for allocating the costs of transmission can provide a high degree
of reassurance to parties engaged in negotiating a method. It states
that only the Commission can provide this level of certainty.

---------------------------------------------------------------------------

    601. Dominion states that it is unlikely any imposed allocation
method will generate uniform agreement or consensus so if competing
principled approaches are proposed, the Commission should not make a
ruling in favor of one over the other, but consider whether a blended
approach could result in a just and reasonable solution. Southern
Companies state that the policies of promoting the expansion of the
transmission grid would be better served by developing a set of
reasonable cost allocation principles that would be used to develop a
cost allocation method only when an actual, multi-jurisdictional
project is pursued. With respect to interregional cost allocation, New
York Transmission Owners argue that it is neither necessary nor
reasonable for the Commission to impose an interregional cost
allocation method if one is not agreed to by the regions.
    602. Further, other commenters tell us that principles alone are
not enough, and propose alternative solutions. These comments are
summarized and addressed below in the discussion of the proposed cost
allocation principles.
c. Commission Determination
    603. The Commission requires each public utility transmission
provider to show on compliance that its cost allocation method or
methods for regional cost allocation and its cost allocation method or
methods for interregional cost allocation are just and reasonable and
not unduly discriminatory or preferential by demonstrating that each
method satisfies the six cost allocation principles. Commission
determinations on each cost allocation principle are set out in the
subsections below. The six regional cost allocation principles apply
to, and only to, a cost allocation method or methods for new regional
transmission facilities selected in a regional transmission plan for
purposes of cost allocation. The six analogous interregional cost
allocation principles apply to, and only to, a cost allocation method
or methods for a new transmission facility that is located in two
neighboring transmission planning regions and accounted for in the
interregional transmission coordination procedure in an OATT. These
cost allocation principles do not apply to other new transmission
facilities and therefore do not foreclose the opportunity for a
developer or individual customer to voluntarily assume the costs of a
new transmission facility, as discussed further below in the
Participant Funding subsection.
    604. We adopt the use of cost allocation principles because we do
not want to prescribe a uniform method of cost allocation for new
regional and interregional transmission facilities for every
transmission planning region. To the contrary, we recognize that
regional differences may warrant distinctions in cost allocation
methods among transmission planning regions. Therefore, we retain
regional flexibility and allow the public utility transmission
providers in each transmission planning region, as well as pairs of
transmission planning regions, to develop transmission cost allocation
methods that best suit the needs of each transmission planning region
or pair of transmission planning regions, so long as those approaches
comply with the regional and interregional cost allocation principles
of this Final Rule.
    605. The Commission recognizes that a variety of methods for cost
allocation may satisfy a set of general principles. For example, a
postage stamp cost allocation method may be appropriate where all
customers within a specified transmission planning region are found to
benefit from the use or availability of a transmission facility or
class or group of transmission facilities, especially if the
distribution of benefits associated with a class or group of
transmission facilities is likely to vary considerably over the long
depreciation life of the transmission facilities amid changing power
flows, fuel prices, population patterns, and local economic
considerations.\467\ Similarly, other methods that would allocate costs
to a narrower class of beneficiaries may be appropriate, provided that
the methods reflect an evaluation of beneficiaries and is adequately
defined and supported by the transmission planning region or pairs of
transmission planning regions.
---------------------------------------------------------------------------

    \467\ We address comments below suggesting that the cost
allocation principles be applied to require regional cost sharing
for all transmission facilities at 345 kV or higher.
---------------------------------------------------------------------------

    606. In response to comments that request further detail from the
Commission on what an appropriate cost allocation method would look
like, we conclude that public utility transmission providers in each
transmission planning region or pair of transmission planning regions
must be allowed the opportunity to determine for themselves the cost
allocation method or methods to adopt based on their own regional needs
and characteristics, consistent with the six cost allocation
principles. With the exception of the limitation on participant funding
explained below, we decline to prejudge any particular method or set of
methods generically in this Final Rule.
    607. In the event of a failure to reach an agreement on a cost
allocation method or methods, the Commission will use the record in the
relevant compliance filing proceeding as a basis to develop a cost
allocation method or methods that meets its proposed requirements.
Public utility transmission providers must document in their compliance
filings the steps they have taken to reach consensus on a cost
allocation method or set of methods to comply with this Final Rule, as
thoroughly as practicable, and provide whatever information they view
as necessary for the Commission to make a determination of the
appropriate cost allocation method or methods. Each public utility
transmission provider must make an individual compliance filing that
includes its own proposed method or set of methods of allocating costs
and explains how it believes its method or methods satisfy the cost
allocation principles and is appropriate for its transmission planning
region or pair of transmission planning regions. Groups of public
utility transmission providers that agree on a proposed method or
methods may make a coordinated filing or filings with their common
views. The public utility transmission providers in each transmission
planning region or pair of transmission planning regions will have the
burden of demonstrating that sufficient effort has been made to comply
with the requirements of this Final Rule.
    608. Interested parties will be provided an opportunity to comment
on these compliance filings, thereby creating a record on which the
Commission could develop an appropriate cost allocation method or
methods, or establish further procedures to do so. We do not impose
other specific filing requirements for what the record should contain.
As with any other proceeding before the Commission, should more
information become necessary during the Commission's review process,
the Commission may request more information from the parties at that
time.
    609. The Commission will consider in response to compliance filings
all issues raised by commenters, such as what constitutes an impasse,
whether there should be deference to the majority, and whether granting
additional time for the region to continue negotiations would be
appropriate. The procedural mechanisms used by the Commission in
response to compliance filing(s) will depend on the nature of remaining

disputes and what issues are still at stake that are preventing the
public utility transmission providers in each transmission planning
region or pair of transmission planning regions from reaching a
consensus. The Commission will not prejudge the outcome of the dispute
by stating at this time whether there should be deference to the views
of any particular segment of stakeholders, as suggested by Multiparty
Commenters.
    610. We decline to adopt a default regional or interregional cost
allocation method in this Final Rule. We decline to do so for reasons
similar to the reasons we declined to impose a uniform cost allocation
method for all transmission planning regions. Many factors may make it
appropriate for different transmission planning regions to have
different cost allocation methods. It thus would not be practical or
reasonable for the Commission to establish such default methods. We
agree with APPA and others that having a known default method would
cause those who favor it not to negotiate in good faith for an
alternative cost allocation method. For these same reasons, we will not
establish an interim cost allocation method that applies between the
time of the issuance of this Final Rule and the time when stakeholders
reach a consensus.
    611. The twelve regional and interregional proposed cost allocation
principles are discussed below in pairs of six separate subsections.
Because the proposed cost allocation principles for regional
transmission facilities are very similar to the proposed cost
allocation principles for interregional transmission facilities, almost
all commenters discussed them together as if they were a single
principle. Therefore, the Commission discusses the corresponding sets
of cost allocation principles together and, except where otherwise
indicated, the Commission determinations regarding each set of cost
allocation principles apply to both the regional and interregional
transmission facilities in a regional transmission plan for purposes of
cost allocation. The cost allocation principles in the Final Rule apply
only to those new transmission facilities selected in a regional
transmission plan for purposes of cost allocation and new transmission
facilities subject to the cost allocation provision of the
interregional coordination procedures in an OATT.
2. Cost Allocation Principle 1--Costs Allocated in a Way That is
Roughly Commensurate With Benefits \468\
---------------------------------------------------------------------------

    \468\ For the full text of this principle, see P 0 for regional
cost allocation and P 0 for interregional cost allocation.
---------------------------------------------------------------------------

a. Comments
    612. Many commenters generally support the Commission's first
proposed cost allocation principle for both regional and interregional
cost allocation, which provides that the costs of transmission
facilities must be allocated to those that benefit in a manner at least
roughly commensurate with the estimated benefits received.\469\ For
example, Transmission Access Policy Study Group states that the roughly
commensurate standard appears to be consistent with the Illinois
Commerce Commission decision and cost causation principles.
Additionally, Westar states that transmission customers in a region
should not pay for transmission projects that do not provide
commensurate benefits and that only transmission projects that have
been thoroughly reviewed in the regional process, show a benefit to the
region and are approved by the transmission provider should be included
in regional rates. Commenters also generally support the Proposed
Rule's proposal to adhere to cost causation principles and also support
a ``beneficiaries pay'' approach.\470\ Dayton Power & Light comments
that ``beneficiaries pay'' is the touchstone principle for cost
allocation. American Forest & Paper argues that such an approach
provides for better incentives for analysis of costs and alternatives.
---------------------------------------------------------------------------

    \469\ E.g., Bay Area Municipal Transmission Group; Santa Clara;
Consolidated Edison and Orange & Rockland; Transmission Access
Policy Study Group; United States Senators Dorgan and Reid;
Professor Ignacio Perez-Arriaga; New York ISO; New York PSC; New
York Transmission Owners; Westar; City and County of San Francisco;
Conservation Law Foundation; Energy Future Coalition Group; Solar
Energy Industries; and EarthJustice.
    \470\ E.g., Dayton Power & Light; Conservation Law Foundation;
and American Forest & Paper.
---------------------------------------------------------------------------

    613. Several commenters, however, support a broader definition of
benefits and beneficiaries.\471\ NextEra argues that the Final Rule
should mandate that planning processes consider various types of
benefits, rather than leaving it to a transmission provider's
discretion. Old Dominion asserts that adopting a narrow approach to
assessing benefits for cost allocation purposes would ignore the
broader benefits associated with maintaining and expanding the regional
high voltage transmission system--such as more options when making
resources decisions in regional markets. Old Dominion notes that
restricting the cost causation benefits to a snapshot in time would be
problematic for dynamic high voltage regional transmission facilities.
National Grid supports a cost allocation method that takes into account
both the quantitative and qualitative benefits of transmission. Xcel
suggests that the Commission permit methods, such as SPP's highway/
byway approach, which broadly allocate costs based on general
determination of the benefits provided to a region and stakeholders.
AWEA and Multiparty Commenters state that it does not make sense to use
cost allocation mechanisms that look only at public policy requirements
established by existing state or federal laws or regulations because
transmission assets are used for 40 years or longer, and they encourage
the Commission to clarify that the appropriate cost allocation
mechanisms should take into account the benefits of transmission in
addressing likely future public policy requirements as well as existing
ones. American Antitrust Institute recommends that the pro-competitive
benefits of transmission be recognized.
---------------------------------------------------------------------------

    \471\ E.g., NextEra; AWEA; EarthJustice; and Atlantic Grid.
---------------------------------------------------------------------------

    614. PUC of Ohio recommends that the definition of beneficiary also
should include those who gain from the ability to place electricity
onto the grid. It states that load should not be solely burdened with
the costs of the transmission grid; generation should be responsible
for its fair share of the costs. Maine Parties agree, characterizing a
beneficiary pays as more consistent with cost causation principles than
a cost socialization method.
    615. In response to comments supporting a broader definition of
benefits, Powerex states that it disagrees that the Proposed Rule is
intended to allow for allocation methods that could impose cross-
subsidization and states that cost allocation methods for
jurisdictional facilities must adhere to cost causation principles.
Powerex argues that state or federal public policy requirements do not
constitute evidence of a general or undifferentiated benefit to all
market participants. Thus, Powerex argues, the Final Rule should
emphasize that cost causation principles are and will remain the
foundation of all acceptable cost allocation methods and make clear
that the Commission rejects cost allocation proposals or outcomes that
depart from this principle by promoting cross-subsidization.
    616. PSEG Companies take issue with the Proposed Rule's suggestion
that the determination of who constitutes a beneficiary may be based on
an assessment of ``likely future scenarios,''

arguing that regional planners should not be prognosticators and that
the more ``scenarios'' that are introduced, the more inexact and
speculative their proposed plans and cost allocation determinations
will become.
    617. Dayton Power & Light seeks clarification of what it considers
an ambiguity in regional and interregional Principle 1, which allows a
regional transmission planning process to consider the extent to which
facilities ``in the aggregate'' provide benefits.\472\ Dayton Power &
Light states that this language could be taken to mean that if the
existing network benefits a utility, then that is a benefit that
justifies the utility allocating to it the incremental costs created by
a new transmission project located far away, even if the project did
not provide incremental benefits. According to Dayton Power & Light,
this result would be inconsistent with Illinois Commerce Commission
decision.
---------------------------------------------------------------------------

