[Federal Register Volume 77, Number 105 (Thursday, May 31, 2012)]
[Rules and Regulations]
[Pages 32184-32306]
[FR Doc No: 2012-12418]

Vol. 77

Thursday,

No. 105

May 31, 2012

Part II

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Part 35

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

Federal Register / Vol. 77 , No. 105 / Thursday, May 31, 2012 / Rules
and Regulations

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM10-23-001; Order No. 1000-A]

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

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Order on rehearing and clarification.

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SUMMARY: The Federal Energy Regulatory Commission affirms its basic
determinations in Order No. 1000, amending the transmission planning
and cost allocation requirements established in Order No. 890 to ensure
that Commission-jurisdictional services are provided at just and
reasonable rates and on a basis that is just and reasonable and not
unduly discriminatory or preferential. This order affirms the Order No.
1000 transmission planning reforms that: Require that each public
utility transmission provider participate in a regional transmission
planning process that produces a regional transmission plan; provide
that local and regional transmission planning processes must provide an
opportunity to identify and evaluate transmission needs driven by
public policy requirements established by state or federal laws or
regulations; improve coordination between neighboring transmission
planning regions for new interregional transmission facilities; and
remove from Commission-approved tariffs and agreements a federal right
of first refusal. This order also affirms the Order No. 1000
requirements that each public utility transmission provider must
participate in a regional transmission planning process that has: A
regional cost allocation method for the cost of new transmission
facilities selected in a regional transmission plan for purposes of
cost allocation and an interregional cost allocation method for the
cost of new transmission facilities that are located in two neighboring
transmission planning regions and are jointly evaluated by the two
regions in the interregional transmission coordination process required
by this Final Rule. Additionally, this order affirms the Order No. 1000
requirement that each cost allocation method must satisfy six cost
allocation principles.

DATES: This order on rehearing and clarification will be effective on
July 2, 2012.

FOR FURTHER INFORMATION CONTACT:

John Cohen, Federal Energy Regulatory Commission, Office of the General
Counsel, 888 First Street NE., Washington, DC 20426,<PHONE_NUMBER>.
Shiv Mani, Federal Energy Regulatory Commission, Office of Energy
Policy and Innovation, 888 First Street NE., Washington, DC 20426,
(202) 502-8240.

SUPPLEMENTARY INFORMATION:

Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller,
John R. Norris, and Cheryl A. LaFleur.

Order No. 1000-A

Order On Rehearing and Clarification

Issued May 17, 2012

Table of Contents

                                                               Paragraph
                                                                  No.

I. Introduction.............................................           1
II. The Need for Reform.....................................           4
    A. Final Rule...........................................           4
    B. Requests for Rehearing and Clarification.............          13
        1. Arguments Regarding Whether the Commission                 13
         Provided Substantial Evidence for the Transmission
         Planning and Cost Allocation Reforms...............
    C. Commission Determination.............................          50
III. Transmission Planning..................................         102
    A. Regional Transmission Planning Process...............         102
        1. Legal Authority for Order No. 1000's Transmission         103
         Planning Reforms...................................
            a. Final Rule...................................         103
            b. Order No. 1000's Interpretation of FPA                108
             Section 202(a).................................
                i. Requests for Rehearing and Clarification.         108
                ii. Commission Determination................         121
            c. Role of FPA Section 217(b)(4)................         159
                i. Requests for Rehearing and Clarification.         159
                ii. Commission Determination................         168
            d. Effect on Integrated Resource Planning and            180
             State Authority Over Transmission Siting,
             Permitting, and Construction...................
                i. Requests for Rehearing and Clarification.         180
                ii. Commission Determination................         186
            e. Legal Authority Related to Consideration of           195
             Transmission Needs Driven by Public Policy
             Requirements...................................
                i. Requests for Rehearing and Clarification.         195
                ii. Commission Determination................         203
            f. Legal Issues Related to Order No. 1000's              217
             Interregional Transmission Coordination Reforms
                i. Requests for Rehearing and Clarification.         217
                ii. Commission Determination................         222
            g. Other Legal Issues Related to Regional                228
             Transmission Planning Requirements.............
                i. Requests for Rehearing and Clarification.         228
                ii. Commission Determination................         230
        2. Regional Transmission Planning Requirements......         232
            a. Final Rule...................................         232
            b. Requests for Rehearing and Clarification.....         235
            c. Commission Determination.....................         263
        3. Consideration of Transmission Needs Driven by             302
         Public Policy Requirements.........................
            a. Final Rule...................................         302
            b. Requests for Rehearing and Clarification.....         304
            c. Commission Determination.....................         317

