comment; that is, this Final Rule does not
preclude any public utility transmission provider from considering in
its transmission planning process transmission needs driven by
additional public policy objectives not specifically required by

state or federal laws or regulations.\193\ By providing this
clarification, we are neither affirmatively granting new rights to nor
imposing an obligation on a public utility transmission provider.
Instead, the statement is a recognition that a public utility
transmission provider has, and has always had, the ability to plan for
any transmission system needs that it foresees. Our recognition of this
ability is not intended to limit or expand in any way the option that a
public utility transmission provider has always had to plan for
facilities that it believes are needed if it chooses to do so. We
believe that public utility transmission providers, in consultation
with stakeholders, are in the best position to determine whether to
consider in a transmission planning process any public policy
objectives beyond those required by this Final Rule. We reiterate that
this Final Rule creates no obligation for any public utility
transmission provider or its transmission planning processes to
consider transmission needs driven by a public policy objective that is
not specifically required by state or federal laws or regulations. If
public utility transmission providers, in consultation with
stakeholders, do identify public policy objectives not specifically
required by state or federal laws or regulations, we note that
transmission facilities designed to meet these objectives may be
eligible for cost allocation under the transmission planning process.
---------------------------------------------------------------------------

    \193\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 64. For
example, a public utility transmission provider and its stakeholders
are not precluded under this Final Rule from choosing to plan for
state public policy goals that have not yet been codified into state
law, which they nonetheless consider to be important long-term
planning considerations.
---------------------------------------------------------------------------

    217. We note that identifying a set of transmission needs and
projects for inclusion in a transmission planning study does not ensure
that any particular transmission project will be in the regional
transmission plan. Alternative solutions to the identified needs may
prove better from cost, siting, or other perspectives. Similarly,
elimination of a transmission project or need from the transmission
planning process would not prevent any planner or developer from
independently seeking to satisfy the need or develop the transmission
project, but any resulting transmission facility would not be eligible
for cost allocation under a regional cost allocation method or methods
required under this Final Rule.
    218. Some commenters have expressed concerns that the consideration
of transmission needs driven by Public Policy Requirements in the
transmission planning process will result in costs being assigned to
regions that do not benefit from those requirements or to regions that
did not create the need for new transmission. We understand these
commenters to be concerned that a requirement to consider transmission
needs driven by Public Policy Requirements in the local and regional
transmission planning processes will result in cross-subsidization of
the costs of meeting Public Policy Requirements.
    219. We clarify that any such consideration of transmission needs
driven by Public Policy Requirements, to the extent that it results in
new transmission costs, must follow the cost allocation principles
discussed separately herein.\194\ Particularly, the costs of new
transmission facilities allocated within the planning region must be
allocated within the region in a manner that is at least roughly
commensurate with estimated benefits.\195\ Those that receive no
benefit from new transmission facilities, either at present or in a
likely future scenario, must not be involuntarily allocated any of the
costs of those facilities. That is, a utility or other entity that
receives no benefit from transmission facilities, either at present or
in a likely future scenario, must not be involuntarily allocated any of
the costs of those facilities.
---------------------------------------------------------------------------

    \194\ See discussion infra section IV.
    \195\ See discussion infra section IV.E.2.
---------------------------------------------------------------------------

    220. Further, we are not requiring that a separate class of
transmission projects be created in the transmission planning process
related to compliance with Public Policy Requirements, although nothing
in this Final Rule prohibits the development of a separate class of
transmission projects if the public utility transmission provider and
its stakeholders believe that it is appropriate to do so. Some public
utility transmission providers might comply with this Final Rule by
implementing procedures to consider transmission needs driven by Public
Policy Requirements separately from transmission addressing reliability
needs or economic considerations. Other public utility transmission
providers might comply with this Final Rule by identifying and
evaluating all transmission needs, whether driven by Public Policy
Requirements, compliance with reliability criteria, or economic
considerations. While we provide flexibility for public utility
transmission providers to develop procedures appropriate for their
local and regional transmission planning processes, we reiterate that
all stakeholders must be provided an opportunity to provide input
during the identification of transmission needs driven by Public Policy
Requirements and the evaluation of potential solutions to the
identified needs, as discussed above.
    221. In response to Northern Tier Transmission Group, we understand
that a public utility transmission provider with a native load
obligation may already have addressed compliance with Public Policy
Requirements in developing its resource assumptions to be used in the
transmission planning process. In such circumstances, the procedures
used to identify transmission needs driven by Public Policy
Requirements should take that into account. Similarly, the evaluation
of potential solutions to those transmission needs identified in a
local or regional transmission planning process should reflect the
resource decisions of the transmission planning process.
    222. The Proposed Rule stated that, if a public utility
transmission provider believes that its existing transmission planning
process already meets the requirements to consider Public Policy
Requirements, then it may make that demonstration in compliance with
the Final Rule.\196\ Certain commenters question the need for these
requirements altogether because they assert they are already obligated
to follow all state or federal laws or regulations, including laws or
regulations related to public policy objectives. Other commenters,
particularly those in ISO and RTO regions, assert that the transmission
planning processes administered by those entities already address
public policy issues so their compliance obligation should be minimal.
In this Final Rule, the Commission is expanding the requirements of the
pro forma OATT to require that transmission planning processes
affirmatively consider transmission needs driven by Public Policy
Requirements. Each public utility transmission provider will have the
opportunity to demonstrate compliance with these requirements by
specifying the procedures in its local and regional transmission
planning processes, whether existing or new, for identifying
transmission needs driven by Public Policy Requirements and for
evaluating potential solutions to meet those identified needs. As with
other requirements of this Final Rule, we

decline here to prejudge any compliance filings or predetermine whether
any public utility transmission provider may already be in compliance.
---------------------------------------------------------------------------

    \196\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 66.
---------------------------------------------------------------------------

    223. Finally, we considered the many comments on whether it is more
appropriate to use flexible criteria in lieu of ``bright line'' metrics
when determining which transmission projects are in the regional
transmission plan. While we have in the past required adoption of a
formulaic approach to applying such metrics,\197\ we sought comment on
this issue in the Proposed Rule to gain insight as to whether such a
formulaic approach was appropriate or if providing additional
flexibility was a more effective approach. Our review of the comments
suggests that most commenters prefer flexible planning criteria for
identifying transmission needs not only driven by Public Policy
Requirements and evaluation of solutions to those identified needs, but
also for the identification and evaluation of transmission needs
related to reliability issues and economic considerations as well.\198\
These commenters have convinced us that, although there are benefits to
each kind of planning criteria, there is merit in allowing for flexible
planning criteria to mitigate the possibility that bright line metrics
may exclude certain transmission projects from long-term transmission
planning.
---------------------------------------------------------------------------

    \197\ See, e.g., PJM Interconnection, L.L.C., 119 FERC ] 61,265
(2007).
    \198\ E.g., AWEA; PJM; New York ISO; SPP; WECC; and Westar.
---------------------------------------------------------------------------

    224. Hence, we will permit public utility transmission providers to
include within their compliance filings in response to this Final Rule
any tariff revisions they believe necessary to implement flexible
transmission planning criteria, including changes to existing bright
line criteria. This could include procedures to address alternating
inclusion and exclusion of a single transmission project in a regional
transmission plan over successive planning cycles. Because such tariff
revisions will be included as part of the compliance filings in
response to this Final Rule, they will be submitted pursuant to section
206 of the FPA rather than under section 205. However, those with
existing bright line criteria are not required to make this change if
they do not wish to do so. As we evaluate the compliance filings to
this Final Rule, we also will evaluate both bright line and flexible
criteria for whether they permit unjust and unreasonable rates or undue
discrimination through planning criteria and whether they will ensure
fair consideration of transmission needs driven by Public Policy
Requirements as well as by reliability needs and economic
considerations.