    \472\ See Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 164,
174.
---------------------------------------------------------------------------

    618. Some commenters also request that the proposed principle be
expanded so that the costs of transmission facilities are allocated to
those within the planning region and adjacent planning regions that
benefit from those facilities.
    619. Some commenters request clarification regarding what
constitutes ``benefits'' to be considered in any cost allocation
method.\473\ Alabama PSC states that the cost allocation proposals are
too vague and potentially overbroad, and it requests that the
Commission make clear that costs cannot be recovered from retail
customers. WIRES requests that the Commission articulate more clearly
the definitions, presumptions, and methods associated with the
beneficiary pays approach.
---------------------------------------------------------------------------

    \473\ E.g., California Municipal Utilities; Northern Tier
Transmission Group; Omaha Public Power District; Gaelectric; and
Atlantic Grid.
---------------------------------------------------------------------------

    620. A number of commenters differ on what constitutes ``benefits''
and who constitutes ``beneficiaries.'' Several commenters state concern
that the definition of ``benefits'' could be interpreted too broadly,
particularly with respect to transmission projects driven by public
policy goals.\474\ Atlantic Wind Connection requests clarification as
to how the costs associated with public policy initiatives would be
fairly assigned to beneficiaries, so that a results-oriented action
plan emerges from the process. Transmission Access Policy Study Group
argues that benefits are difficult to quantify and cautions the
Commission against including generalized social or environmental
benefits in cost allocation calculations. Transmission Access Policy
Study Group and Colorado Independent Energy Association argue that
production cost savings by itself is not sufficient to identify the
universe of beneficiaries.\475\ Transmission Access Policy Study Group
argues, however, that the Commission should clarify that it will not
accept cost allocation methods that assign costs regionally based on a
presumption of some general, unquantified regional benefits or vague
assertions of possible future benefits.
---------------------------------------------------------------------------

    \474\ E.g., Florida PSC; Public Power Council; Transmission
Dependent Utility Systems; and Coalition for Fair Transmission
Policy.
    \475\ E.g., Transmission Access Policy Study Group; and Colorado
Independent Energy Association.
---------------------------------------------------------------------------

    621. Some commenters raise similar concerns about the difficulty of
quantifying benefits, and they suggest that benefits resulting in
allocation of costs be direct, clear, and identifiable.\476\ Other
commenters also believe it is important to make sure cost allocation
mechanisms do not favor long-line transmission development or
artificially depress the value of local renewable resources.\477\ In
its reply comments, Ohio Consumers' Council agree that benefits should
not be defined too broadly and recommends that the Commission strictly
adhere to cost causation principles in implementing the Final Rule.
Further, Ohio Consumers' Council suggests that the Commission uphold
cost causation principles by requiring substantial evidentiary showings
of benefits and costs prior to approving the imposition of regional or
interregional transmission costs on consumers. With respect to
interregional cost allocation, North Carolina Agencies contend that if
the Commission assumes benefits too broadly, a public utility's retail
customers may bear a share of costs based on the policy objectives of
other states. Alabama PSC shares this concern. According to Western
Area Power Administration, only the direct beneficiaries of a project,
i.e., beneficiaries that make direct use of the facilities, should be
counted as ``beneficiaries,'' and to the extent that costs are
allocated to such beneficiaries, only the costs associated with the
least-cost method of achieving the benefits should be allocated. LS
Power states that it is important for the Final Rule to acknowledge
that the factors that drive transmission planning do not fully define
the range of beneficiaries.
---------------------------------------------------------------------------

    \476\ E.g., East Texas Cooperatives and G&T Cooperatives.
    \477\ E.g., New England States Committee on Electricity;
Nebraska Public Power District; Sacramento Municipal Utility
District; California State Water Project; and Northeast Utilities.
---------------------------------------------------------------------------

b. Commission Determination
    622. The Commission adopts the following Cost Allocation Principle
1 for both regional and interregional cost allocation:
    Regional Cost Allocation Principle 1: The cost of transmission
facilities must be allocated to those within the transmission planning
region that benefit from those facilities in a manner that is at least
roughly commensurate with estimated benefits. In determining the
beneficiaries of transmission facilities, a regional transmission
planning process may consider benefits including, but not limited to,
the extent to which transmission facilities, individually or in the
aggregate, provide for maintaining reliability and sharing reserves,
production cost savings and congestion relief, and/or meeting Public
Policy Requirements.\478\

and
---------------------------------------------------------------------------

    \478\ In the Proposed Rule, Regional Cost Allocation Principle 1
referred to ``public policy requirements established by State or
Federal laws or regulations that may drive transmission needs.'' As
defined in P 0 of this Final Rule, we use ``Public Policy
Requirements'' in Regional Cost Allocation Principle 1 and
throughout our discussion of the Cost Allocation Principles.
---------------------------------------------------------------------------

    Interregional Cost Allocation Principle 1: The costs of a new
interregional transmission facility must be allocated to each
transmission planning region in which that transmission facility is
located in a manner that is at least roughly commensurate with the
estimated benefits of that transmission facility in each of the
transmission planning regions. In determining the beneficiaries of
interregional transmission facilities, transmission planning regions
may consider benefits including, but not limited to, those associated
with maintaining reliability and sharing reserves, production cost
savings and congestion relief, and meeting Public Policy
Requirements.\479\

    \479\ We note that the phrase ``individually or in the
aggregate'' is not contained in Interregional Cost Allocation
Principle 1 because interregional transmission facilities are
considered facility by facility by pairs of transmission planning
regions, unless pairs of transmission planning regions choose to do
otherwise.
---------------------------------------------------------------------------

    623. As discussed above,\480\ requiring a beneficiaries pay cost
allocation method or methods is fully consistent with the cost
causation principle as recognized by the Commission and the courts. As
the Commission stated in Order No. 890, the one factor that it weighs
when considering a dispute over cost allocation is whether a proposal

fairly assigns costs among those who cause the costs to be incurred and
those who otherwise benefit from them.\481\ Therefore, it is
appropriate here to adopt a cost allocation principle that includes as
beneficiaries those that cause costs to be incurred or that benefit
from a new transmission facility.
---------------------------------------------------------------------------

    \480\ See discussion supra P 0 and section V.B.
    \481\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 559.
---------------------------------------------------------------------------

    624. However, the Commission is not prescribing a particular
definition of ``benefits'' or ``beneficiaries'' in this Final Rule. In
our view, the proper context for further consideration of these matters
is on review of compliance proposals and a record before us. Moreover,
allowing the flexibility to accommodate a variety of approaches can
better advance the goals of this rulemaking. The cost allocation
principles are not intended to prescribe a uniform approach, but rather
each public utility transmission provider should have the opportunity
to first develop its own method or methods. Also, we recognize that
regional differences may warrant distinctions in cost allocation
methods.
    625. While some commenters express concerns that the definition of
benefits could be interpreted too broadly or too narrowly, we do not
believe that further defining ``benefits'' in this Final Rule is a
necessary or appropriate means to ensure that this will not be the
case. We expect that concerns regarding overly narrow or broad
interpretation of benefits will be addressed in the first instance
during the process of public utility transmission providers consulting
with their stakeholders. If such interpretations should emerge, we can
more effectively ensure that the term is not given too narrow or broad
a meaning by considering a specific proposal and a record than by
attempting to anticipate and rule on all possibilities before the fact.
This point applies equally to the comments that note the potential
difficulties in quantifying benefits. We note in response to
Transmission Access Policy Study Group, that any benefit used by public
utility transmission providers in a regional cost allocation method or
methods must be an identifiable benefit and that the transmission
facility cost allocated must be roughly commensurate with that benefit.
Western Area Power Administration takes the position that beneficiaries
should be limited to those that it describes as making direct use of
the transmission facilities in question, but this fails to acknowledge
that other benefits may accrue to an interconnected transmission grid.
    626. We agree with Powerex that a departure from cost causation
principles can result in inappropriate cross-subsidization. This is why
cost causation is the foundation of an acceptable cost allocation
method. In response to PSEG Companies, we disagree that basing a
determination of who constitutes a ``beneficiary'' on ``likely future
scenarios'' necessarily would result in inexact and speculative
proposed transmission plans and cost allocation methods. Scenario
analysis is a common feature of electric power system planning, and we
believe that public utility transmission providers are in the best
position to apply it in a way that achieves appropriate results in
their respective transmission planning regions.
    627. In response to Dayton Power & Light, the provisions of
Regional Cost Allocation Principle 1 regarding determination of the
beneficiaries of transmission facilities ``individually or in the
aggregate'' refer only to cost allocation for new transmission
facilities. The public utility transmission providers in a transmission
planning region may propose a cost allocation method that considers the
benefits and costs of a group of new transmission facilities, although
they are not required to do so. We did not intend this language to be a
finding that the benefits of existing transmission facilities in and of
itself may justify cost sharing for new transmission facilities. We are
not ruling on that matter in this Final Rule.
    628. We also decline to expand, as requested by some commenters,
the scope of beneficiaries for new transmission facilities such that
costs may be involuntarily allocated to those within an adjacent
planning region that benefit from those facilities. As discussed in
adopting Cost Allocation Principle 4 below, the allocation of the cost
of a transmission facility that is located entirely within one
transmission planning region may not be subject to a regional cost
allocation method or methods pursuant to this Final Rule that assigns
some or all of the cost of that transmission facility to beneficiaries
in another transmission planning region without reaching an agreement
with those beneficiaries.\482\
---------------------------------------------------------------------------

    \482\ See discussion infra section IV.E.5.
---------------------------------------------------------------------------

    629. Finally, if a non-public utility transmission provider makes
the choice to become part of the transmission planning region and it is
determined by the transmission planning process to be a beneficiary of
certain transmission facilities selected in the regional transmission
plan for purposes of cost allocation, that non-public utility
transmission provider is responsible for the costs associated with such
benefits.
3. Cost Allocation Principle 2--No Involuntary Allocation of Costs to
Non-Beneficiaries \483\
---------------------------------------------------------------------------

    \483\ For the full text of this principle, see P 0 for regional
cost allocation and P 0 for interregional cost allocation.
---------------------------------------------------------------------------

a. Comments
    630. Most of the commenters that addressed proposed Cost Allocation
Principle 2 support it.\484\ Ad Hoc Coalition of Southeastern Utilities
and Nebraska Public Power District state that while the proposition in
Cost Allocation Principle 2 might seem self supporting, they understand
that there are those who would encourage the Commission to mandate
regional or even interconnectionwide cost sharing, but the Commission's
decision to decline to do so is sensible.
---------------------------------------------------------------------------

    \484\ E.g., Ad Hoc Coalition of Southeastern Utilities; Nebraska
Public Power District; Connecticut & Rhode Island Commissions; New
England States Committee on Electricity; New York ISO; and New York
PSC.
---------------------------------------------------------------------------