    B. Nonincumbent Transmission Developers.................         340
        1. Legal Authority..................................         341
            a. Final Rule...................................         341
            b. Requests for Rehearing and Clarification.....         345
                i. Arguments That the Commission Does Not            345
                 Have the Authority To Eliminate a Federal
                 Right of First Refusal.....................
1(a) Commission Determination...............................         357
                ii. Arguments That the Commission Is                 371
                 Inappropriately Regulating the Construction
                 of Transmission............................
1(a) Commission Determination...............................         377
                iii. Arguments That the Commission Must Meet         383
                 the Mobile-Sierra Public Interest Standard
                 Before Requiring Federal Rights of First
                 Refusal To Be Removed From Agreements......
1(a) Commission Determination...............................         388
        2. Requirement To Remove a Federal Right of First            392
         Refusal from Commission-Jurisdictional Tariffs and
         Agreements, and Limits on the Applicability of That
         Requirement........................................
            a. Final Rule...................................         392
            b. Requests for Rehearing and Clarification.....         395
            c. Commission Determination.....................         415
        3. Framework To Evaluate Transmission Projects               431
         Submitted for Selection in the Regional Plan for
         Purposes of Cost Allocation........................
            a. Qualification Criteria To Submit a                    432
             Transmission Project for Selection in the
             Regional Transmission Plan for Purposes of Cost
             Allocation.....................................
                i. Final Rule...............................         432
                ii. Requests for Rehearing and Clarification         433
                iii. Commission Determination...............         439
            b. Evaluation of Proposals for Selection in the          445
             Regional Transmission Plan for Purposes of Cost
             Allocation.....................................
                i. Final Rule...............................         445
                ii. Requests for Rehearing and Clarification         446
                iii. Commission Determination...............         452
            c. Reevaluation of Regional Transmission Plans           457
             When There Is a Project Delay and Reliability
             Compliance Obligations of Transmission
             Developers.....................................
                i. Final Rule...............................         457
                ii. Requests for Rehearing and Clarification         460
                iii. Commission Determination...............         477
            d. Recovery of Abandoned Plant Costs and                 484
             Backstop Authority.............................
                i. Final Rule...............................         484
                ii. Requests for Rehearing..................         485
                iii. Commission Determination...............         489
    C. Interregional Transmission Coordination..............         493
        1. Interregional Transmission Coordination                   493
         Requirements.......................................
            a. Interregional Transmission Coordination               493
             Procedures and Geographical Scope..............
                i. Final Rule...............................         493
                ii. Requests for Rehearing and Clarification         495
                iii. Commission Determination...............         500
        2. Implementation of the Interregional Transmission          506
         Coordination Requirements..........................
            a. Procedure for Joint Evaluation...............         506
                i. Final Rule...............................         506
                ii. Requests for Rehearing and Clarification         507
                iii. Commission Determination...............         509
            b. Stakeholder Participation....................         513
                i. Final Rule...............................         513
                ii. Requests for Rehearing and Clarification         514
                iii. Commission Determination...............         518
IV. Cost Allocation.........................................         523
    A. Legal Authority for Cost Allocation Reforms..........         525
        1. Final Rule.......................................         525
        2. Requests for Rehearing or Clarification..........         530
            a. Petitioners' Arguments That The FPA Requires          530
             a Contract Before Costs Are Allocated..........
            b. Arguments That Order No. 1000's Cost                  548
             Allocation Reforms Are Inconsistent With the
             Cost Causation Principle.......................
            c. Arguments That The Commission Did Not Show            551
             That Existing Rates Are Unjust and Unreasonable
        3. Commission Determination.........................         555
    B. Cost Allocation Method for Regional Transmission              593
     Facilities.............................................
        1. Final Rule.......................................         593
        2. Requests for Rehearing and Clarification.........         597
        3. Commission Determination.........................         613
    C. Cost Allocation Method for Interregional Transmission         626
     Facilities.............................................
        1. Final Rule.......................................         626
        2. Requests for Rehearing or Clarification..........         631
        3. Commission Determination.........................         634
    D. Principles for Regional and Interregional Cost                638
     Allocation.............................................
        1. Use of a Principles-Based Approach...............         638
            a. Arguments That Principles-Based Cost                  640
             Allocation Methods Are Unfair and Arguments
             Related to Commission Determination of Cost
             Allocation Method Pursuant to the Compliance
             Process........................................
                i. Commission Determination.................         647