B. Nonincumbent Transmission Developers

    225. This part of the Final Rule addresses the removal from
Commission-jurisdictional tariffs and agreements of provisions that
grant a federal right of first refusal to construct transmission
facilities selected in a regional transmission plan for purposes of
cost allocation. To implement the elimination of such rights, we adopt
below a framework that requires the development of qualification
criteria and protocols to govern the submission and evaluation of
proposals for transmission facilities to be evaluated in the regional
transmission planning process. We further require that any nonincumbent
developer of a transmission facility selected in the regional
transmission plan have an opportunity comparable to that of an
incumbent transmission developer to allocate the cost of such
transmission facility through a regional cost allocation method or
methods. For purposes of this Final Rule, ``nonincumbent transmission
developer'' refers to two categories of transmission developer: (1) A
transmission developer that does not have a retail distribution service
territory or footprint; and (2) a public utility transmission provider
that proposes a transmission project outside of its existing retail
distribution service territory or footprint, where it is not the
incumbent for purposes of that project. By contrast, and as we
explained in the Proposed Rule, an ``incumbent transmission developer/
provider'' is an entity that develops a transmission project within its
own retail distribution service territory or footprint.\199\
---------------------------------------------------------------------------

    \199\ See Proposed Rule, FERC Stats. & Regs. ] 32,660 at n.23.
---------------------------------------------------------------------------

    226. We conclude these reforms are necessary in order to eliminate
practices that have the potential to undermine the identification and
evaluation of more efficient or cost-effective alternatives to regional
transmission needs, which in turn can result in rates for Commission-
jurisdictional services that are unjust and unreasonable, or otherwise
result in undue discrimination by public utility transmission
providers. As discussed in detail below, our focus here is on the set
of transmission facilities that are evaluated at the regional level and
selected in the regional transmission plan for purposes of cost
allocation, and not on transmission facilities included in local
transmission plans that are merely ``rolled up'' and listed in a
regional transmission plan without going through a needs analysis at
the regional level (and therefore, not eligible for regional cost
allocation). Similarly, our reforms are not intended to affect the
right of an incumbent transmission provider to build, own and recover
costs for upgrades to its own transmission facilities, nor to alter an
incumbent transmission provider's use and control of an existing right
of way.
    227. In developing the framework below, we have sought to provide
flexibility for public utility transmission providers in each region to
propose, in consultation with stakeholders, how best to address
participation by nonincumbents as a result of removal of the federal
right of first refusal from Commission-jurisdictional tariffs and
agreements. However, we note that nothing in this Final Rule is
intended to limit, preempt, or otherwise affect state or local laws or
regulations with respect to construction of transmission facilities,
including but not limited to authority over siting or permitting of
transmission facilities. Public utility transmission providers must
establish this framework in consultation with stakeholders and we
encourage stakeholders to fully participate.
1. Need for Reform Concerning Nonincumbent Transmission Developers
a. Commission Proposal
    228. 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, or effect of, undue
preference to incumbent utilities over nonincumbent transmission
developers through practices applied within transmission planning
processes. The Commission observed in the October 2009 Notice \200\
that, as a result of existing practices in some areas, a nonincumbent
transmission developer may lose the opportunity to construct its
proposed transmission project to the incumbent transmission owner if
that owner has a federal right of first refusal to construct any
transmission facility in

its service territory. The October 2009 Notice sought comment whether
such a federal 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.
---------------------------------------------------------------------------

    \200\ Federal Energy Regulatory Commission, Notice of Request
for Comments; Transmission Planning Processes under Order No. 890;
Docket No. AD09-8-000, October 8, 2009 (October 2009 Notice).
---------------------------------------------------------------------------

    229. Based on the comments received, the Commission determined that
if a regional transmission planning process does not consider and
evaluate transmission projects proposed by nonincumbents that regional
transmission planning process cannot meet the Order No. 890
transmission planning principle of being ``open.'' Moreover, the
Commission stated that such regional planning process may not result in
a cost-effective solution to regional transmission needs, and
transmission projects in a regional transmission plan therefore may be
developed at a higher cost than necessary.\201\ As a result, regional
transmission services may be provided at rates, terms and conditions
that are not just and reasonable. In addition, the Commission
determined in the Proposed Rule that there appeared to be opportunities
for undue discrimination and preferential treatment against
nonincumbent transmission developers within existing regional
transmission planning processes. The Commission explained that, where
an incumbent transmission owner has a federal right of first refusal, a
nonincumbent transmission developer risks losing its investment to
develop a transmission project that it proposed in the regional
transmission planning process, even if the transmission project that
the nonincumbent transmission developer proposed is in a regional
transmission plan. The Commission noted that nonincumbent transmission
developers may be less likely to participate in the regional
transmission planning process under these circumstances.
---------------------------------------------------------------------------

    \201\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 87-88.
---------------------------------------------------------------------------

    230. To address these issues, the Commission proposed to reform
provisions in public utility transmission providers' OATTs or other
agreements subject to the Commission's jurisdiction that establish a
federal right of first refusal for an incumbent transmission provider
with respect to transmission facilities that are in a regional
transmission plan.
b. Comments
    231. A number of commenters support the Commission's proposal to
address federal rights of first refusal in Commission-jurisdictional
tariffs and agreements.\202\ For example, Federal Trade Commission
states that the existence of a federal right of first refusal in
jurisdictional tariffs and agreements reduces capital investment
opportunities for potential nonincumbent developers by increasing their
risk, encourages free ridership among incumbent developers, and creates
a barrier to entry. A number of state utility commissions and consumer
advocates agree, arguing that such provisions impede transmission
development and that removing the provisions would provide a level
playing field for incumbent and nonincumbent transmission
developers.\203\
---------------------------------------------------------------------------

    \202\ E.g., Federal Trade Commission; American Antitrust
Institute; Ohio Consumers' Counsel and West Virginia Consumer
Advocate Division; American Forest & Paper; DC Energy; Elmer John
Tompkins; EIF Management; 26 Public Interest Organizations; and
Boundless Energy; Pennsylvania PUC; Connecticut & Rhode Island
Commissions; Northern California Power Agency; Eastern Massachusetts
Consumer-Owned System; and Transmission Dependent Utility Systems;
Arizona Corporation Commission; New Jersey Board; and California
PUC; NextEra; AWEA; Anbaric and PowerBridge; Clean Line; LS Power;
Northwest & Intermountain Power Producers Coalition; Pattern
Transmission; FirstWind; Green Energy and 21st Century; Colorado
Independent Energy Association; Enbridge; Primary Power; and Western
Independent Transmission Group.
    \203\ E.g., Arizona Corporation Commission; Connecticut & Rhode
Island Commissions; New England States Committee on Electricity; New
Jersey Board; Massachusetts Departments; Ohio Consumer's Counsel;
Pennsylvania PUC; and West Virginia Consumer Advocate.
---------------------------------------------------------------------------