    631. Some commenters who express general support also express some
concerns. For example, MISO Transmission Owners urge the Commission to
ensure that this principle does not contribute to free rider problems.
    632. Some commenters are concerned that the principle could be
interpreted too narrowly or too broadly. For instance, NextEra asks
that the Commission construe the ``no benefit'' standard narrowly by
providing that there is a benefit if a customer receives any benefit
from the transmission facility, including an economic, reliability, or
public policy benefit, particularly at or above certain voltage levels,
over a reasonable period of time.
    633. Some commenters do not support the principle and raise
concerns that the ``no benefits'' language in the principle will
rarely, if ever, be applicable to any transmission customer.\485\ East
Texas Cooperatives argue that by protecting only those that receive no
discernible benefit, this principle conflicts with court precedent
stating that the Commission cannot approve a pricing scheme that
requires utilities to pay for facilities from which its members derive
only trivial benefits. East Texas Cooperatives states that Principle 2
does not go far enough, and the Commission should clarify that only
those customers who are reasonably expected to receive non-trivial
benefits can be allocated costs. Other

commenters, such as E.ON and Public Power Council, are worried that
there will be stranded costs if a planning process exaggerates the
benefits resulting from a particular project. Public Power Council
believes the Commission should permit cost allocations that mitigate
the risk of stranded costs and give due consideration to the impact on
ratepayers prior to allocating costs.
---------------------------------------------------------------------------

    \485\ E.g., Transmission Dependent Utility Systems and East
Texas Cooperatives.
---------------------------------------------------------------------------

    634. On the other hand, Xcel is concerned that the principle, taken
at face value, gives parties the ability to ``opt out'' of cost
allocation arising from specific projects even as it offers parties the
opportunity to participate fully in the planning process. Xcel
maintains that the Order No. 890 transmission planning process and the
linkage between transmission planning and cost allocation render moot
any participant's argument that it receives no benefit. Xcel argues
that the Order No. 890 planning principles are designed to result in
the best projects to meet the needs of the planning region, and
therefore it is unlikely that participants in the planning process
would produce a plan with a project or set of projects that do not
provide benefits to stakeholders.
    635. Alliant Energy asks whether the Commission intended that
membership in an ISO or RTO eliminates the prohibition of cost
allocation for transmission projects to those entities that do not
benefit. Alliant Energy does not believe this was the Commission's
intent, but is seeks clarification to confirm its view.
    636. Alliant Energy also seeks clarification of the term
``transmission facilities'' within the context of this principle. It
asks whether the Commission intended that the principle be applied on a
project-by-project basis, within the context of the entire regional
transmission plan, or something in between. Alliant Energy believes
that such evaluations should be done on a holistic basis, noting that
some individual projects will benefit certain entities more than others
but that the evaluation of benefits and costs within the context of a
cost allocation determination could reasonably include the cumulative
impact of a collection of projects.
b. Commission Determination
    637. The Commission adopts the following Cost Allocation Principle
2 for both regional and interregional cost allocation:

    Regional Cost Allocation Principle 2: Those that receive no
benefit from transmission facilities, either at present or in a
likely future scenario, must not be involuntarily allocated any of
the costs of those transmission facilities.\486\
---------------------------------------------------------------------------

    \486\ We added the words ``any of'' to the Regional Cost
Allocation Principle 2 stated in the Proposed Rule to be consistent
with interregional cost allocation Principle 2. We also added
``transmission'' before ``facilities'' to clarify the term in this
Regional Cost Allocation Principle 2 and throughout our discussion
of the Cost Allocation Principles.

---------------------------------------------------------------------------
and

    Interregional Cost Allocation Principle 2: A transmission
planning region that receives no benefit from an interregional
transmission facility that is located in that region, either at
present or in a likely future scenario, must not be involuntarily
allocated any of the costs of that transmission facility.

The principle expresses a central tenet of cost causation and is thus
essential to proper cost allocation.
    638. In response to MISO Transmission Owners that Principle 2 might
contribute to free rider problems, we agree that it, like all the other
principles adopted in this Final Rule, requires careful consideration
and application to ensure that they are implemented appropriately in
practice. In response to NextEra, we decline to establish a threshold
voltage level to define which benefits would be ineligible for cost
allocation in this Final Rule.
    639. East Texas Cooperatives is concerned that the Commission is
protecting only those that receive no benefits but not those who derive
only trivial benefits. It cites the Seventh Circuit's statement in
Illinois Commerce Commission that emphasized that the Commission is not
authorized to approve cost allocation methods that require entities
that receive no benefits or benefits that are trivial in relation to
the costs to be borne. We note that the court used the term ``trivial''
in a relative sense, i.e., benefits that are trivial in relation to the
costs assigned. This is implied in the concept of cost causation, and
we therefore see no reason to amend the Principle 2 to include
reference to it. Principle 1 requires that costs be allocated in a way
that is roughly commensurate with the benefits received. This precludes
an allocation where the benefits received are trivial in relation to
the costs to be borne. Any beneficiaries that believe that the
application of the cost allocation method or methods would assign to
them costs for benefits, which are trivial, in relation to those costs
is free to make a FPA section 205 or 206 filing.
    640. We also require that every cost allocation method or methods
provide for allocation of the entire prudently incurred cost of a
transmission project to prevent stranded costs. We disagree with Xcel
that the Principle 2 gives parties the ability to opt out of a
Commission-approved cost allocation for a specific transmission project
if they merely assert that they receive no benefits from it. Whether an
entity is identified as a beneficiary that must be allocated costs of a
new transmission facility is not determined by the entity itself but
rather through the applicable, Commission-approved transmission
planning processes and cost allocation methods. Permitting each entity
to opt out would not minimize the regional free rider problem that we
seek to minimize in this Final Rule.
    641. With respect to Alliant Energy's request for clarification
regarding RTO or ISO membership, we clarify that all the cost
allocation principles, including Cost Allocation Principle 2 apply the
allocation of costs to all new transmission facilities selected in the
regional transmission plan for purposes of cost allocation, including
RTO and ISO regions. In response to Alliant Energy's request to clarify
whether the Commission intended that the principle be applied on a
project-by-project basis, within the context of the entire regional
transmission plan, we reiterate that the public utility transmission
providers in a transmission planning region may propose a cost
allocation method or methods that considers the benefits and costs of a
group of new transmission facilities, although they are not required to
do so. To the extent they propose a cost allocation method or methods
that considers the benefits and costs of a group of new transmission
facilities, and adequately support their proposal, Cost Allocation
Principle 2 would not require a showing that every individual
transmission facility in the group of transmission facilities provides
benefits to every beneficiary allocated a share of costs of that group
of transmission facilities. However, it is required that the aggregate
cost of these transmission facilities be allocated roughly commensurate
with aggregate benefits.
4. Cost Allocation Principle 3--Benefit to Cost Threshold Ratio \487\
---------------------------------------------------------------------------

    \487\ For the full text of this principle, see P 0 for regional
cost allocation and P 0 for interregional cost allocation.
---------------------------------------------------------------------------

a. Comments
    642. Many commenters support the Commission's proposed Cost
Allocation Principle 3, finding it to be a reasonable approach that
would result in the construction of new transmission

projects.\488\ For example, ITC Companies states that the Commission's
recommended cost threshold ratio is a necessary specification to
prevent measures such as the sliding cost benefit ratio employed by
MISO, which can require up to a 3 to 1 benefit to cost ratio for large
regional long term transmission projects and which has served to
frustrate the construction of market efficiency projects. American
Transmission believes that the Commission's proposal seems like a
reasonable threshold that would likely result in projects actually
being constructed.
---------------------------------------------------------------------------

    \488\ E.g., ITC Companies; American Transmission; Omaha Public
Power District; PSEG Companies; and Six Cities.
---------------------------------------------------------------------------

    643. Nonetheless, some commenters raise specific concerns. While
generally supportive of the proposal, MISO Transmission Owners suggest
that transmission providers and stakeholders in each planning region be
permitted to develop a benefit to cost ratio that is appropriate for
that region, provided that ratios are not set so high as to preclude
any projects from being built. Similarly, MISO Transmission Owners
argue that transmission providers and stakeholders should be permitted
to develop appropriate criteria for defining benefits and costs. They
also state that the Final Rule should indicate that any benefit to cost
ratio for interregional transmission facilities should not supersede
the ratio for a region's regional cost allocation. Transmission
Dependent Utility Systems support this principle as a general concept,
but they argue that it should be modified to ensure that the
implementation of any cost benefit analysis is transparent to
customers.
    644. Several commenters oppose the use of a fixed benefit-cost
threshold ratio.\489\ A number of them stress the difficulties in
quantifying benefits.\490\ Some commenters argue that the Commission
should focus on regional circumstances.\491\ Northern Tier Transmission
Group suggests that the Commission's focus should be on defining the
types of benefits to be measured and how to measure them, rather than
establishing a set threshold. Massachusetts Departments are concerned
that a failure to reflect the full menu of benefits that could be
realized by a proposed project could distort the balance between costs
and benefits, and could preclude some beneficial projects at the
planning stage that would have otherwise been approved. NextEra
requests that benefits for this assessment should cover only economic
benefits identified with the project, and not reliability or public
policy benefits, as those benefits cannot be quantified in a similar
manner.
---------------------------------------------------------------------------

    \489\ E.g., Northeast Utilities; Connecticut & Rhode Island
Commissions; and Michigan Citizens Against Rate Excess.
    \490\ E.g., Xcel and Northern Tier Transmission Group.
    \491\ E.g., Michigan Citizens Against Rate Excess; Xcel; and
Massachusetts Departments.
---------------------------------------------------------------------------

    645. Some commenters would like the Commission to establish either
a higher or a lower benefit-cost ratio threshold. New York PSC believes
that the proposed threshold is extremely low and does not adequately
account for uncertainty in cost estimates and potential cost overruns.
Connecticut & Rhode Island Commissions and Massachusetts Departments
agree. On the other hand, AWEA, Wisconsin Electric, and NextEra urge
the Commission to lower the proposed threshold. AWEA argues that if the
Commission adopts the proposed threshold, it should be applied as a
ceiling to ensure fair treatment for projects that have broad benefits
over time. MEAG Power responds to AWEA's argument for a lower
threshold, arguing that AWEA's proposal would unfairly shift to
customers all risks associated with project development.
b. Commission Determination
    646. The Commission adopts the following Cost Allocation Principle
3 for both regional and interregional cost allocation:

    Regional Cost Allocation Principle 3: If a benefit to cost
threshold is used to determine which transmission facilities have
sufficient net benefits to be selected in a regional transmission
plan for the purpose of cost allocation,\492\ it must not be so high
that transmission facilities with significant positive net benefits
are excluded from cost allocation. A public utility transmission
provider in a transmission planning region may choose to use such a
threshold to account for uncertainty in the calculation of benefits
and costs. If adopted, such a threshold may not include a ratio of
benefits to costs that exceeds 1.25 unless the transmission planning
region or public utility transmission provider justifies and the
Commission approves a higher ratio.
---------------------------------------------------------------------------

    \492\ To ensure consistency in the use of terms in this Final
Rule, Cost Allocation Principle 3 as stated in the Proposed Rule has
been changed to refer to facilities ``selected'' in a regional
transmission plan, ability of a ``public utility transmission
provider in a transmission planning region'' to use a benefit to
cost threshold, and potential Commission approval of a ``higher''
ratio.

---------------------------------------------------------------------------
and

    Interregional Cost Allocation Principle 3: If a benefit-cost
threshold ratio is used to determine whether an interregional
transmission facility has sufficient net benefits to qualify for
interregional cost allocation, this ratio must not be so large as to
exclude a transmission facility with significant positive net
benefits from cost allocation.\493\ The public utility transmission
providers located in the neighboring transmission planning regions
may choose to use such a threshold to account for uncertainty in the
calculation of benefits and costs. If adopted, such a threshold may
not include a ratio of benefits to costs that exceeds 1.25 unless
the pair of regions justifies and the Commission approves a higher
ratio.
---------------------------------------------------------------------------

    \493\ The phrase ``net benefits to qualify for interregional
cost allocation'' differs from the language in regional cost
allocation Principle 3 because there is no plan at the interregional
level for which projects would be selected. The word ``large'' was
changed to ``high'' to be consistent with the language in regional
cost allocation Principle 3.