        2. Cost Allocation Principle 1--Costs Allocated in a         654
         Way That Is Roughly Commensurate With Benefits.....
            a. Requests for Rehearing or Clarification......         658
                i. Commission Determination.................         674
        3. Cost Allocation Principle 2--No Involuntary               684
         Allocation of Costs to Non-Beneficiaries...........
            a. Final Rule...................................         684
            b. Requests for Rehearing or Clarification......         686
            c. Commission Determination.....................         689
        4. Cost Allocation Principle 3--Benefit To Cost              692
         Threshold Ratio....................................
            a. Final Rule...................................         692
            b. Request for Rehearing or Clarification.......         694
            c. Commission Determination.....................         695
        5. Cost Allocation Principle 4--Allocation To Be             696
         Solely Within Transmission Planning Region(s)
         Unless Those Outside Voluntarily Assume Costs......
            a. Final Rule...................................         696
            b. Requests for Rehearing or Clarification......         697
            c. Commission Determination.....................         707
        6. Whether To Establish Other Cost Allocation                715
         Principles.........................................
            a. Final Rule...................................         715
            b. Requests for Rehearing.......................         716
            c. Commission Determination.....................         717
    E. Application of Cost Allocation Principles............         718
        1. Participant Funding..............................         718
            a. Final Rule...................................         718
            b. Requests for Rehearing or Clarification......         719
            c. Commission Determination.....................         726
    F. Other Cost Allocation Issues.........................         738
        1. Final Rule.......................................         738
        2. Requests for Rehearing or Clarification..........         739
        3. Commission Determination.........................         745
V. Compliance and Reciprocity...............................         748
    A. Compliance...........................................         748
        1. Final Rule.......................................         748
        2. Requests for Rehearing or Clarification..........         749
        3. Commission Determination.........................         751
    B. Reciprocity..........................................         754
        1. Final Rule.......................................         754
        2. Requests for Rehearing or Clarification..........         755
        3. Commission Determination.........................         771
VI. Information Collection Statement........................         779
VII. Document Availability..................................         784
VIII. Effective Date and Congressional Notification.........         787
Appendix A: Abbreviated Names of Petitioners
Appendix B: Pro Forma Open Access Transmission Tariff
 Attachment K