    232. For example, California Department of Water Resources states
that competition among transmission providers that promotes
efficiencies and innovation should be supported in regulatory policy
and transmission planning. New Jersey Board, Connecticut & Rhode Island
Commissions and Massachusetts Departments support the proposal to
remove a federal right of first refusal, also stating that competition
among project sponsors will result in lower cost approaches to meeting
system needs. They caution, however, that equal rights must be followed
by equal responsibilities and obligations at the federal, regional,
state and local level. New England States Committee on Electricity
contends that increased competition about which entity will build
transmission facilities could help improve cost controls over time.
Pennsylvania PUC supports the proposal to eliminate undue
discrimination against nonincumbent transmission developers and the
attempt to eliminate some of the barriers to full participation by
nonincumbent transmission developers. Pennsylvania PUC cautions the
Commission, however, to continue to respect Pennsylvania PUC's
statutory responsibility to review and approve the siting of
transmission projects located in Pennsylvania. Ohio Commission agrees
that eliminating rights of first refusal has merit to the extent that
parameters are established to ensure that ratepayers see cost savings
and enhanced reliability. Ohio Consumers' Counsel and West Virginia
Consumer Advocate Counsel state that eliminating barriers to
participation can encourage additional transmission development that
could be constructed at lower cost to consumers. Arizona Corporation
Commission supports the removal of rights of first refusal, but states
that it does not see this as having an impact on an incumbent utility's
obligations to serve or affecting the transmission planning process
currently utilized in Arizona.
    233. Some commenters representing transmission-dependent and
municipal utilities express support for the Commission's proposal.\204\
Transmission Dependent Utility Systems state that a right of first
refusal can prevent or delay construction of needed transmission
facilities proposed by nonincumbent transmission developers and also
can be used to block transmission access for generation resources that
are not associated with the incumbent transmission provider. Northern
California Power Agency states that any entity, whether an investor-
owned utility, municipal entity, or independent developer, should have
the right to propose, construct, and own transmission projects, subject
to minimum safety and reliability requirements. Eastern Massachusetts
Consumer-Owned System states that eliminating the right of first
refusal should help open the door to municipal utility participation in
transmission ownership on a larger scale.
---------------------------------------------------------------------------

    \204\ E.g., Eastern Massachusetts Consumer-Owned System;
Northern California Power Agency; Transmission Agency of Northern
California; and Transmission Dependent Utility Systems.
---------------------------------------------------------------------------

    234. Others supporting the proposal include entities representing
independent developers of transmission and generation.\205\ NextEra
states that allowing the right of first refusal to continue would
impede development of innovative transmission solutions in that a
transmission project is unlikely to advance very far if its developer
cannot

be confident that it can see the transmission project to its
completion. Clean Line supports the elimination of the right of first
refusal and states that encouraging the participation of nonincumbent
transmission developers in the regional transmission planning process
would increase competition and expand development, which can ultimately
lead to lower costs for ratepayers. LS Power states that a right of
first refusal and all other discriminatory rules should be eliminated
from transmission planning processes inside and outside of RTOs and
ISOs.\206\ Pattern Transmission states that rights of first refusal and
similar preferences favoring incumbent transmission owners do not
result in transmission rates that are just and reasonable, are
inherently preferential and unduly discriminatory, and suggests that
the right of first refusal allows incumbent transmission owners to
engage in gaming. Primary Power contends that removing a right of first
refusal from all Commission-jurisdictional tariffs and agreements would
provide an opportunity for a wider variety of technical and financial
resources to participate in transmission infrastructure development.
Western Independent Transmission Group contends that the ability of
incumbent transmission owners to construct transmission projects
proposed by other transmission developers under a right of first
refusal is equivalent to the seizure of intellectual property.
---------------------------------------------------------------------------

    \205\ E.g., NextEra; AWEA; Anbaric and PowerBridge; Clean Line;
LS Power; Northwest & Intermountain Power Producers Coalition;
Pattern Transmission; FirstWind; Green Energy and 21st Century;
Colorado Independent Energy Association; Enbridge; Primary Power;
and Western Independent Transmission Group.
    \206\ LS Power citing Primary Power, LLC, 131 FERC ] 61,015
(2010) (reh'g pending); Central Transmission, LLC v. PJM
Interconnection L.L.C., 131 FERC ] 61,243 (2010).
---------------------------------------------------------------------------

    235. Some commenters cite to examples that they believe show the
benefits of removing barriers to competition by nonincumbent
transmission developers. For example, Western Independent Transmission
Group points to the success of Texas's Competitive Renewable Energy
Zone planning process in supporting transmission development by
nonincumbent developers. Also, Western Independent Transmission Group
points to the Trans Bay Cable, Neptune, and Cross Sound Cable
transmission projects, which were developed by nonincumbent
transmission developers. Pattern Transmission cites the benefits
associated with increased competition in the telecommunications and
railroad industries, arguing that comparable benefits are available in
the electric industry.
    236. Some commenters supporting the Commission proposal argue that
the record in this proceeding is sufficient to support taking action at
this time. Primary Power states that Commission is ``not required to
make specific findings so long as the agency's factual determinations
are reasonable.'' \207\ LS Power states that the Commission has legal
authority to address discrimination against prospective transmission
owners, it has a substantial record that rights of first refusal are
unreasonable and result in undue discrimination, thus satisfying the
National Fuel standard.
---------------------------------------------------------------------------

    \207\ Primary Power cites to Transmission Access Policy Study
Group v. FERC, 225 F.3d 667, 688 (DC Cir. 2000).
---------------------------------------------------------------------------

    237. Commenters supporting the Proposed Rule generally contend that
the elimination of rights of first refusal in Commission-jurisdictional
tariffs and agreements would not be in conflict with the
responsibilities of incumbent transmission providers, such as the
obligation imposed under RTO and ISO membership agreements to build
transmission facilities identified as needed in regional transmission
plans.\208\ These commenters state that, to the extent that an
incumbent transmission owner feels unreasonably burdened by its
obligations to build, a nonincumbent transmission developer would
welcome the opportunity to respond to competitive solicitations to
build the obligatory transmission projects. Such commenters further
note that, as independent transmission developers build transmission
projects and become transmission owners themselves, they also may be
subject to appropriate obligations to build adjacent or connecting
transmission facilities. Northwest & Intermountain Power Producers
Coalition states that an incumbent's service obligation would come into
play only if no alternative proposal is available to meet the
identified need and that, where better alternatives are identified in
the planning process, there is no good reason to prevent the better
alternative from being constructed merely because the incumbent has an
obligation to construct where a better alternative does not exist.
Western Independent Transmission Group suggests that the obligation to
build is a benefit, not a burden, because an incumbent transmission
developer that constructs a transmission project pursuant to an
obligation will receive full cost-of-service recovery, including a fair
rate of return on its investment.
---------------------------------------------------------------------------

    \208\ E.g., Anbaric and PowerBridge; Green Energy and 21st
Century; LS Power; Northwest & Intermountain Power Producers
Coalition; Pattern Transmission; Primary Power; Transmission Agency
of Northern California; and Western Independent Transmission Group.
---------------------------------------------------------------------------