    647. Cost Allocation Principle 3 does not require the use of a
benefit to cost ratio threshold. However, if a transmission planning
region chooses to have such a threshold, the principle limits the
threshold to one that is not so high as to block inclusion of many
worthwhile transmission projects in the regional transmission plan.
Further, it allows public utility providers in a transmission planning
region to use a lower ratio without a separate showing and to use a
higher threshold if they justify it and the Commission approves a
greater ratio.
    648. Allowing for a transparent benefit to cost ratio may help
certain transmission planning regions to determine which transmission
facilities have sufficient net benefits to be selected in the regional
transmission plan for purposes of cost allocation. For example, public
utility transmission providers in a transmission planning region may
want to use such a ratio to account for uncertainty in the calculation
of benefits and costs. However, by requiring that a benefit to cost
ratio, if adopted, not exceed 1.25 to 1 unless the public utility
transmission providers in a transmission planning region justify, and
the Commission approves, a greater ratio, will ensure that the ratio is
not so high that transmission facilities with significant positive net
benefits that would otherwise be selected in the regional transmission
plan for purposes of cost allocation are not excluded from the regional
transmission plan for purposes of cost allocation despite a positive
ratio. The Commission therefore rejects requests to adopt a higher or
lower threshold ratio, as advocated by some commenters.
    649. In response to specific comments on this principle, the
Commission agrees that a benefit to cost ratio should not be set so
high as to preclude certain beneficial transmission projects from

being constructed. As such, the Commission finds (and several
commenters agree) that a benefit to cost ratio of 1.25 to 1 to be a
reasonable ratio that will not act as a barrier to the development and
construction of valuable new transmission projects. Furthermore,
regarding comments requesting that the Commission decline to establish
a benefit to cost threshold given the difficulty in quantifying
benefits, we reiterate that the benefit to cost ratio threshold
identified in this Final Rule applies only if the public utility
transmission providers of a transmission planning region choose to use
a benefit to cost ratio to determine which transmission facilities are
selected in the regional transmission plan for purposes of cost
allocation. They may decide to have no benefit to cost ratio threshold
greater than one at all.
    650. Furthermore, in response to MISO Transmission Owners, if the
issue of whether any benefit to cost ratio threshold for an
interregional transmission facility may supersede the ratio for a
transmission planning region's regional transmission cost allocation
should be presented to us on compliance, we will address it then based
on the specific facts in that filing.
5. Cost Allocation Principle 4--Allocation to be Solely Within
Transmission Planning Region(s) Unless Those Outside Voluntarily Assume
Costs \494\
---------------------------------------------------------------------------

    \494\ For the full text of this principle, see P 0 for regional
cost allocation and P 0 for interregional cost allocation.
---------------------------------------------------------------------------

a. Comments
    651. Nearly all entities that commented on proposed Cost Allocation
Principle 4 support it.\495\ For example, NEPOOL states that it
particularly supports Principle 4, citing New England's successful
history of voluntarily planning, developing and allocating the costs of
interregional projects with its neighbors. New York ISO agrees, stating
that it would be appropriate to allow more expansive voluntary cost
allocation arrangements, but would be premature and unrealistic to
require all regions to adopt specific cost allocation methodologies on
an ex ante basis that would be applicable to future situations as yet
unknown.
---------------------------------------------------------------------------

    \495\ E.g., ISO New England; Nebraska Public Power District;
NEPOOL; New York ISO; New York PSC; Northern California Power
Agency; and New York Transmission Owners.
---------------------------------------------------------------------------

    652. However, some commenters raise specific concerns. East Texas
Cooperatives argue that the restriction on the involuntary allocation
of costs on an interregional basis should not be interpreted to prevent
a transmission provider from proposing methods to capture the costs
associated with the benefits enjoyed by exported energy. MISO
Transmission Owners agree with this argument. The New England States
Committee on Electricity states that interregional Principle 4 aligns
with its view that any allocation method must not transfer costs to New
England ratepayers to support development of facilities outside New
England unless New England concludes that development of such
facilities are the most cost-effective. Northeast Utilities states that
it supports the principle in so far as it limits the allocation of
costs for interregional projects only to facilities located within
neighboring regions.
    653. Other commenters argue that the Commission should not limit
the application of interregional cost allocation requirements to
interregional projects, suggesting that transmission facilities located
solely within one region may have benefits in other regions.\496\
NextEra recommends modifying Principle 4 so that if transmission
facilities within one region clearly benefit another region, the
Commission would allow cost recovery by the transmission providers in
the region providing the benefits to the other. NextEra maintains that
without such a mechanism, the benefitting region would receive a
windfall. According to PJM, basing the cost allocation on physical
location rather than analyzing power flows, reduced congestion, or
improved reliability, is untenable, would invite gaming of the routing
and siting process to drive particular cost allocation results, would
make negotiations on cost allocation among neighbors more difficult, is
inconsistent with a beneficiary pays approach, and is contrary to the
existing PJM-MISO interregional cost allocation method. As an
alternative, PJM suggests providing for the cost allocation of
transmission to all system users that benefit from the increased
transfer capability that the new facility provides, thereby moving the
decision from controversies surrounding particular generation sources
to the future characteristics of the transmission system, which is a
subject that is more clearly within the Commission's authority and
expertise.
---------------------------------------------------------------------------

    \496\ See, e.g., NextEra; MISO; and MISO Transmission Owners.
---------------------------------------------------------------------------

    654. Similarly, MISO seeks clarification that two or more regions
may mutually designate transmission facilities located entirely within
a single region as an interregional transmission facility and allocate
costs accordingly, which is the approach taken in the current cross-
border cost sharing arrangement between MISO and PJM. MISO, along with
MISO Transmission Owners, argues that projects located entirely in one
region may provide benefits to entities in the neighboring region.
    655. Large Public Power Council states that its members cannot at
this time commit to entering into interregional agreements regarding
cost allocation. It notes that its members are creatures of state and
municipal governments, and their authority to enter into binding
arrangements is restricted.
    656. Finally, the Coalition for Fair Transmission Policy sees an
ambiguity in the Proposed Rule. It states that the Proposed Rule allows
for costs to be allocated to a beneficiary even when the beneficiary
has not entered into a voluntary arrangement to pay those costs, but
proposed Cost Allocation Principle 4 states that costs cannot be
allocated to an entity or region outside of the geographic boundaries
of the planning region where the project is being constructed, absent a
voluntary agreement.
b. Commission Determination
    657. The Commission adopts the following Cost Allocation Principle
4 for both regional and interregional cost allocation:

    Regional Cost Allocation Principle 4: The allocation method for
the cost of a transmission facility selected in a regional
transmission plan \497\ must allocate costs solely within that
transmission planning region unless another entity outside the
region or another transmission planning region voluntarily agrees to
assume a portion of those costs. However, the transmission planning
process in the original region must identify consequences for other
transmission planning regions, such as upgrades that may be required
in another region and, if the original region agrees to bear costs
associated with such upgrades, then the original region's cost
allocation method or methods must include provisions for allocating
the costs of the upgrades among the beneficiaries in the original
region.\498\
---------------------------------------------------------------------------

    \497\ The phrase ``an intraregional facility'' was replaced with
``a transmission facility selected in a regional transmission plan''
to be consisted with P 0-0 n this Final Rule.
    \498\ At the end of the sentence, ``entities'' has been changed
to ``beneficiaries'' to be precise. Slight wording changes have been
made to the last sentence in this regional cost allocation Principle
4 and interregional cost allocation Principle 4 to clarify the point
being made.

---------------------------------------------------------------------------
and

    Interregional Cost Allocation Principle 4: Costs allocated for
an interregional transmission facility must be assigned only to
transmission planning regions in which the

transmission facility is located. Costs cannot be assigned
involuntarily under this rule to a transmission planning region in
which that transmission facility is not located.\499\ However,
interregional coordination must identify consequences for other
transmission planning regions, such as upgrades that may be required
in a third transmission planning region and, if the transmission
providers in the regions in which the transmission facility is
located agree to bear costs associated with such upgrades, then the
interregional cost allocation method must include provisions for
allocating the costs of such upgrades among the beneficiaries in the
transmission planning regions in which the transmission facility is
located.\500\
---------------------------------------------------------------------------

    \499\ The first two sentences of interregional cost allocation
Principle 4 differ from regional cost allocation Principle 4 because
at the interregional level, there may be a scenario where a
transmission facility is located in one transmission planning region
but provides benefits to another transmission planning region. For
example, if regions A and B plan an interregional transmission
facility that they believe benefits region C, regions A and B cannot
allocate costs of that facility to region C involuntarily.
    \500\ ``Transmission facility'' was changed to ``upgrade'' in
each instance in this sentence to make it consistent with the last
sentence in regional cost allocation Principle 4. The end of the
last sentence is revised to be consistent with Regional Cost
Allocation Principle 4.

    658. Regarding the allocation of the cost of a transmission
facility that is located entirely within one transmission planning
region and that is intended to export electric energy from that
transmission planning region to another transmission planning region,
the public utility transmission providers in the exporting transmission
planning region may not have a regional cost allocation method or
methods pursuant to this Final Rule that assigns some or all of the
cost of that transmission facility to beneficiaries in another
transmission planning region without reaching an agreement with those
beneficiaries. The public utility transmission providers in such
transmission planning regions may, however, negotiate an agreement to
share the transmission facility's costs with the beneficiaries in
another transmission planning region, as they always have been free to
do. Doing so is not inconsistent with Regional Cost Allocation
Principle 4.
    659. Regarding the allocation of the cost of an interregional
transmission facility that is located in two or more neighboring
transmission planning regions and that is intended to export electric
energy from one such transmission planning region to the other
transmission planning region, this Final Rule requires that the public
utility transmission providers in each pair of transmission planning
regions have an interregional cost allocation method or methods for
sharing the cost of such transmission facilities. However,
Interregional Cost Allocation Principle 4 does not permit the cost
allocation method or methods for those two transmission planning
regions to assign the cost of the transmission facility to
beneficiaries in a third transmission planning region except where the
beneficiaries in the third transmission planning region voluntarily
reach an agreement with the two transmission planning regions in which
the transmission line is located. They also may satisfy the
requirements of this Final Rule by having an interregional cost
allocation method or methods for more than two transmission planning
regions, although this Final Rule does not require them to do so.
    660. We decline to adopt NextEra's recommendation that we modify
Principle 4 to allow cost allocation by the public utility transmission
providers in one transmission planning region to beneficiaries in
another transmission planning region.\501\ We acknowledge that this
Final Rule's approach may lead to some beneficiaries of transmission
facilities escaping cost responsibility because they are not located in
the same transmission planning region as the transmission facility.
Nonetheless, the Commission finds this approach to be appropriate. For
the reasons discussed herein, we are establishing a closer link between
regional transmission planning and cost allocation, both of which
involve the identification of beneficiaries. In light of that closer
link, we find that allowing one region to allocate costs unilaterally
to entities in another region would impose too heavy a burden on
stakeholders to actively monitor transmission planning processes in
numerous other regions, from which they could be identified as
beneficiaries and be subject to cost allocation. Indeed, if the
Commission expected such participation, the resulting regional
transmission planning processes would amount to interconnectionwide
transmission planning with corresponding cost allocation, albeit
conducted in a highly inefficient manner. The Commission is not
requiring either interconnectionwide planning or interconnectionwide
cost allocation.
---------------------------------------------------------------------------

    \501\ See discussion supra section IV.D.
---------------------------------------------------------------------------