I. Introduction

    1. In Order No. 1000, the Commission amended the transmission
planning and cost allocation requirements established in Order No. 890
to ensure that Commission-jurisdictional services are provided at just
and reasonable rates and on a basis that is just and reasonable and not
unduly discriminatory or preferential. Order No. 1000's transmission
planning reforms require: (1) Each public utility transmission provider
to participate in a regional transmission planning process that
produces a regional transmission plan; (2) that local and regional
transmission planning processes must provide an opportunity to identify
and evaluate transmission needs driven by public policy requirements
established by state or federal laws or regulations; (3) improved
coordination between neighboring transmission planning regions for new
interregional transmission facilities; and (4) the removal from
Commission-approved tariffs and agreements of a federal right of first
refusal.
    2. Order No. 1000 also requires that each public utility
transmission provider must participate in a regional transmission
planning process that has: (1) A regional cost allocation method for
the cost of new transmission facilities selected in a regional
transmission plan for purposes of cost allocation and (2) an
interregional cost allocation method for the cost of new transmission
facilities that are located in two neighboring transmission planning
regions and are jointly evaluated by the two regions in the
interregional transmission coordination process required by this Final
Rule. Order No. 1000 also requires that each cost allocation method
must satisfy six cost allocation principles.
    3. Taken together, the reforms adopted in Order No. 1000 will
ensure that Commission-jurisdictional services are provided at just and
reasonable rates and on a basis that is just and reasonable and not
unduly discriminatory or preferential. The Commission therefore rejects
requests to eliminate, or substantially modify, the various reforms
adopted in Order No. 1000; however, we do make a number of
clarifications.\1\ We address each of the arguments made by petitioners
in turn.\2\
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    \1\ No changes are being made to the regulatory text previously
adopted, because any reference to Order No. 1000 (as well as to
Order Nos. 888 and 890) in the existing regulatory text is meant to
include any clarifications or changes made in subsequent orders on
rehearing or clarification (e.g., Order Nos. 888-A, 890-A, and the
instant Order No. 1000-A, etc.). The Commission has chosen this
convention to help promote readability of the regulatory text.
    \2\ A list of petitioners filing requests for rehearing and/or
clarification is provided in Appendix A. An untimely request for
rehearing was filed by the New Jersey Board of Public Utilities (New
Jersey BPU). Pursuant to section 313(a) of the Federal Power Act
(FPA), 16 U.S.C. 8251(a) (2006), an aggrieved party must file a
request for rehearing within thirty days after the issuance of the
Commission's order. Because the 30-day rehearing deadline is
statutory, it cannot be extended, and New Jersey BPU's request for
rehearing must be rejected as untimely. Moreover, the courts have
repeatedly recognized that the time period within which a party may
file an application for rehearing of a Commission order is
statutorily established at 30 days by section 313(a) of the FPA and
that the Commission has no discretion to extend that deadline. See,
e.g., City of Campbell v. FERC, 770 F.2d 1180, 1183 (D.C. Cir.
1985); Boston Gas Co. v. FERC, 575 F.2d 975, 977-79 (1st Cir. 1978).