    238. Others urge the Commission to provide thoughtful consideration
to the potential impacts of its proposal.\209\ Energy Future Coalition
states that, while a right of first refusal should not give incumbent
utilities the ability to block or stall construction of needed
infrastructure within their service territories, or to inflate the
costs of such projects, transmission goals will be frustrated if
elimination of such provisions bogs down the transmission planning
process. New England Transmission Owners state that, before taking
action to eliminate any right of first refusal, the Commission should
consider the unique way in which transmission projects are identified
for development, the success of the current planning process, and the
unique characteristics of the New England system that make the current
process appropriate for this region. National Rural Electric Coops
suggest that, prior to proceeding with the proposed reforms, the
Commission consider adoption of principles to allow load-serving
entities to participate in projects developed by traditional and
independent transmission providers and to have the right to acquire an
ownership participation in any project that it built within their
service territories.
---------------------------------------------------------------------------

    \209\ E.g., Energy Future Coalition; New England Transmission
Owners; and MidAmerican.
---------------------------------------------------------------------------

    239. A number of commenters oppose any alteration of rights of
first refusal in Commission-jurisdictional tariffs and agreements,
arguing that there is insufficient evidence to justify removal of the
right of first refusal.\210\ Edison Electric Institute states that, on
the contrary, there has been substantial evidence submitted to the
Commission that a right of first refusal benefits consumers and results
in lower rates, evidence that the Commission has not sought to rebut.
Southern California Edison alleges that the Commission provides nothing
more than speculative and vague statements that a right of first
refusal may preclude nonincumbent transmission developers from
participating in the regional transmission planning process and, in
turn, affect rates for transmission service. ITC Companies contend that
a right of first refusal is not the primary barrier to new market
entrants and that they see no impediment to

nonincumbent transmission developers pursuing development opportunities
through a partnership model whereby right of first refusal rights are
delegated. Oklahoma Gas & Electric notes that a number of transmission-
only companies have announced significant transmission projects in SPP
and, joined by MISO Transmission Owners, argues that it is premature
for the Commission to determine that further reforms are needed to
further encourage development.
---------------------------------------------------------------------------

    \210\ E.g., California ISO; SPP; CapX2020 Utilities; Edison
Electric Institute; Southern California Edison; Indianapolis Power &
Light; ITC Companies; MidAmerican; Oklahoma Gas & Electric; PSEG
Companies Comments; and San Diego Gas & Electric.
---------------------------------------------------------------------------

    240. Citing National Fuel,\211\ some commenters argue that the
Commission points to no evidence of actual discrimination or adverse
impact on rates and that it must identify something more than
theoretical possibilities to justify elimination of federal rights of
first refusal.\212\ Indicated PJM Transmission Owners assert that, if
the Commission intends to rely solely on the effects of potential
discrimination, in the absence of evidence of abuse, it must explain
why the historical right of incumbent transmission owners to construct
additions in their service territories so endangers open access to
transmission service at just and reasonable rates as to justify a
complete rearrangement of the relationship between public utilities,
state regulators, and ultimate customers. MISO Transmission Owners
state that the Proposed Rule fails to demonstrate why the existing
complaint procedures under section 206 do not protect third parties
from such theoretical harm.
---------------------------------------------------------------------------

    \211\ National Fuel, 468 F.3d 831.
    \212\ E.g., Ad Hoc Coalition of Southeastern Utilities; Edison
Electric Institute; Indicated PJM Transmission Owners; Large Public
Power Council; MidAmerican; MISO Transmission Owners; Oklahoma Gas &
Electric; PSEG Companies; Salt River Project; and San Diego Gas &
Electric. Large Public Power Council also cites to Associated Gas
Distributors.
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    241. Many of these commenters argue that preserving a federal right
of incumbent transmission owners to build within their service
territories is the best method to achieve the Commission's overall
transmission goals. Such commenters contend that incumbent transmission
owners are better situated to build new transmission facilities.\213\
For example, Oklahoma Gas & Electric argues that incumbent transmission
owners are often in the best position to determine where new
transmission is needed on their system. CapX2020 Utilities and
MidAmerican state that load serving transmission providers have a long
history and relationship with state regulatory bodies that brings value
to getting needed transmission developed. Ad Hoc Coalition of
Southeastern Utilities and Southern Companies contend that incumbent
transmission owners are better situated to obtain any necessary
approval from state regulators to recover the cost of transmission
facilities through bundled retail tariffs and that nonincumbent
developers may have no obligation or ability to do so, depriving the
state of an opportunity to determine that the proposal is the most
reliable and cost-effective alternative. Ad Hoc Coalition of Southern
Utilities adds that a nonincumbent developer's lack of a funding
mechanism based on retail rates is a function of the state-based
ratemaking process, not a preference for incumbent transmission owners.
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    \213\ E.g., PJM; CapX2020 Utilities; Edison Electric Institute;
Georgia Transmission Corporation; MidAmerican; Omaha Public Power
District; Pacific Gas & Electric; Sunflower and Mid-Kansas; and
Transmission Access Policy Study Group.
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    242. Other commenters question the potential impact removal of a
federal right of first refusal may have on transmission rates.\214\
North Dakota & South Dakota Commissions argue that there is no evidence
to suggest that nonincumbents are better situated to provide lower cost
or more reliable service, and note that nonincumbents are not regulated
by state commissions and not subject to state law obligations regarding
reliability or state law oversight of their operations. Alabama PSC
states concern that the proposed elimination of the incumbent's federal
right of first refusal could increase costs to Alabama consumers.
Edison Electric Institute argues that the Commission's proposal ignores
longstanding policy that a public utility's investment is assumed to be
prudent when a range of options are available, arguing that the
Proposed Rule would have a reasonable rate depend upon the identity of
the builder of the transmission facility.
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    \214\ E.g., Alabama PSC; City of Santa Clara; Dominion; Edison
Electric Institute; MidAmerican; Oklahoma Gas & Electric; PSEG
Companies; Southern California Edison; Sunflower and Mid-Kansas; and
Xcel.
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    243. Some commenters argue that any lower costs that result from
competition to own and construct transmission projects is likely to be
more than offset by inefficiencies created in the transmission planning
process and a loss of economies of scale and scope.\215\ Pacific Gas &
Electric states that competition may have cost impacts to incumbent
transmission owners relating to their obligation to maintain or improve
reliability and security of the existing transmission system to comply
with current and future reliability standards. Southern Companies
contend that consumers bear the risk of nonincumbent developers
declaring bankruptcy or becoming unable or unwilling to complete a
transmission project, suggesting that the Commission require ``step
in'' rights in such circumstances to facilitate an incumbent
transmission owner's assumption of the project, should it voluntarily
choose to do so. Transmission Dependent Utility Systems state that the
proposal could raise costs by causing customers outside of an RTO/ISO
region to pay both the full costs of the incumbent transmission
provider's transmission system and the full incremental costs of any
nonincumbent transmission projects necessary to serve its load.
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    \215\ E.g., Dominion; PSEG Companies; North Dakota & South
Dakota Commissions; and Oklahoma Gas & Electric Company.
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    244. Indicated PJM Transmission Owners assert that, even if a
nonincumbent were to propose a less expensive transmission project for
recovery through cost-based rates, there is no assurance that its final
costs will be equal to or lesser than its estimate, or that it has a
greater likelihood of staying within its cost estimate than an
incumbent transmission owner. They contend that the Commission
misapplies cost-effectiveness principles to non-rate matters beyond its
authority, without factual or logical support. PPL Companies agree,
arguing that consumers will bear the risk of cost overruns by
nonincumbent transmission developers. California ISO notes that the
Trans Bay Cable, cited by Western Independent Transmission Group, had
significant cost overruns, and that the Neptune and Cross Sound Cable
transmission projects were merchant transmission projects that, as
direct current transmission lines, involved fewer concerns about system
compartmentalization and fragmentation. Southern California Edison
states that under the Proposed Rule, there does not appear to be any
incentive for project participants to develop cost-efficient proposals
because it is not clear if and how customer costs would be considered
in project selection.
    245. Several comments suggest that the proposal is based on a false
assumption that providing for greater competition in the provision of
transmission development will produce benefits to consumers.\216\ They
state that unlike generation, a competitive model cannot be adopted for
wholesale transmission because customers have no meaningful alternative
transmission provider and the development cycle for transmission is
much longer than for