    661. MISO's and PJM's comments raise a similar issue that our
proposed reforms inappropriately limit interregional cost allocation to
those beneficiaries that are physically located in the transmission
planning region in which the transmission facility is located. We find
that this approach would raise the same concerns discussed immediately
above.
    662. We recognize that MISO and PJM have an existing cross-border
cost allocation method that permits them, in certain cases, to allocate
to one RTO the cost of a transmission facility that is located entirely
within the other RTO, even if the facility does not cross the border
between their two regions. Because MISO and PJM developed their cross-
border allocation method in response to Commission directives related
to MISO and PJM's intertwined configuration, we find that MISO and PJM
are not required by this Final Rule to revise their existing cross-
border allocation method in response to Cost Allocation Principle 4. If
MISO and PJM believe their existing cross-border cost allocation method
fulfills other principles discussed herein, they may explain that in
the filings they make in compliance with this Final Rule.
    663. In response to Large Public Power Council, as we discuss
below,\502\ a non-public utility transmission provider seeking to
maintain a safe harbor tariff must ensure that the provisions of that
tariff substantially conform, or are superior to, the pro forma OATT as
it has been revised by this Final Rule. However, it remains up to each
non-public utility transmission provider whether it wants to maintain
its safe harbor status by meeting the transmission planning and cost
allocation requirements of this Final Rule.
---------------------------------------------------------------------------

    \502\ See discussion infra section V.B.
---------------------------------------------------------------------------

    664. We disagree with Coalition for Fair Transmission Policy's
argument that there is an ambiguity in our reforms that allows for
costs to be allocated to a beneficiary when the beneficiary has not
entered into a voluntary arrangement to pay those costs, while also
providing in Cost Allocation Principle 4 that the costs of transmission
facilities in a regional transmission plan cannot be allocated to an
entity in another transmission planning region, absent a voluntary
agreement.
6. Cost Allocation Principle 5--Transparent Method for Determining
Benefits and Identifying Beneficiaries \503\
---------------------------------------------------------------------------

    \503\ For the full text of this principle, see P 0 for regional
cost allocation and P 0 for interregional cost allocation.
---------------------------------------------------------------------------

a. Comments
    665. Nearly all commenters that address this proposed principle
supported it.\504\ PSEG Companies agree

that there is a need for transparent cost allocation and that customers
cannot be expected to support the construction of new transmission
unless they understand who will pay the associated costs. Further, PSEG
Companies state that it should be clear which customers are benefiting
from and paying for system upgrades before they are built, as this will
minimize after-the-fact debates and litigation.
---------------------------------------------------------------------------

    \504\ E.g., SPP; Transmission Access Policy Study Group; and
Transmission Dependent Utility Systems.
---------------------------------------------------------------------------

    666. Some commenters that support the principle caution that it
will be difficult to determine costs and benefits with mathematical
precision.\505\ In light of such difficulties, Connecticut & Rhode
Island Commissions suggest that transmission cost allocation methods be
pragmatic. DC Energy raises concerns about the use of biased
assessments, and it suggests that one method for improving the
reliability of cost-benefit analyses is to require that only direct
costs and benefits be considered in economic studies since they offer
greater certainty. PSEG Companies agree with the proposed principle and
suggest that for non-reliability projects, there should be a more
definitive link between identified beneficiaries and the costs to be
paid.
---------------------------------------------------------------------------

    \505\ E.g., NextEra and Sunflower and Mid-Kansas.
---------------------------------------------------------------------------

    667. Several commenters raise specific issues with respect to the
proposed principle. Transmission Dependent Utility Systems urge the
Commission to recognize that transparency alone is insufficient without
load serving entity involvement in the planning and development of the
cost allocation method. Finally, MISO Transmission Owners argue that
current RTO processes provide significant transparency.
b. Commission Determination
    668. The Commission adopts the following Cost Allocation Principle
5 for both regional and interregional cost allocation:

    Regional Cost Allocation Principle 5: The cost allocation method
and data requirements for determining benefits and identifying
beneficiaries for a transmission facility must be transparent with
adequate documentation to allow a stakeholder to determine how they
were applied to a proposed transmission facility.

and

    Interregional Cost Allocation Principle 5: The cost allocation
method and data requirements for determining benefits and
identifying beneficiaries for an interregional transmission facility
must be transparent with adequate documentation to allow a
stakeholder to determine how they were applied to a proposed
interregional transmission facility.\506\
---------------------------------------------------------------------------

    \506\ ``Interregional'' has been added before ``transmission
facility'' at the end of the sentence to be precise.

    669. Requiring cost allocation methods and their corresponding data
requirements for determining benefits and beneficiaries to be open and
transparent ensures that such methods are just and reasonable and not
unduly discriminatory or preferential. Furthermore, greater stakeholder
access to cost allocation information will help aid in the development
and construction of new transmission, as stakeholders will be able to
see clearly who is benefiting from, and subsequently who has to pay
for, the transmission investment. In addition, the Commission agrees
that such access to information may avoid contentious litigation or
prolonged debate among stakeholders.
    670. As the Commission stated in the Proposed Rule, we recognize
that identifying which types of benefits are relevant for cost
allocation purposes, which beneficiaries are receiving those benefits,
and the relative benefits that accrue to various beneficiaries can be
difficult and controversial. However, the Commission finds that a
transparent transmission planning process is the appropriate forum to
address these issues, and by addressing these issues, there will be a
greater likelihood that regions can build the new transmission
facilities selected in the regional transmission plan for purposes of
cost allocation.
    671. We acknowledge the concerns that the method or methods for
determining benefits and beneficiaries must balance being pragmatic and
implementable with being accurate and unbiased. Cost Allocation
Principle 5 requires that the method or methods be known and
transparent. As stakeholders participate in the development of such
methods, their input should ensure that the method or methods
ultimately agreed upon is balanced and does not favor any particular
entity. In developing this method or methods, public utility
transmission providers and their stakeholders are also free to consider
suggestions, such as those made by DC Energy, that only direct costs
and benefits should be considered in economic studies. We will not,
however, opine on such suggestions at this time. Rather, the Commission
will review such matters once the cost allocation method or methods are
filed on compliance.
    672. In response to MISO Transmission Owners, the Commission
declines at this time to rule on whether any current RTO and ISO
processes provide enough transparency to satisfy Cost Allocation
Principle 5. Such determinations will be made upon the submittal of a
compliance filing by any RTO or ISO.
7. Cost Allocation Principle 6--Different Methods for Different Types
of Facilities \507\
---------------------------------------------------------------------------

    \507\ For the full text of this principle, see P 0 for regional
cost allocation and P 0 for interregional cost allocation.
---------------------------------------------------------------------------

a. Comments
    673. Many commenters generally support proposed Cost Allocation
Principle 6, arguing that transmission projects are built for different
purposes, such as for reliability or economic reasons, and different
methods may therefore be appropriate.\508\ Four G&T Cooperatives state
that the planning regions should be given latitude to determine within
reason the range of benefits that can be considered for cost allocation
purposes, as well as the prioritization and relative value of such
benefits. Pennsylvania PUC contends that cost allocation methods should
maintain stable transmission rates that will be preferable both to the
customers who pay the rates and the system planners who have to
forecast future expenditures for the system. It argues that a cost
allocation method should be flexible enough to accommodate different
types of renewable energy from a diversity of sources, public policy
changes, and potential shifts from older fossil fuel generation and
development of other energy sources such as nuclear generation.
Pennsylvania PUC also suggests that a cost allocation method be able to
accommodate different types of facilities such as those serving
renewable and non-renewable generators, both economic and reliability
projects, as well as specialized projects such as generator
interconnection facilities. MISO Transmission Owners agree and state
that the applicable method should be determined through the stakeholder
planning process. Dayton Power & Light states that one method may be
appropriate, such as the beneficiary-pays approach, but the method by
which beneficiaries are identified may depend on the type of project
involved. New Jersey Board also supports flexibility and states that
further analysis must be completed to

determine how best to allocate costs for transmission driven primarily
by public policy requirements because the beneficiaries may differ
markedly from the beneficiaries of transmission facilities built for
reliability purposes.
---------------------------------------------------------------------------

    \508\ E.g., Indianapolis Power & Light; NEPOOL; Public Power
Council; Northeast Utilities; New Jersey Board; E.ON; American
Transmission; Dayton Power and Light; Delaware PSC; Dominion; New
England States Committee on Electricity; and PSEG Companies.
---------------------------------------------------------------------------

    674. PSEG Companies request that reliability and non-reliability
projects be treated differently for cost allocation purposes, and they
advocate adopting a voting mechanism for economic projects that would
require that proposed economic upgrades be voted on by the entities
that have been deemed to benefit from them and who in turn would be
responsible for paying for them. National Grid, however, is concerned
about the use of supermajority voting requirements for economic
transmission projects. In response, Con Edison points favorably to New
York ISO's supermajority voting requirements for economic transmission
projects in its transmission planning process.
    675. In its reply comments, PJM proposes a possible way to
reconcile what it views as competing directives in the Proposed Rule
regarding transmission planning and cost allocation related to
economic, reliability, and public policy projects. Economic and
reliability projects would be included in one category, under which a
beneficiary pays approach would match the planning purposes used (e.g.,
avoiding a violation of a reliability standard). Public policy projects
would comprise the second category, under which the Commission would
align the planning and cost allocation for such projects with regional
action taken by states sharing similar public policy objectives. PJM
suggests that regions could form interstate compacts to identify shared
public policy goals and resource requirements and accept the allocation
of costs associated with those projects. PJM further suggests a ``safe
harbor'' to prevent states from having to absorb costs for public
policy projects undertaken in other states.
    676. Large Public Power Council believes that the interregional
allocation of costs is a topic on which consensus is feasible only in
the context of specific projects proposed by project developers to
satisfy identified market needs.
    677. Some commenters point to existing approaches as being adequate
to meet this principle. Northeast Utilities states that a comprehensive
approach using the current New England method should be appropriate.
Northeast Utilities contends that the existing cost allocation rules in
the ISO-New England OATT would meet the proposed requirements for
regional cost allocation with the addition of a clearer cost allocation
method for economic projects and a separately stated method for
projects intended to meet public policy requirements.
    678. Some commenters are concerned as to whether the Commission
should allow different cost allocation methods for different
facilities.\509\ These commenters make several arguments: (1) New
transmission facilities seldom serve one function and may provide
general reliability and other benefits to the transmission system; (2)
the benefits of a given project may vary over time; and (3) such
designations have been the source of substantial delays and conflict as
planning participants spend time and resources arguing over a project's
designation.
---------------------------------------------------------------------------

    \509\ E.g., ITC Companies; Multiparty Commenters; NextEra; and
Wind Coalition.
---------------------------------------------------------------------------