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II. The Need for Reform

A. Final Rule

    4. In Order No. 1000, the Commission concluded that it was
appropriate to adopt the package of reforms addressing transmission
planning and cost allocation set forth in the order, stating that its
review of the record, as well as recent studies, indicated that the
transmission planning and cost allocation requirements of Order No. 890
\3\ were an inadequate foundation for public utility transmission
providers to address challenges they currently face or will face in the
near future.\4\ The Commission found that the record was adequate to
support its conclusion that the existing requirements of Order No. 890
are too narrowly focused geographically and fail to provide for
adequate analysis of the benefits associated with interregional
transmission facilities traversing neighboring transmission planning
regions.\5\
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    \3\ Preventing Undue Discrimination and Preference in
Transmission Service, Order No. 890, FERC Stats. & Regs. ] 31,241,
order on reh'g, Order No. 890-A, FERC Stats. & Regs. ] 31,261
(2007), order on reh'g, Order No. 890-B, 123 FERC ] 61,299 (2008),
order on reh'g, Order No. 890-C, 126 FERC ] 61,228 (2009), order on
clarification, Order No. 890-D, 129 FERC ] 61,126 (2009).
    \4\ Id. P 42.
    \5\ Id. P 373.
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    5. The Commission found that recent increases in transmission
investment in fact support the need to ensure that transmission
planning and cost allocation requirements are adequate to support more
efficient and cost-effective investment decisions.\6\ It noted that
this increase appears to be only the beginning of a longer-term period
of investment in new transmission facilities, which is being driven, in
part, by changes in the generation mix. Specifically, the Commission
explained that existing and potential environmental regulation and
state renewable portfolio standards are driving significant changes in
the mix of resources, resulting in the early retirement of some coal-
fired generation, increased reliance on natural gas for electricity
generation, and large-scale integration of renewable generation.\7\ The
Commission stated that these shifts in the generation fleet increase
the need for new transmission and that the existing transmission grids
were not built to accommodate them.\8\ It stated that the increased
focus on investment in new transmission projects makes it even more
critical to implement the reforms to ensure that the more efficient or
cost-effective projects come to fruition. In short, the Commission
stated that the record in this proceeding and the cited reports confirm
that additional, and potentially significant, investment in new
transmission facilities will be required in the future to meet
reliability needs and integrate new sources of generation. The
Commission concluded that it was, therefore, critical that it act now
to address deficiencies to ensure that more efficient or cost-effective
investments are made as the industry addresses these challenges.
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    \6\ Id. P 44.
    \7\ Id. P 45.
    \8\ Id.
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    6. The Commission then stated that it would not wait for systemic
problems to undermine transmission planning before action is taken.
Rather, the Commission concluded that it must act promptly to establish
the rules and processes necessary to allow public utility transmission
providers to ensure planning of and investment in the right
transmission facilities as the industry moves forward to address the
many challenges it faces. The Commission noted that such planning is a
complex process that requires consideration of a broad range of factors
and an assessment of their significance over a period that can extend
decades into the future, and that the development of transmission
facilities can involve long lead times and complex problems related to
design, siting, permitting, and financing.\9\ Given the need to deal
with these matters over a long time horizon, the Commission concluded
that it is appropriate and prudent to act at this time rather than
allowing the problems in transmission planning and cost allocation to
continue or to increase.
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    \9\ Id. P 50.
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    7. The Commission concluded that its actions are consistent with
the D.C. Circuit's opinions in National Fuel and Associated Gas
Distributors.\10\ Consistent with National Fuel, the Commission found
that the problem it seeks to resolve, i.e., the narrow focus of current
planning requirements and the shortcomings of current cost allocation
practices, represents a significant ``theoretical threat'' that
justifies Order No. 1000's requirements and is not one that the
Commission can address adequately or efficiently through the
adjudication of individual complaints.\11\ The Commission explained
that the actual experiences cited in the record provide additional
support for action but are not necessary to justify the remedy, and
that the remedy is justified by the theoretical threat identified
therein.\12\
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    \10\ Id. P 51 (citing National Fuel Gas Supply Corp. v. FERC,
468 F.3d 831 (D.C. Cir. 2006) (National Fuel); Associated Gas
Distrib. v. FERC, 824 F.2d 981 (D.C. Cir. 1985) (Associated Gas
Distributors)).
    \11\ Id. P 52.
    \12\ Id. P 53.
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    8. The Commission also explained that the facts and findings of
Associated Gas Distributors are in no way comparable to the matters
involved in this proceeding.\13\ It disagreed that its reforms will
have an impact on the industry that is comparable to the impact at
issue in Associated Gas Distributors. The Commission pointed out that
compliance with Order No. 1000 will involve the adoption and
implementation of additional processes and procedures, and that many
public utility transmission providers already engage in processes and
procedures of this type, even if some public utility transmission
providers may need to do more than others to comply.\14\
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    \13\ Id. P 54-55.
    \14\ Id. P 56-57.
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    9. The Commission disagreed with assertions that it relied on
unsubstantiated allegations of discriminatory conduct or that the
current Order No. 890 processes have not been in place long enough to
justify the reforms.\15\ It stated that it need not make specific
factual findings of discrimination to promulgate a generic rule to
ensure just and reasonable rates or eliminate undue discrimination.
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    \15\ Id. P 58.
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    10. The Commission disagreed with claims that any concerns with
current transmission planning and cost allocation processes are better
dealt with on a case-specific basis rather than through a generic
rule.\16\ The Commission stated that while the concerns it has with
existing planning and cost allocation processes may not affect each
region of the country equally, it nonetheless remained concerned that
the existing processes are inadequate to ensure the development of more
efficient and cost-effective transmission. It noted that it is well-
established that the choice between rulemaking and case-by-case
adjudication lies primarily in the informed discretion of the
administrative agency. It also noted that