generation. California ISO disagrees that the benefits of competition
cited by Western Independent Transmission Group and Pattern
Transmission are relevant to its transmission planning process. PPL
Companies similarly argues that commenters arguing that eliminating the
right of first refusal benefits competition misunderstand the nature of
the transmission planning process, noting that RTO planning processes
do not involve price competition or consumer choice. PPL Companies
contend that eliminating the right of first refusal would not add
choice for consumers since the transmission projects included in RTO
plans are driven by needs, and not by proposals from incumbent or
nonincumbent developers.
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    \216\ E.g., California ISO; Indianapolis Power & Light; Oklahoma
Gas & Electric Company; and Pacific Gas & Electric.
---------------------------------------------------------------------------

    246. A number of commenters assert that removing a federal right of
first refusal would complicate and undermine the transmission planning
process.\217\ Delaware PSC states that the Proposed Rule would
fundamentally change the way transmission facilities are proposed,
selected, and built, and requires thoughtful consideration of all its
implications. MISO states that placing regional planners in a role of
deciding who should build introduces a level of financial competition
to the planning process that is fundamentally at odds with the high
level of openness and collaboration under the current approach. Kansas
City Power & Light and KCP&L Greater Missouri contend that the proposal
would exacerbate an already complex and arduous process to study, plan
and implement regional transmission infrastructure. Dominion states
that eliminating a federal right of first refusal would create a model
where competitively sensitive information will be withheld from open
discussion, thus making the planning process less collaborative. Xcel
agrees that the proposal could harm the planning process and that
disagreements about transmission project selection could have negative
impacts on state-level siting and routing approval processes.
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    \217\ E.g., AEP; Allegheny Energy Companies; Baltimore Gas &
Electric; Dominion; Edison Electric Institute; First Energy Service
Company; Indianapolis Power & Light; Kansas City Power & Light and
KCP&L Greater Missouri; MidAmerican; MISO; MISO Transmission Owners;
Pacific Gas & Electric; and Southern California Edison.
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    247. Some commenters caution that implementation of the proposed
reforms could have unintended consequences affecting reliability.\218\
These commenters generally contend that eliminating federal rights of
first refusal could cause, or exacerbate, operational and reliability
challenges for transmission system operations and could produce
operational issues as each transmission provider will have to
coordinate with more entities to address specific reliability issues.
Many of these commenters contend that increasing the number of entities
involved in transmission ownership and grid operations would make
coordination, maintenance, and service restoration more difficult by
further fragmenting the transmission system, which they note has been a
concern of the Commission in the past.
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    \218\ E.g., Baltimore Gas & Electric; California ISO; Edison
Electric Institute; MidAmerican; Oklahoma Gas & Electric; Pacific
Gas & Electric; PJM; PSEG Companies; Southern California Edison; and
Xcel.
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    248. Several commenters contend that the right of first refusal is
inextricably linked to the obligation to build imposed under RTO and
ISO membership agreements, justifying any difference in treatment
between incumbent transmission owners and nonincumbent transmission
developers.\219\ These commenters generally argue that retention of an
obligation to build without a corresponding right of first refusal
would impose a serious and unjust and unreasonable burden on incumbent
transmission owners and is in violation of the FPA. Some state
commissions express concern that the Commission's proposal may
undermine the ability of utilities to meet their load service
obligations.\220\ Other commenters state that it is important to
maintain an obligation to build for its transmission owning members to
ensure transmission projects needed for reliability can be developed
promptly.\221\ Some commenters contend that the Commission's proposed
reforms would result in undue discrimination against incumbent
utilities, giving nonincumbent transmission developers the opportunity
to propose and build a transmission facility, whereas incumbents would
be required to build any needed transmission facility, including those
that may be abandoned or not completed by the nonincumbent
developer.\222\ Many of these commenters contend this would permit
nonincumbent transmission developers to ``cherry pick'' only the most
advantageous projects in terms of financial reward and development
risk.\223\ Southern California Edison contends that the Commission's
proposal amounts to establishing a free call on a utility's capital
without any return to compensate it for the time period in which that
capital had to be held in reserve to meet a backstop obligation to
build.
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    \219\ E.g., ISO New England; PJM; SPP; Federal Trade Commission;
SPP; MISO Transmission Owners; Edison Electric Institute; Georgia
Transmission Corporation; Indianapolis Power & Light; Large Public
Power Council; Nebraska Public Power District; Arizona Public
Service Company; Oklahoma Gas & Electric; MidAmerican; PSEG
Companies; San Diego Gas & Electric; Southern California Edison;
Tucson Electric; Xcel; Allegheny Energy Companies; Duke; Baltimore
Gas & Electric; Dominion; E.ON; Exelon; Westar Integrys; and
FirstEnergy Service Company.
    \220\ E.g., Florida PSC; Minnesota PUC; and Minnesota Office of
Energy Security.
    \221\ E.g., ISO New England; MidAmerican; and MISO Transmission
Owners.
    \222\ E.g., Baltimore Gas & Electric; Edison Electric Institute;
FirstEnergy Service Company; Large Public Power Council;
MidAmerican; MISO Transmission Owners; PPL Companies; PSEG
Companies; and Xcel.
    \223\ E.g., Baltimore Gas & Electric; California ISO; CapX2020
Utilities; Indianapolis Power & Light; Oklahoma Gas & Electric;
Southern California Edison; and Xcel.
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    249. Several commenters express concern about the impact that
removing a federal right of first refusal in Commission-jurisdictional
tariffs and agreements may have on RTO and ISO participation.\224\ For
example, MISO states that the right of its transmission owner members
to build transmission facilities identified through the planning
process was, and remains, one of the key considerations for its
transmission owners to have formed, and to remain a part of, the
voluntary RTO. MISO Transmission Owners argue that the Proposed Rule
would result in undue discrimination between transmission owners
voluntarily participating in RTOs and transmission owners that have not
joined an RTO. MISO Transmission Owners state that, without a right to
construct new transmission facilities within their own systems, a
transmission owner could experience substantial erosion of its revenues
over time as a result of RTO participation. MISO Transmission Owners
add that construction obligations and rights in RTOs and ISOs have been
carefully designed to ensure that RTOs, ISOs, and their members can
comply with all applicable state and federal service obligations and
reliability standards. Southern Companies state that the Commission
should clarify that the reforms relating to nonincumbent transmission
developers do not apply in non-RTO regions. On the other hand,
Transmission Agency of Northern California emphasizes that the
Commission's proposal to remove a right of first refusal from all
Commission-approved tariffs and agreements should apply in both non-
RTO/ISO and RTO/ISO regions.
---------------------------------------------------------------------------

    \224\ E.g., MISO; MISO Transmission Owners; Edison Electric
Institute; Alliant Energy; MidAmerican; and Indianapolis Power &
Light.