    679. Xcel states that while it does not oppose the concept of using
different cost allocation mechanisms for projects with different
drivers, it believes that an excessive amount of time is being spent
splitting benefits into their component buckets. It argues that the
appropriate focus of cost allocation methods instead should be
determining the multiple benefits that any transmission projects
provide to a planning region and its stakeholders. Xcel explains that
one objective of the state transmission certification process is to
ensure that, regardless of the initial driver, projects are ultimately
scoped and right-sized to provide multiple benefits. Xcel thus argues
that cost allocation methods should concentrate on identifying and
measuring multiple benefits that transmission facilities provide,
rather than developing a new cost allocation method for each initial
project driver.
    680. Multiparty Commenters express concern that there could be a
proliferation of cost allocation designs if the Commission allows
different cost allocation methods for different types of facilities and
for interregional and regional planning processes. They believe that
this will lead to protracted disputes about the function of a
transmission facility.
    681. Transmission Dependent Utility Systems believe that Cost
Allocation Principle 6 could place too much discretion in the hands of
the transmission providers, particularly in non-RTO/ISO regions, and
they urge the Commission to require transmission providers to make
these decisions in collaboration with customers. They state that
including load serving entities in these discussions would go a long
way towards alleviating their concern with having a separate cost
allocation method for facilities driven by public policy requirements.
    682. Several commenters seek clarification of Principle 6. New York
ISO seeks clarification that public utility transmission providers may
adopt cost allocation methods for different types of transmission
projects without creating a specific cost allocation mechanism
applicable solely to public policy projects. New York ISO states that
the Proposed Rule appears to contemplate this and contends that such a
clarification would be appropriate, especially for regions such as New
York that do not currently have a rule requiring that public policy
projects be constructed. New York ISO states that such cost allocation
methods can and should be determined on a project-specific basis
depending on the policy driving the agreed-upon transmission project.
    683. Long Island Power Authority suggests that imposing a single
regional cost allocation method for public policy driven projects may
inhibit the development of transmission that facilitates the
interconnection of renewable energy generation and would allocate costs
of each public policy driven project to the same beneficiaries, leading
to the assignment of duplicative costs to specific entities and to
increases in rates that reduce, or possibly eliminate, an entity's
ability to incur costs for its own renewable generation or energy
efficiency goals. Long Island Power Authority therefore believes the
Final Rule should not direct project costs to non-beneficiaries and not
impose costs that prevent non-jurisdictional entities from satisfying
their own lawful public policy goals.
    684. Alliant Energy seeks clarification that for purposes of
Principle 6 the terms ``region'' and ``regional'' cover the entire RTO
or ISO footprint in the case where there is a Commission-approved
planning region within an RTO or ISO, such as American Transmission
within MISO. Alliant Energy contends that Principle 6 invites the
opportunity for discrimination and unintended consequences if the
Commission determines that a region could constitute a single
transmission provider within the RTO or ISO footprint. It states that
cost allocation policies within an RTO or ISO footprint must be
consistent.
b. Commission Determination
    685. The Commission adopts the following Cost Allocation Principle
6 for both regional and interregional cost allocation:

    Regional Cost Allocation Principle 6: A transmission planning
region may choose to

use a different cost allocation method for different types of
transmission facilities in the regional transmission plan, such as
transmission facilities needed for reliability, congestion relief,
or to achieve Public Policy Requirements.\510\ Each cost allocation
method must be set out clearly and explained in detail in the
compliance filing for this rule.
---------------------------------------------------------------------------

    \510\ ``Public Policy Requirements'' replaces ``public policy
requirements established by State or Federal laws or regulations
that may drive transmission needs'' as defined in P 0 of this Final
Rule.

---------------------------------------------------------------------------
and

    Interregional Cost Allocation Principle 6: The public utility
transmission providers located in neighboring transmission planning
regions may choose to use a different cost allocation method for
different types of interregional transmission facilities, such as
transmission facilities needed for reliability, congestion relief,
or to achieve Public Policy Requirements.\511\ Each cost allocation
method must be set out clearly and explained in detail in the
compliance filing for this rule.\512\
---------------------------------------------------------------------------

    \511\ ``Public Policy Requirements'' replaces ``public policy
requirements established by State or Federal laws or regulations
that may drive transmission needs'' as defined in P 0 of this Final
Rule.
    \512\ The word ``clearly'' has been added to this sentence to
make it consistent with the last sentence in regional cost
allocation Principle 6.

    686. We agree with the Pennsylvania PUC and others that
transmission planning regions should be afforded the opportunity to
develop a different cost allocation method for different transmission
project types.\513\ The development of such cost allocation method,
however, rests with the public utility transmission providers
participating in regional transmission planning processes in
consultation with stakeholders. Cost Allocation Principle 6 permits but
does not require the public utilities in a transmission planning region
to designate different types of transmission facilities, and it permits
but does not require the public utilities in a transmission planning
region that choose to designate different types of transmission
facilities to have a different cost allocation method for each type.
However, we clarify that if the public utilities choose to have a
different cost allocation method for each type of transmission
facility, there can be only one cost allocation method for each type.
---------------------------------------------------------------------------

    \513\ We note that a method, such as a highway-byway method for
a reliability project, may itself further distinguish types of
facilities, for example by voltage, and allocate costs differently
for each type.
---------------------------------------------------------------------------

    687. It may be appropriate to have different cost allocation
methods for transmission facilities that are planned for different
purposes or planned pursuant to different regional transmission
planning processes, provided that these methods are applied
consistently. In particular, in response to some commenters, we clarify
that we are not requiring a distinct regional or interregional cost
allocation method applicable solely to transmission facilities for
Public Policy Requirements and that are selected in a regional
transmission plan for purposes of cost allocation, but we allow it.
    688. Moreover, as the Commission recognized in Order No. 890,
states have a critical role with respect to transmission planning.\514\
That role may be particularly important with respect to planning for
transmission needs driven by Public Policy Requirements, where multiple
states may be impacted by the selection (or cost) of a given
transmission project needed to meet transmission needs driven by a
particular state's Public Policy Requirement. Therefore, we strongly
encourage states to participate actively not only in transmission
planning processes in general, but specifically in the identification
of transmission needs driven by Public Policy Requirements. We also
note that agreements among states with respect to cost allocation may
be particularly important for transmission facilities designed to meet
transmission needs driven by Public Policy Requirements. States could
pursue such agreements in various forms, including a committee of state
regulators or through a compact among states that receives appropriate
approval from Congress.
---------------------------------------------------------------------------

    \514\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 574.
---------------------------------------------------------------------------

    689. We leave it to each transmission planning region or pair of
transmission planning regions to propose on compliance whether, and
how, to distinguish between types of transmission facilities. We also
note that a public utility transmission provider together with other
public utility transmission providers in a transmission planning
region, and an RTO or ISO, which is itself a public utility
transmission provider, may have a single cost allocation method for all
proposed transmission facilities or different methods for different
types of transmission facilities. For example, cost allocation methods
may distinguish among transmission facilities that are driven by needs
associated with maintaining reliability, addressing economic
considerations, and achieving Public Policy Requirements, all of which
would be required to be considered in the regional transmission
planning process as explained in this Final Rule. The Commission
recognizes that several transmission planning regions that have
different cost allocation methods by type of transmission project
currently have transmission planning procedures and cost allocation
methods that refer only to the first two types of transmission
projects. This Final Rule allows a public utility transmission provider
through its participation in a transmission planning region to
distinguish or not distinguish among these three types of transmission
facilities, as long as each of the three types is considered in the
regional transmission planning process and there is a means for
allocating the costs of each type of transmission facility to
beneficiaries. In response to PSEG Companies, we clarify that a
regional cost allocation method for one type of regional transmission
facility or for all regional transmission facilities may include voting
requirements for identified beneficiaries to vote on proposed
transmission facilities.
    690. However, a public utility transmission provider must have a
regional cost allocation method for any transmission facility selected
in a regional transmission plan for purposes of cost allocation. It may
not designate a type of transmission facility that has no regional cost
allocation method applied to it, which would effectively exclude that
type of transmission facility from being selected in a regional
transmission plan for purposes of cost allocation. In response to New
York ISO and Long Island Power Authority, a transmission facility
proposed to address a Public Policy Requirement must be eligible for
selection in a regional transmission plan for purposes of cost
allocation and must not be designated as a type of transmission
facility for which the cost allocation method must be determined only
on a project-specific basis. However, in contrast to what New York
ISO's comment implies, the regional cost allocation method for such a
transmission facility may take into account the transmission needs
driven by a Public Policy Requirement, who is responsible for complying
with that Public Policy Requirement, and who benefits from the
transmission facility. If a regional transmission plan determines that
a transmission facility serves several functions, as many commenters
point out it may, the regional cost allocation method must take the
benefits of these functions of the transmission facility into account
in allocating costs roughly commensurate with benefits.
    691. As stated elsewhere, we decline to opine here on whether any
existing processes satisfy Cost Allocation Principle 6 in the regional
and

interregional context. For example, if a region believes that its
regional transmission planning process meets Regional Cost Allocation
Principle 6 for all facilities, including transmission facilities
driven by a Public Policy Requirement, it may submit evidence in
support of this position in a compliance filing pursuant to this Final
Rule.
    692. Some commenters are concerned that designation of transmission
facility type can result in substantial delay because transmission
facilities may serve multiple functions and benefits and beneficiaries
may vary over time. This concern should be addressed in each region's
transmission planning process. However, we note that many regional
transmission planning processes currently have mechanisms for
distinguishing between types of transmission facilities, and there is
no reason to believe that transmission facilities designation
necessarily results in a substantial delay.
    693. In response to Alliant Energy's comment, the Commission
addressed this concern in the regional transmission planning section
above.\515\
---------------------------------------------------------------------------

    \515\ See discussion supra section III.A.
---------------------------------------------------------------------------

8. Whether To Establish Other Cost Allocation Principles
a. Commission Proposal
    694. The Proposed Rule sought comment on whether additional
principles should apply to cost allocation for either regional or
interregional transmission facilities, and it asked commenters to
submit and explain the need for those principles.\516\
---------------------------------------------------------------------------

    \516\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 178.
---------------------------------------------------------------------------

b. Comments
    695. Six Cities ask the Commission to include a new principle or a
corollary requirement that the transmission planning processes include
provisions to encourage cost containment, a point echoed in other
comments on cost allocation.\517\ The New England States Committee on
Electricity also argues that the Commission should establish
transmission cost control and review mechanisms to ensure that
construction is performed as efficiently as possible and the costs
incurred are reasonable.
---------------------------------------------------------------------------

    \517\ E.g., California Commissions; California Municipal
Utilities; City of Santa Clara; Connecticut & Rhode Island
Commissions; NEPOOL; New England States Committee on Electricity;
New England Transmission Owners; Northeast Utilities; Northern
California Power Agency; and Transmission Agency of Northern
California. While San Diego Gas & Electric agrees that it is
appropriate for commenters to seek safeguards with respect to cost
overruns, it takes issue as a factual matter with California
Municipal Utilities' inclusion of the Sunrise-Powerlink project as
one that is a clear example that cost overruns are endemic.
---------------------------------------------------------------------------

    696. ELCON and Associated Industrial Groups urge the Commission to
adopt two technical principles related to the costs of new transmission
investments being allocated on a representatively-determined capacity
(MW) basis, not on an volumetric (MWh) basis and periodic adjustment of
cost allocation to reflect changes in power flows.\518\ However, ITC
Companies do not support periodic adjustments of cost allocation and
describe it as disruptive and potentially risky.
---------------------------------------------------------------------------

    \518\ See also East Texas Cooperatives and Maine Parties.
---------------------------------------------------------------------------

    697. Other commenters propose principles that look to safeguard
particular participants in the transmission planning process. For
example, City of Los Angeles Department of Water and Power states that
there should be appropriate safeguards that allow non-public utilities
to seek required approvals before they are allocated costs for new
transmission projects, and that participation in the regional
transmission planning process by non-public utilities remain voluntary.
Similarly, Transmission Dependent Utility Systems state that if a
particular customer is not allowed to participate fully in a regional
planning process, there should be a presumption that the customer is
not receiving benefits from the regional plan.
    698. San Diego Gas & Electric proposed policy changes for
transmission projects that span multiple balancing authority areas and
for which a voluntarily negotiated cost allocation arrangement proves
feasible. Its proposed policy changes focused on payment by loads,
allocation of costs to balancing authority areas that do or do not
benefit, and encouragement for non-jurisdictional governmental agencies
to adopt reciprocal cost allocation policies.
    699. Michigan Citizens Against Rate Excess proposed three
additional principles that limit transmission costs driven by public
policy requirements to the state or states of origin,\519\ that
transmission cost recovery should not be a means to subsidize non-
transmission projects, and that no state or region should shoulder the
cost alone when benefits accrue to others as well, namely for
reliability projects only.
---------------------------------------------------------------------------