each transmission planning region has unique characteristics, and Order
No. 1000 provided significant flexibility to transmission planning
regions to accommodate regional differences.\17\
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    \16\ Id. P 60.
    \17\ Id. P 61.
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    11. On the specific issue of nonincumbent transmission developers,
the Commission found that there was sufficient justification in the
record to implement the elimination of federal rights of first refusal
contained in Commission-jurisdictional tariffs or agreements. It noted
that although it previously accepted in some cases, and rejected in
others, a federal right of first refusal, it found its reasoning in the
cases rejecting the federal right of first refusal to be more
persuasive. In particular, the Commission stated that it rejected a
federal right of first refusal based on an expectation that ``[t]he
presence of multiple transmission developers would lower costs to
customers.'' \18\ The Commission explained that it is not in the
economic self-interest of incumbent transmission providers to permit
new entrants to develop transmission facilities, even if proposals
submitted by new entrants would result in a more efficient or cost-
effective solution to a region's needs.\19\ In addition, the Commission
required all public utility transmission providers to adopt a framework
that requires, among other things, the development of qualification
criteria and protocols for the submission and evaluation of proposed
transmission projects.\20\
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    \18\ Cleco Power LLC, 101 FERC ] 61,008 at P 117 (2002), order
terminating proceedings, 112 FERC ] 61,069 (2005); see also Carolina
Power and Light Co., 94 FERC ] 61,273 at 62,010, order on reh'g, 95
FERC ] 61,282 at 61,995 (2001) (finding that a federal right of
first refusal would unduly limit the planning authority and present
the possibility of discrimination by self-interested transmission
owners, potentially reduce reliability, and possibly precluding
lower cost or superior transmission facilities or upgrades by third
parties from being planned and constructed).
    \19\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 256.
    \20\ Id. P 7.
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    12. Regarding its cost allocation reforms, the Commission concluded
in Order No. 1000 that considering the changes within the industry and
the implementation of other reforms in Order No. 1000, the requirements
of Order No. 890 were no longer adequate to ensure rates, terms and
conditions of jurisdictional service are just and reasonable and not
unduly discriminatory or preferential.\21\ It found that the challenges
associated with allocating the cost of transmission appear to have
become more acute as the need for transmission infrastructure has
grown.\22\ The Commission explained that within RTO or ISO regions,
particularly those that encompass several states, the allocation of
transmission costs is often contentious and prone to litigation.\23\ It
also noted that in other regions, few rate structures are currently in
place that reflect an analysis of the beneficiaries of a transmission
facility and provide for the corresponding cost allocation of the
transmission facility's cost.\24\ Similarly, the Commission noted that
there are few rate structures in place today that provide for the
allocation of costs of interregional transmission facilities.\25\
Finally, the Commission found that the lack of clear ex ante cost
allocation methods that identify beneficiaries of proposed regional and
interregional transmission facilities may be impairing the ability of
public utility transmission providers to implement more efficient or
cost-effective transmission solutions identified during the
transmission planning process.\26\
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    \21\ Id. P 497.
    \22\ Id. P 498.
    \23\ Id. P 498.
    \24\ Id. P 498.
    \25\ Id. P 498.
    \26\ Id. P 499.
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B. Requests for Rehearing and Clarification