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    250. Some commenters argue that the existence of native load and
state franchise obligations further distinguish incumbent transmission
owners from nonincumbent transmission developers, justifying retention
of federal rights of first refusal.\225\ These commenters assert that
nonincumbent developers are not similarly situated because they can
select the transmission projects they wish to pursue and ignore those
they deem too risky or insufficiently profitable, unencumbered by a
``duty to serve'' requiring the construction and maintenance of
facilities necessary to render reliable, cost-effective service to
customers in their service territories. For example, Baltimore Gas &
Electric states that it and others view their licensed obligations to
protect their service territory from power outages as being paramount
over their mere financial interests. Edison Electric Institute and MISO
Transmission Owners argue that differing state law obligations have
been found to be legitimate factors in determining that two entities
are not similarly situated.\226\ San Diego Gas & Electric contends that
removal of federal rights of first refusal raises constitutional
concerns since, as regulated entities, public utility transmission
providers are entitled under well-established law to receive a
reasonable rate of return on their investment in transmission
infrastructure in discharging their state-mandated service
obligations.\227\
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    \225\ E.g., Ad Hoc Coalition of Southeastern Utilities; Edison
Electric Institute; Large Public Power Council; MISO Transmission
Owners; Nebraska Public Power District; Xcel; PPL Companies; and
Xcel. In support, Ad Hoc Coalition of Southeastern Utilities cites
to California Indep. Sys. Operator Corp., 119 FERC ] 61,076, at P
369 (2007); Calpine Oneta Power, L.P., 116 FERC ] 61,282, at P 36
(2006); and Sebring Utils. Comm'n v. FERC, 591 F.2d 1003, 1009 n.24
(5th Cir. 1979). MISO Transmission Owners also cite to S. Cal.
Edison Co., 59 FPC 2167, 2185-86 (1977).
    \226\ Edison Electric Institute and MISO Transmission Owners
cite to Town of Norwood v. FERC, 202 F.3d 392, 403 (1st Cir. 2000).
    \227\ San Diego Gas & Electric supports these assertions by
citing FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944) and
Bluefield Water Works v. Public Serv. Comm'n, 262 U.S. 679 (1923).
---------------------------------------------------------------------------

    251. A number of commenters suggest that the Commission consider
partial elimination of federal rights of refusal.\228\ Many of these
commenters endorse SPP's current mechanism, under which an incumbent
utility has a 90-day time limit to exercise its right to construct a
facility included in the regional transmission plan. AEP suggests that
the Commission consider a phased approach, beginning with a time limit
on the exercise of any right of first refusal and, if this does not
substantially address the Commission's concerns, then consider further
modification or elimination of the right of first refusal. AEP suggests
that the Commission also could require each region to report back to
the Commission within two years on its experience implementing the
time-limited right of first refusal as a basis for the Commission to
consider whether a fundamental change of the existing regional
transmission planning process is needed. California PUC and Exelon
argue that incumbent transmission owners should maintain the right of
first refusal for reliability projects located within a single zone.
Transmission Access Policy Study Group recommends that the Commission
retain a limited right of first refusal that can be exercised only when
the incumbent transmission provider forgoes transmission incentives for
the project and offers meaningful joint ownership opportunities on
reasonable terms. Other commenters disagree with proposals to maintain
limited rights of first refusal, generally arguing that such proposals
would perpetuate the entry barrier.\229\
---------------------------------------------------------------------------

    \228\ E.g., California PUC; Transmission Dependent Utility
Systems; SPP; AEP; Iberdrola Renewables; Indianapolis Power & Light;
ITC Companies; MidAmerican; Oklahoma Gas & Electric; Southern
California Edison; Westar; Xcel; CapX2020 Utilities; and SPP.
    \229\ E.g,, American Antitrust Institute; Anbaric and
PowerBridge; LS Power; NextEra; Pattern Transmission; and Western
Independent Transmission Group.
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    252. Finally, some commenters suggest that the Commission engage in
additional outreach on this issue before altering federal rights of
first refusal.\230\ They encourage the Commission to host a technical
conference or initiate other proceedings so that all of these issues
can be examined and potential solutions developed in a collaborative
manner. Sunflower and Mid-Kansas contend that, if problems relating to
a right of first refusal exist in a particular region, the issue should
be addressed locally rather than imposing a one-size-fits-all solution
across all regions.
---------------------------------------------------------------------------

    \230\ E.g., Delaware PSC; NextEra; San Diego Gas & Electric; and
Tucson Electric.
---------------------------------------------------------------------------

c. Commission Determination
    253. The Commission concludes that there is a need to act at this
time to remove provisions from Commission-jurisdictional tariffs and
agreements that grant incumbent transmission providers a federal right
of first refusal to construct transmission facilities selected in a
regional transmission plan for purposes of cost allocation.\231\
Failure to do so would leave in place practices that have the potential
to undermine the identification and evaluation of more efficient or
cost-effective solutions to regional transmission needs, which in turn
can result in rates for Commission-jurisdictional services that are
unjust and unreasonable or otherwise result in undue discrimination by
public utility transmission providers. The Commission addresses the
need for eliminating such practices in this section and, in the
sections that follow, our legal authority to do so and the procedures
by which public utility transmission providers must implement the
removal of federal rights of first refusal from Commission-
jurisdictional tariffs and agreements.
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    \231\ As explained in more detail in section III.B.3 below, the
Commission purposely refers to ``federal rights of first refusal''
in this Final Rule because the Commission's action on this issue in
this Final Rule addresses only rights of first refusal that are
created by provisions in Commission-jurisdictional tariffs or
agreements. Nothing in this Final Rule is intended to limit,
preempt, or otherwise affect state or local laws or regulations with
respect to construction of transmission facilities, including but
not limited to authority over siting or permitting of transmission
facilities. This Final Rule does not require removal of references
to such state or local laws or regulations from Commission-approved
tariffs or agreements.
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    254. As the Commission recognized in Order Nos. 888 and 890, it is
not in the economic self-interest of public utility transmission
providers to expand the grid to permit access to competing sources of
supply.\232\ In Order No. 890, the Commission required greater
coordination in transmission planning on a regional level to remedy the
potential for undue discrimination by transmission providers that have
an incentive to avoid upgrading transmission capacity with
interconnected neighbors where doing so would allow competing suppliers
to serve the customers of the public utility transmission
provider.\233\ Although basing its actions on its authority to remedy
undue discrimination, the Commission found that ``[t]he 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.''
\234\
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    \232\ Order No. 888, FERC Stats. & Regs. at 31,682; Order No.
890, FERC Stats. & Regs. ] 31,241 at P 524.
    \233\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 524.
    \234\ Id.
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    255. In response to Order No. 890, regions across the country have
implemented transmission planning processes that allow for
consideration of alternative transmission projects proposed at the
regional level to determine if they better meet the