    \519\ See also Electricity Consumers Resource Council and the
Associated Industrial Groups and Public Power Council.
---------------------------------------------------------------------------

    700. PUC of Ohio maintains that the Commission should consider
principles when considering any long-term transmission rate design that
provide the utility the opportunity to recover an authorized revenue
amount, is equitable, provides for customer understanding and rate
continuity, minimizes customer impact and undue cost shifts, and
recognizes the use and benefits of the transmission system.
    701. Environmental Defense Fund, the Wilderness Society, and
Western Resource Advocates recommended principles that they argue will
assist in identifying the full range of benefits that must be accounted
for when justifying a project.\520\ They state that project costs
should be allocated consistent with the range/distribution of benefits
that are likely to accrue in both the near- and long-term, that the
benefits of projects must include carbon emissions reductions and the
attainment of other state and federal policy imperatives, and that
beneficiaries under any beneficiaries-pay cost allocation policy be
defined to include consideration of the myriad of beneficial outcomes
described above, as well as other benefits likely to accrue to
transmission system users over the life of the grid investment.
---------------------------------------------------------------------------

    \520\ E.g., Environmental Defense Fund; Wilderness Society; and
Western Resource Advocates. Sonoran Institute also proposes the
second and third principles proposed by Environmental Defense Fund
and Wilderness Society and Western Resource Advocates.
---------------------------------------------------------------------------

    702. American Antitrust Institute states that the Commission should
consider how cost-benefit tests for cost allocation and recovery can be
designed to promote competition and encourages the Commission to
carefully scrutinize cost allocation approaches based on voting rules
that give incumbent utility transmission providers the ability to vote
against economic transmission projects that benefit ratepayers.
    703. Energy Consulting Group suggests that beneficiaries, including
those receiving firm transmission service should to be obligated to pay
the allocated costs of the improvements through a specified tariff rate
and relieved of any obligations to pay current OATT rates for
improvements.
c. Commission Determination
    704. We agree with Six Cities, New England States Committee on
Electricity, and others that cost containment is important. However, we
decline to establish a corresponding cost allocation principle as
recommended, primarily because cost containment concerns the level of
costs, not how costs should be allocated among beneficiaries. While we
understand and agree that those receiving a cost allocation are
appropriately concerned

that the level of the cost being allocated should be controlled
accordingly, we do not believe that a new principle or corollary
requirement in this Final Rule is the appropriate mechanism to promote
cost containment.
    705. We have considered all the other additional principles
proposed by commenters but decline to adopt them. We do not believe
that any additional principles are necessary at this time. Moreover, we
believe that many of the suggestions of commenters, if required by this
Final Rule, would limit the flexibility we provide in this Final Rule
for public utility transmission providers to propose the appropriate
cost allocation method or methods for their transmission planning
region or pair of transmission planning regions. If a commenter
believes that one or more of its suggestions is consistent with the six
principles we adopt herein, that commenter is free to work within a
regional stakeholder process to see if its concerns could be addressed.
We will permit each transmission planning region or pair of
transmission planning regions to propose cost allocation methods that
satisfy additional requirements that they deem necessary to meet the
specific needs of that transmission planning region or transmission
planning regions provided they are consistent with the cost allocation
principles of this Final Rule. Any such requirements should be
submitted as part of the cost allocation method or methods on
compliance, along with an explanation of how they comply with the
requirements of this Final Rule.

F. Application of the Cost Allocation Principles

    706. The Proposed Rule addressed several potential applications of
the cost allocation principles, seeking general comment on the
appropriateness of these six cost allocation principles and how they
should be applied to the costs of new regional and interregional
transmission facilities that are eligible for cost allocation.\521\
---------------------------------------------------------------------------

    \521\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 178.
---------------------------------------------------------------------------

1. Whether To Have Broad Regional Cost Allocation for Extra-High
Voltage Facilities
a. Commission Proposal
    707. The Commission declined in the Proposed Rule to address in the
abstract and in the absence of a record whether several candidate cost
allocation methods, either in use today in a region or proposed by some
commenters, would satisfy the proposed regional and interregional cost
allocation principles.
b. Comments on Cost Allocation for Extra-High Voltage Facilities
    708. Several commenters recommend that the Commission establish a
rebuttable presumption that the costs of extra-high voltage
transmission facilities be allocated widely across a region.
    709. NextEra argues that extra-high voltage lines, typically 345 kV
and above, provide regional benefits, and that the Commission should
require that every cost allocation method include a rebuttable
presumption that the costs of such lines will be allocated widely.
WIRES agrees, pointing out that this is essentially the approach taken
in PJM for projects above 500 kV. NextEra suggests that those seeking
to rebut this presumption in the context of a particular extra-high
voltage project should bear the burden of showing they receive no
benefits from the project. To accomplish this, NextEra recommends that
the Commission adopt a pro forma transmission cost allocation method,
and that transmission providers and stakeholders could either follow
the pro forma model or propose a method that is consistent with or
superior to that model. Multiparty Commenters also support a rebuttable
presumption for extra-high voltage lines.\522\ Similarly, AEP argues
that extra-high voltage facilities provide regionwide benefits and the
costs of such facilities should be allocated widely across a region.
AEP also suggests that extra-high voltage AC facilities that
interconnect electrical regions and that are identified as needed under
the applicable interregional coordination agreement benefit both
regions, and AEP states that the costs of such facilities should be
allocated across those regions. Clean Line supports allocating the
costs for extra-high voltage lines across the largest region possible.
---------------------------------------------------------------------------

    \522\ Multiparty Commenters append an analysis performed by CRA
International that purports to show the widely dispersed benefits of
extra-high voltage transmission facilities (CRA Study).
---------------------------------------------------------------------------

    710. Baltimore Gas & Electric submits that the Final Rule should
apply highway/byway principles to projects that traverse RTOs and to
projects within RTOs. It states that the cost allocation principles
espoused in the Proposed Rule should be adopted, and that the
Commission should at least allow for the Opinion No. 494 method to be
continued in PJM,\523\ regardless of the methods that are deemed
appropriate for other RTOs.\524\ However, Baltimore Gas & Electric
states that other RTOs must maintain cost allocation mechanisms with
respect to each other that provide for reciprocal treatment. It states
that new, high voltage, RTO-approved facilities should be paid for
uniformly by all rate zones because they provide significant benefits
to all rate zones.
---------------------------------------------------------------------------

    \523\ PJM Interconnection, L.L.C., Opinion No. 494, 119 FERC ]
61,063 (2007), Opinion No. 494-A, 112 FERC ] 61,082 (2008) (cost
allocation methods for new transmission facilities that
distinguished between facilities below and above 500 kV), remanded,
Illinois Commerce Comm'n v. FERC, 576 F.3d 470 (7th Cir. 2009).
    \524\ Delaware PSC and American Forest & Paper also support
PJM's cost allocation method for high voltage facilities. American
Forest & Paper asserts PJM's method is preferable to the energy
allocator method proposed in MISO.6
---------------------------------------------------------------------------

    711. Several reply commenters oppose proposals to establish a
rebuttable presumption for extra-high voltage facilities.\525\ Large
Public Power Council argues that such proposals cannot be squared with
the cost allocation principle set forth in Illinois Commerce Commission
that utilities cannot be required to pay for facilities from which its
members derive no or only trivial benefits. Ad Hoc Coalition of
Southeastern Utilities replies that there is no basis to presume that
an extra-high voltage transmission overlay is beneficial to all
customers, and that such a position is inconsistent with Illinois
Commerce Commission. Ad Hoc Coalition of Southeastern Utilities
emphasizes that the addition of extra-high voltage facilities can
overload the underlying transmission system and change power flows,
requiring upgrades to lower voltage lines and operational changes. Ad
Hoc Coalition of Southeastern Utilities contends that broadly
socializing the costs of extra-high voltage facilities could bias the
integrated resource planning process total-cost analyses toward such
facilities in that at least some of their costs will be spread
throughout the region and not incurred by the utility causing the need
for the facilities. Similarly, Southern Companies states that its
integrated resource planning has not shown that extra-high voltage
lines are a cost-effective, reliable solution to meeting identified
transmission needs and that constructing such lines in the Southeast
and then broadly socializing their costs over the entire load in the
region would result in higher costs to consumers than implementing non-
extra-high voltage solutions. Southern Companies also argue that such
an approach would skew the evaluations of which transmission and non-
transmission

alternatives are the least cost means to meet an identified need. MEAG
Power provides illustrations of how such a proposal could result in
unjust and unreasonable rates. Coalition for Fair Transmission Policy
argues that the CRA Study filed by Multiparty Commenters is flawed
because it neglects to mention that in some cases extra-high voltage
facilities impose costs on some parts of a region as well, and that
such impacts can be ascertained only by examining specific projects.
MEAG Power similarly asserts that the CRA study is flawed for a number
of reasons, including the fact that it examines only the existing grid,
omits several regions from its analysis and fails to estimate any
dollar benefits accruing to any party.
---------------------------------------------------------------------------

    \525\ E.g., Coalition for Fair Transmission Policy; Ad Hoc
Coalition of Southeastern Utilities; Southern Companies; Large
Public Power Council; East Texas Cooperatives; New England States
Committee on Electricity; and APPA.
---------------------------------------------------------------------------

    712. In addition, in its reply comments, SoCal Edison disagrees
with NextEra's proposal for a pro forma cost allocation agreement,
arguing that there is not sufficient evidence to determine that such an
approach is consistent with the principle that costs be allocated
roughly commensurate with benefits.
c. Commission Determination
    713. We are not persuaded to adopt a rebuttable presumption that
the costs of extra-high voltage facilities, such as 345 kV and above,
should be allocated widely across a transmission planning region. Such
a presumption would be akin to a default cost allocation method which,
as discussed above,\526\ we do not adopt. For the same reason, we do
not agree that a pro forma cost allocation method is appropriate.
---------------------------------------------------------------------------

    \526\ See discussion supra section IV.E.1.
---------------------------------------------------------------------------

    714. The Commission recognizes and intends that several approaches
to cost allocation may satisfy the principles adopted in this Final
Rule. If it were otherwise, the offer of regional flexibility would be
an empty offer. Therefore, we do not impose a single cost allocation
method for any transmission planning region. If public utility
transmission providers and their stakeholders in a transmission
planning region reach a consensus that the costs of extra-high voltage
facilities, such as 345 kV and above, should be allocated widely and
that this would result in a distribution of costs that is at least
roughly commensurate with the benefits received, and support this
conclusion with evidence, they may submit the method to the Commission
on compliance.
2. Whether To Limit the Use of Participant Funding
a. Commission Proposal
    715. Following the presentation of these six cost allocation
principles in the Proposed Rule, the Commission discussed their
application to participant funding as a regional or interregional cost
allocation method for satisfying these principles. The Commission
explained that in transmission planning regions outside of the RTO and
ISO footprints, many of the cost allocation methods that the Commission
accepted in the Order No. 890 compliance proceedings rely exclusively
on a ``participant funding'' approach to cost allocation, in which the
costs of a new transmission facility are allocated only to entities
that volunteer to bear those costs.\527\ The Commission proposed that
participant funding is not a cost allocation method that would satisfy
these principles. The Commission further noted that a cost allocation
method that relies exclusively on a participant funding approach,
without respect to other beneficiaries of a transmission facility,
increases the incentive of any individual beneficiary to defer
investment in the hopes that other beneficiaries will value a
transmission project enough to fund its development. However, the
Proposed Rule did not prohibit voluntary participant funding for those
that choose to use it.
---------------------------------------------------------------------------

    \527\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 121-28.
---------------------------------------------------------------------------

b. Comments on Limiting Participant Funding
    716. Many commenters generally agree that a cost allocation method
based exclusively on a participant funding approach neither achieves
the goal of timely development of building transmission facilities nor
results in just and reasonable rates.\528\ In support of this position,
several commenters maintain that participant funding does not allocate
the costs of new regional transmission projects to their multiple
beneficiaries.\529\ East Texas Cooperatives request that the Commission
define the scope of acceptable benefits that may be considered, provide
that cost allocation methods ensure that customers receive benefits
commensurate with their share of costs, and conclude that participant
funding is a failed cost allocation method.
---------------------------------------------------------------------------

    \528\ E.g., AWEA; East Texas Cooperatives; Gaelectric; ITC
Companies; Multiparty Commenters; NextEra; Transmission Access
Policy Study Group; Transmission Dependent Utility Systems; and
WIRES.
    \529\ E.g., AWEA; Gaelectric; Multiparty Commenters; and
Transmission Dependent Utility Systems.
---------------------------------------------------------------------------

    717. Several commenters agree that the Commission should clarify
what regional cost allocation approaches are not acceptable.\530\ AWEA
states that to ensure that future cost allocation proposals do not
serve as barriers to transmission expansion, and can support
transmission additions that are ``right sized'' to meet the long-term
needs of the system, the Commission should specify when participant
funding, and other such cost allocation methods, should not be allowed,
or what level of participant funding it might find acceptable. NextEra
argues that the use of participant funding should be minimized, and
that the Final Rule should specify that costs of transmission projects
identified through the transmission planning process cannot be
allocated to generators because any other outcome would simply continue
the status quo of discouraging development of new resources.
---------------------------------------------------------------------------

    \530\ E.g., AWEA; ITC Companies; Multiparty Commenters; NextEra;
and WIRES.
---------------------------------------------------------------------------

    718. In contrast, other commenters argue that the Commission should
promote flexibility, and continue to allow for participant funding of
projects with voluntary agreements on cost sharing.\531\ Some
commenters appear to believe the Proposed Rule would prohibit the use
of participant funding in all circumstances, not just for new
transmission facilities in a regional transmission plan for purposes of
regional cost allocation to regional beneficiaries. As a starting
point, a few commenters state that the Commission has accepted and
continues to accept rates using participant funding. For example, E.ON
points out that the Commission approved negotiated rates for the
Chinook and Zephyr merchant transmission projects, which it believes is
evidence that participant funding may be of practical use and may have
more widespread application as transmission customers are required to
access electricity from renewable generation. Therefore, some
commenters argue that the Commission first must present factual
evidence that current cost allocation methods are unjust and
unreasonable, or otherwise unduly discriminatory, which it has not
done.

Ad Hoc Coalition of Southeastern Utilities and Arizona Corporation
Commission argue that participant funding most closely follows ``but
for'' cost causation principles, and Ad Hoc Coalition of Southeastern
Utilities adds that it is most consistent with judicial precedent
regarding what constitutes an appropriate cost allocation method.
Similarly, many commenters contend that the participant funding
approach has led to the building of transmission projects that meet the
reliability and economic needs of customers, and state and local policy
goals.\532\ Ad Hoc Coalition of Southeastern Utilities emphasizes that
a requestor pays approach has been the norm for intersystem
transmission projects in both the electric and gas industries. Arizona
Corporation Commission, Salt River Project, City of Los Angeles
Department of Water and Power, and Tucson Electric state that, in the
West and Southwest, the participant-funded method of cost allocation
has not delayed construction of transmission facilities and has been
effective. Northern Tier Transmission Group believes that facilitating
willing parties to make rational business decisions has a higher
probability of causing the construction of new transmission than does a
situation where costs could be forced upon unwilling parties, as is
contemplated by the Proposed Rule.
---------------------------------------------------------------------------

    \531\ E.g., Ad Hoc Coalition of Southeastern Utilities; Arizona
Corporation Commission; Arizona Public Service Company; City of Los
Angeles Department of Water and Power; Santa Clara; E.ON; Large
Public Power Council; Nebraska Public Power District; Northern Tier
Transmission Group; Salt River Project; Transmission Agency of
Northern California; Tucson Electric; Washington Utilities and
Transportation Commission; WestConnect; and Westar.
    \532\ E.g., Ad Hoc Coalition of Southeastern Utilities; Arizona
Corporation Commission; City of Los Angeles Department of Water and
Power; and Tucson Electric.
---------------------------------------------------------------------------

    719. In its reply comments, Entergy states that it believes that
participant funding is an appropriate pricing method and should not be
excluded from consideration in the Final Rule. Entergy requests
clarification that any adverse finding against participant funding
would not apply to customer-specific requests for service under the pro
forma OATT. It notes that the Commission provided this clarification in
Order No. 890, and it suggests that the Commission had the same intent
in the Proposed Rule. Entergy argues that the types of projects set
forth in the Proposed Rule do not include customer-specific requests
for service, and it explains that such requests are evaluated pursuant
to specific OATT procedures that govern system impact and facilities
studies, and are performed in consultation with the affected customer,
not vetted through a regional stakeholder process. Entergy notes that
upgrades necessary to meet the specific request are similarly
constructed to meet the needs of the customers, and are not subjected
to a cost-benefit test to identify beneficiaries. Entergy cites to its
own proposal regarding customer-specific service requests that the
Commission found ``will promote, not discourage, efficient
investments.'' \533\
---------------------------------------------------------------------------

    \533\ Entergy Servs., Inc., 115 FERC ] 61,095, at P 168 (2006).
---------------------------------------------------------------------------

    720. Some commenters that support participant funding as a cost
allocation method raise concerns about overly broad socialization of
costs absent such a mechanism.\534\ Large Public Power Council adds
that the potential for cost socialization will lead to the planning
process becoming vastly more contentious. Southern Companies argue that
the proposed reforms are not consistent with cost causation principles.
Likewise, Transmission Agency of Northern California argues that broad
socialization of costs among all transmission customers is inconsistent
with cost causation principles. Avista and Puget Sound state that the
cost allocation proposals appear to improperly shift costs to existing
customers that do not participate in projects. American Forest & Paper
is concerned about the potential for overly broad socialization of
costs to diminish incentives for cost-effective planning.
---------------------------------------------------------------------------

    \534\ E.g., Arizona Public Service Company; Large Public Power
Council; Nebraska Public Power District; WestConnect; and
Transmission Agency of Northern California.
---------------------------------------------------------------------------

    721. Some commenters believe that existing participant funding cost
allocation processes are adequate and do not see a need at this time to
change those existing processes.\535\ These commenters and others,\536\
primarily located in the Western Interconnection, believe that
voluntary coordination and cost allocation of transmission facilities
are more appropriate, particularly given their experiences, and that a
mandatory cost allocation requirement could impede the transmission
planning process and unintentionally delay or impede the development of
new transmission.\537\ California Commissions contend that this
voluntary approach has minimized disputes and litigation. Arizona
Public Service Company, Tucson Electric, and others suggest that
voluntary participant funding of projects has permitted participants to
successfully engage in allocating costs for transmission projects in
the Southwest.
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    \535\ E.g., WestConnect; PUC of Nevada; Transmission Agency of
Northern California; and Coalition for Fair Transmission Policy.
    \536\ E.g., Arizona Public Service Company; Bonneville Power;
Tucson Electric; and California Transmission Planning Group.
    \537\ E.g., Arizona Public Service Company; California
Commissions; and Western Area Power Administration.
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    722. Commenters note other challenges to restricting participant
funding. For example, California Commissions explain that assessment of
benefits and beneficiaries is particularly challenging for long
distance interregional transmission that would access remote renewable
resources, given the uncertainties surrounding the ultimate build-out,
cost (and cost competitiveness), and long-term purchasers for these
resources, which are greatly complicated by the fact that energy and
renewable energy credits may be purchased separately. Xcel states that
MISO included a proposed solution to the ``first move/free rider''
issue, namely, that a generator interconnection customer who funds
network upgrades pays the entire cost of those upgrades, regardless of
other parties who may use them. Xcel asks that the Commission encourage
such flexible and innovative solutions to such issues, particularly as
public policy requirements are incorporated into transmission planning
processes.
c. Commission Determination
    723. The Commission finds that participant funding is permitted,
but not as a regional or interregional cost allocation method. If
proposed as a regional or interregional cost allocation method,
participant funding will not comply with the regional or interregional
cost allocation principles adopted above. The Commission is concerned
that reliance on participant funding as a regional or interregional
cost allocation method increases the incentive of any individual
beneficiary to defer investment in the hopes that other beneficiaries
will value a transmission project enough to fund its development.
Because of this, it is likely that some transmission facilities
identified as needed in the regional transmission planning process
would not be constructed in a timely manner, adversely affecting
ratepayers. On the other hand, we agree that if the costs of a
transmission facility were to be allocated to non-beneficiaries of that
transmission facility, then those non-beneficiaries are likely to
oppose selection of the transmission facility in a regional
transmission plan for purposes of cost allocation or to otherwise
impose obstacles that delay or prevent the transmission facility's
construction. For this reason, we adopt the cost allocation principles
above that seek, among other things, to ensure that any regional cost
allocation method or methods developed in compliance with this Final
Rule allocates costs roughly commensurate with benefits.

    724. We therefore disagree with commenters who challenge this Final
Rule's limitation on the use of participant funding on the grounds that
it is inconsistent with the cost causation principle. Through the cost
allocation principles adopted above, we require in all cases that
regional and interregional cost allocation methods result in the
allocation of costs for new transmission facilities in a manner that is
roughly commensurate with the benefits received by those who will pay
those costs. In proposing any cost allocation method or methods on
compliance, there must be a demonstrated link between the costs imposed
through a cost allocation method and the benefits received by
beneficiaries that must pay those costs. However, these principles do
not in any way foreclose the opportunity for a transmission developer,
a group of transmission developers, or one or more individual
transmission customers to voluntarily assume the costs of a new
transmission facility. Indeed, the evaluation of the potential benefits
and beneficiaries of a proposed transmission facility may facilitate
negotiations among such entities, potentially leading to greater use of
participant funding for transmission projects not selected in the
regional transmission plan for purposes of cost allocation.
    725. Thus, we will not permit participant funding to be the cost
allocation method for regional or interregional projects that are
selected in a regional transmission plan for purposes of cost
allocation. However, we are not finding that participant funding leads
to improper results in all cases. For example, a transmission developer
may propose a project to be selected in the regional transmission plan
for purposes of regional cost allocation but fail to satisfy the
transmission planning region's criteria for a transmission project
selected in the regional transmission plan for purposes of cost
allocation. Under such circumstances, the developer could either
withdraw its transmission project or proceed to ``participant fund''
the transmission project on its own or jointly with others. In
addition, it is possible that the developer of a facility selected in
the regional transmission plan for purposes of cost allocation might
decline to pursue regional cost allocation and, instead, rely on
participant funding.
    726. Ad Hoc Coalition of Southeastern Utilities and Arizona
Corporation Commission have not shown why participant funding is
uniquely the cost allocation method that most closely follows ``but
for'' cost causation principles. In fact, established precedent argues
against this claim. Cost causation principles specify that, ``[t]o the
extent that a utility benefits from the costs of new facilities, it may
be said to have `caused' a part of those costs to be incurred [because]
without the expectation of its contributions, the facilities might not
have been built, or might have been delayed.'' \538\ This statement
embodies ``but for'' reasoning, and since participant funding does not
in all cases capture all beneficiaries of new facilities, it cannot be
said to be the cost allocation method that mostly follows ``but for''
cost causation principles.\539\ Northern Tier Transmission Group argues
that participant funding has a higher probability of causing the