region's needs.\235\ The evaluation of alternative transmission
solutions at the regional level is often referred to as ``top down''
planning.\236\ In some regions, heavy emphasis is placed on ``top
down'' regional planning for all or certain classes of transmission
facilities. In other regions, local transmission plans are developed in
which individual public utility transmission providers within the
region identify solutions to their own local needs prior to the ``top
down'' consideration of regional alternatives. This is often referred
to as ``bottom up, top down'' planning.\237\ Although the relative
weight placed on ``bottom up'' or ``top down'' processes varies by
region, all of these existing processes allow at some point for
transmission project developers to offer alternative solutions for
evaluation on a comparable basis pursuant to criteria that is set forth
in the public utility transmission providers' OATTs.\238\ By requiring
the comparable evaluation of all potential transmission solutions, the
Commission has sought to ensure that the more efficient or cost-
effective solutions are in the regional transmission plan.\239\
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    \235\ See Order No. 890, FERC Stats. & Regs. ] 31,241 at P 494;
Order No. 890-A, FERC Stats. & Regs. ] 61,297 at P 215-16. Sponsors
of generation and demand response solutions are provided comparable
opportunities to offer their proposals in the regional transmission
planning process. Id.
    \236\ See, e.g., Pacific Gas & Electric Initial Comments
describing top down planning.
    \237\ See, e.g., Large Public Power Council Initial Comments
describing bottom up planning.
    \238\ See, e.g., Entergy OATT, Attachment K at Sec.  3.12;
Florida Power and Light OATT, Appendix 1 to Attachment K, Sec. Sec.
H and I; ISO New England OATT, Attachment K at Sec.  4.2; Puget
Sound Energy OATT, Attachment K at Sec.  2; SPP OATT, Attachment O
at Sec.  III.8.
    \239\ See, e.g., Northwestern Corp., 128 FERC ] 61,040, at P 38
(2009); El Paso Electric Co., 128 FERC ] 61,063, at P 15 (2009); New
York Independent System Operator, Inc., 129 FERC ] 61,044, at P 35
(2009).
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    256. The Commission is concerned that the existence of federal
rights of first refusal may be leading to rates for jurisdictional
transmission service that are unjust and unreasonable. Allowing federal
rights of first refusal to remain in Commission-jurisdictional tariffs
and agreements would undermine the consideration of potential
transmission solutions proposed at the regional level. Just as it is
not in the economic self-interest of public utility transmission
providers to expand transmission capacity to allow access to competing
suppliers, it is not in the economic self-interest of incumbent
transmission providers to permit new entrants to develop transmission
facilities, even if proposals submitted by new entrants would result in
a more efficient or cost-effective solution to the region's needs. We
conclude that an incumbent transmission provider's ability to use a
right of first refusal to act in its own economic self-interest may
discourage new entrants from proposing new transmission projects in the
regional transmission planning process.
    257. Federal rights of first refusal exacerbate these problems by,
as the Federal Trade Commission and other commenters explain, creating
a barrier to entry that discourages nonincumbent transmission
developers from proposing alternative solutions for consideration at
the regional level. Many commenters note that significant investment is
needed to support the development of a successful transmission project,
yet there is a disincentive for a nonincumbent transmission developer
to commit its resources to a potential transmission project when it
runs the risk of an incumbent transmission provider exercising its
federal right of first refusal once the benefits of the transmission
project are demonstrated. The Commission recognizes that removing
federal rights of first refusal in Commission-jurisdictional tariffs
and agreements will not eliminate all obstacles to transmission
development that may exist under state or local laws or regulations
and, therefore, may not address all challenges facing nonincumbent
transmission development in those jurisdictions. It does not follow,
however, that the Commission should leave in place federal rights of
first refusal. Moreover, the number of state commission commenters
supporting the Commission's proposal indicate that, at a minimum, there
is interest in those jurisdictions to explore the benefits of
nonincumbent transmission development.
    258. The Commission shares the concerns of some commenters that
elimination of federal rights of first refusal from Commission-
jurisdictional tariffs and agreements, if not implemented properly,
could adversely impact the collaborative nature of current regional
transmission planning processes. The Commission addresses these
concerns in section III.B.3 by modifying and clarifying the proposed
framework for implementing our reforms, including elimination of the
proposed requirement to allow a transmission developer to maintain for
a defined period a right to build and own a transmission facility. In
addition, this Final Rule does not require removal of a federal right
of first refusal for a local transmission facility, as that term is
defined herein.\240\ The Commission disagrees with commenters asserting
that reforming federal rights of first refusal would fundamentally
alter regional transmission planning processes. Public utility
transmission providers already are required to evaluate whether
alternative transmission solutions proposed by other developers better
meet the needs of the region. Therefore, existing regional transmission
planning processes have mechanisms in place to weigh various
alternatives against one another. Indeed, this is the fundamental
nature of ``bottom-up, top-down'' transmission planning, in which local
needs and solutions are combined within a region and analyzed to
determine whether regional solutions would be more efficient or cost-
effective than the local solutions identified by individual public
utility transmission providers.\241\
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    \240\ See definition supra section II.D of this Final Rule.
    \241\ Similarly, the Commission believes that concerns regarding
the cost-effectiveness of nonincumbent transmission development are
misplaced. For one solution to be chosen over another in the
transmission planning process, there must be an evaluation of the
relative economics and effectiveness of performance for each
alternative. See, e.g., New York Independent System Operator, Inc.,
129 FERC ] 61,044 at P 35, n.26.
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    259. The Commission understands that the degree to which existing
transmission planning processes will be impacted by the elimination of
federal rights of first refusal will vary by region, just as the
current mechanisms used to evaluate competing transmission projects
vary by region. For example, the public utility transmission providers
in a region may, but are not required to, use competitive solicitation
to solicit projects or project developers to meet regional needs. To
the extent a region already has in place processes to rely on market
proposals or competitive solicitations when identifying solutions to
the region's needs, such existing processes may require relatively
modest modifications to provide nonincumbent transmission providers
with the opportunity to propose and construct transmission projects,
consistent with state and local laws and regulations. In regions
relying more heavily on local planning with less robust mechanisms to
identify alternative transmission solutions at the regional level, more
effort may be needed to implement the Commission's reforms. Within the
implementation framework adopted below, the Commission provides each
region with the flexibility necessary to identify the modifications to
existing transmission planning processes that may be required as a
result of removing

federal rights of first refusal from Commission-jurisdictional tariffs
and agreements.
    260. The Commission is not persuaded to abandon our proposed
reforms to federal rights of first refusal based on arguments that
incumbent transmission providers are better situated to build and
operate transmission facilities. While we acknowledge that incumbent
transmission providers may have unique knowledge of their own
transmission systems, familiarity with the communities they serve,
economies of scale, experience in building and maintaining transmission
facilities, and access to funds needed to maintain reliability, we do
not believe removing the federal right of first refusal diminishes the
importance of these factors. An incumbent public utility transmission
provider is free to highlight its strengths to support transmission
project(s) in the regional transmission plan, or in bids to undertake
transmission projects in regions that choose to use solicitation
processes. However, we do not believe that, just because an incumbent
public utility transmission provider may have certain strengths, a
nonincumbent transmission developer should be categorically excluded
from presenting its own strengths in support of its proposals or bids.
    261. Various commenters argue that federal rights of first refusal
are inextricably tied to obligations to build placed on incumbent
transmission providers, such as those under RTO and ISO member
agreements. We acknowledge that a public utility transmission provider
may have accepted an obligation to build in relation to its membership
in an RTO or ISO, but we do not believe that obligation is necessarily
dependent on the incumbent transmission provider having a corresponding
federal right of first refusal to prevent other entities from
constructing and owning new transmission facilities located in that
region. There are many benefits and obligations associated with
membership in an RTO or ISO and an obligation to build at the direction
of the RTO or ISO is only one aspect of the agreement. While
implementation of reforms to federal rights of first refusal may change
the package of benefits and burdens currently in place for transmission
owning members of RTOs and ISOs, we find that such changes are
necessary to correct practices that may be leading to rates for
jurisdictional transmission service that are unjust and unreasonable.
    262. Some commenters also contend that the federal right of first
refusal is necessary for incumbent transmission providers to develop
transmission facilities needed to comply with a reliability standard or
an obligation to serve customers. We clarify that our actions today are
not intended to diminish the significance of an incumbent transmission
provider's reliability needs or service obligations. Currently, an
incumbent transmission provider may meet its reliability needs or
service obligations by building new transmission facilities that are
located solely within its retail distribution service territory or
footprint. The Final Rule continues to permit an incumbent transmission
provider to meet its reliability needs or service obligations by
choosing to build new transmission facilities that are located solely
within its retail distribution service territory or footprint and that
are not submitted for regional cost allocation. Alternatively, an
incumbent transmission provider may rely on transmission facilities
selected in a regional transmission plan for purposes of cost
allocation. Our decision today does not prevent an incumbent
transmission provider from continuing to propose transmission projects
for consideration in the regional transmission planning process and to
receive regional cost allocation if those projects are selected in a
regional transmission plan for such purposes, even if they are located
entirely within its retail distribution service territory or footprint.
    263. Given that incumbent transmission providers may rely on
transmission facilities selected in a regional transmission plan for
purposes of cost allocation to comply with their reliability and
service obligations, delays in the development of such transmission
facilities could adversely affect the ability of the incumbent
transmission provider to meet its reliability needs or service
obligations. To avoid this result, in section III.B.3 below, we require
each public utility transmission provider to amend its OATT to describe
the circumstances and procedures under which public utility
transmission providers in the regional transmission planning process
will reevaluate the regional transmission plan to determine if delays
in the development of a transmission facility selected in a regional
transmission plan for purposes of cost allocation require evaluation of
alternative solutions, including those the incumbent transmission
provider proposes, to ensure the incumbent can meet its reliability
needs or service obligations.
    264. One function of the regional transmission planning process is
to identify those transmission facilities that are needed to meet
identified needs on a timely basis and, in turn, enable public utility
transmission providers to meet their service obligations. Given the
familiarity incumbent transmission providers have with their own
systems, we expect that they will continue to participate actively in
the regional transmission planning process to share their unique
perspectives regarding whether various potential solutions meet
particular needs of their systems. To the extent an incumbent
transmission provider has concerns that a regional transmission
alternative does not address the identified reliability needs or
service obligations that would allow it to serve its customers reliably
to meet state or local laws, whether upon initial evaluation or, as
relevant, subsequent reevaluation, it can make such concerns known so
that all relevant information regarding a regional transmission
alternative can be considered.
    265. The Commission disagrees that elimination of federal rights of
first refusal would result in discrimination against incumbent
transmission providers in favor of nonincumbent transmission
developers. Once a member of an RTO or ISO, a nonincumbent transmission
developer will be subject to the relevant obligations that apply to the
RTO or ISO members. While it is true that the obligation of
nonincumbent transmission developers to expand their transmission
facilities, once within an RTO or ISO, may apply to fewer transmission
facilities than those of an incumbent with a large footprint, and that
some incumbent transmission providers may be subject to different
requirements under state and local laws, it does not follow that
eliminating federal rights of first refusal amounts to discrimination
in favor of nonincumbent transmission developers. Rather, we are merely
removing a barrier to participation by all potential transmission
providers. With regard to concerns that our reforms will discourage
entities from joining or maintaining membership in RTOs and ISOs, we
note that a variety of factors must be weighed when evaluating the
benefits and burdens of RTO/ISO membership. In addition, we reject
Southern Companies' request that we clarify that the reforms related to
nonincumbent transmission developers do not apply in non-RTO regions;
the reforms apply equally to public utility

transmission providers in all regions. The Commission believes that the
modifications and clarifications provided below with regard to the
framework under which transmission developers will participate in the
transmission planning process will alleviate some of the concerns
expressed by commenters.
    266. We are not persuaded by commenters who argue that the
reliability of the transmission system is a function of the number of
public utility transmission providers of that system. In fact, to
enhance reliability, among other reasons, public utility transmission
providers have historically connected to the transmission systems of
others, as well as jointly owned transmission facilities, and have
therefore developed experience, protocols, and business models for
coordinated operations with multiple transmission providers, operators,
and users. Moreover, many of the same commenters that raise reliability
concerns also suggest that nonincumbent transmission developers instead
pursue the merchant model of development, which similarly increases
rather than decreases the number of transmission providers within a
region. All providers of bulk-power system transmission facilities,
including nonincumbent transmission developers, that successfully
develop a transmission project, are required to be registered as
functional entities and must comply with all applicable reliability
standards.\242\ Together with the additional requirements we adopt in
section III.B.4 below, the Commission finds these protections
sufficient to support our decision here to eliminate the federal rights
of first refusal contained in Commission-jurisdictional tariffs and
agreements.
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    \242\ 18 CFR 39.2(a) (2011).
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    267. The Commission recognizes that there may be circumstances when
an incumbent transmission provider may be called upon to complete a
transmission project that it did not sponsor. For example, a situation
may arise where an incumbent transmission provider is called upon to
complete a transmission project that another entity has abandoned.
There also may be situations in which an incumbent transmission
provider has an obligation to build a project that is selected in the
regional transmission plan for purposes of cost allocation but has not
been sponsored by another transmission developer. We clarify that both
of these situations would be a basis for the incumbent transmission
provider to be granted abandoned plant recovery for that transmission
facility, upon the filing of a petition for declaratory order
requesting such rate treatment or a request under section 205 of the
FPA. In addition, the Commission addresses reliability concerns that
may arise under those circumstances below.
    268. For the foregoing reasons, and in light of the evaluation
procedures required in section III.B.3 below, the Commission finds that
there is sufficient justification in the record to implement the
requirements regarding rights of first refusal contained in Commission-
jurisdictional tariffs or agreements. The Commission is not required to
identify specific evidence to justify our actions today. Our task in
this respect is to show that there is `` `ground for reasonable
expectation that competition may have some beneficial impact.' '' \243\
Although the Commission has previously accepted, in some cases, and
rejected, in others, a federal right of first refusal, we find more
persuasive in light of the comments in this proceeding, the
Commission's reasoning in rejecting the federal right of first refusal.
In particular, the Commission rejected a right of first refusal based
on an expectation that ``[t]he presence of multiple transmission
developers would lower costs to customers.'' \244\ We have carefully
considered the record in the proceeding and therefore find further
procedures to evaluate the need for the reforms adopted herein to be
unnecessary.
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    \243\ Wisconsin Gas Company v. FERC, 770 F.2d 1144, 1158 (DC