1. Arguments Regarding Whether the Commission Provided Substantial
Evidence for the Transmission Planning and Cost Allocation Reforms
    13. While several petitioners seeking rehearing or clarification
express general support for Order No. 1000,\27\ others argue that the
Commission failed to provide adequate justification under FPA section
206 for adopting its reforms.\28\ Coalition for Fair Transmission
Policy acknowledges that the circumstances against which the Commission
must fulfill its statutory responsibilities change with developments in
the electric industry, including changes with respect to demands on the
transmission grid; however, it argues that Order No. 1000 takes the
principle several steps beyond the Commission's existing statutory
authority. Coalition for Fair Transmission Policy contends that the
Commission makes a number of statements about problems facing the
industry that are remarkable in their ambiguity, and the existence of
problems does not empower the Commission to address every policy
problem that arises from such developments or to commandeer regional
transmission planning. Coalition for Fair Transmission Policy asserts
that, if this was the case, section 216 of the FPA, which gives the
Commission limited authority to site transmission facilities in
national interest electric transmission corridors, would not have been
necessary.
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    \27\ See, e.g., AEP; WIRES; AWEA; and Energy Future Coalition
Group.
    \28\ See, e.g., Large Public Power Council; Alabama PSC; Xcel;
Georgia PSC; Ad Hoc Coalition of Southeastern Utilities; and PPL
Companies.
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    14. PPL Companies argue that the Commission failed to show that
existing rates, terms and conditions are unjust and unreasonable or
unduly discriminatory absent Order No. 1000.\29\ They also contend that
Order No. 1000 not only fails to identify who is being discriminated
against and who is discriminating, but never addresses whether
discrimination has actually materialized in the three years since the
Commission's last major rulemaking in this area. PPL Companies assert
that, although the Commission is empowered to act against undue
discrimination before it occurs, it must at least identify the
discrimination it seeks to remedy.\30\ They also maintain that the
Commission did not specify which rate it has found to be unjust and
unreasonable or what substantial evidence it relies upon to draw that
conclusion.
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    \29\ PPL Companies at 6 (citing 16 U.S.C. 825l(b)).
    \30\ PPL Companies at 6 (citing Associated Gas Distributors, 824
F.2d 981 at 1008).
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    15. Similarly, California ISO asserts that the Commission failed to
identify any instance in which an existing rate is unjust,
unreasonable, or unduly discriminatory or preferential because it does
not include provisions for interregional coordination. Instead,
California ISO asserts that the Commission only offers an unsupported
hypothesis that planning between or among regions will enhance the
Commission's ability to perform its mission.
    16. Oklahoma Gas and Electric Company argues that Order No. 1000
provides no evidence that existing tariff provisions that address the
construction and ownership of transmission facilities in any way result
in unjust and unreasonable rates, or in undue discrimination against
any customers. It asserts that the evidence the Commission cited is far
weaker than the evidence it relied upon to support its expansion of the
Standards of Conduct in Order No. 2004, where the court stated that
``citing no evidence demonstrating that there is in fact an industry
problem is not reasoned decision-making.'' \31\
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    \31\ Oklahoma Gas and Electric Company at 14 (citing National
Fuel, 468 F.3d at 844).

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    17. Oklahoma Gas and Electric Company also claims that Order No.
1000 is devoid of support for the conclusion that existing tariff
provisions interfere with transmission planning. It argues that there
is no evidence, anecdotal or otherwise, that current RTO transmission
planning processes generate an unreasonably limited range of options,
and that there is no evidence that projects are delayed because they
are being constructed by incumbent transmission owners. Specifically,
Oklahoma Gas and Electric Company argues that the Commission cannot
support a finding that the current transmission rules in SPP result in
rates that are unjust and unreasonable.\32\
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    \32\ Oklahoma Gas & Electric Company also states that SPP's
transmission planning process is robust and almost all of the
projects are being completed within designated timeframes. It
contends that where appropriate, the process permits nonincumbent
developers to collaborate with incumbent transmission owners to
address system needs. It also asserts that the 90-day time limit for
incumbent transmission owners to agree to build a designated project
prevents a transmission provider from blocking or delaying the
construction of projects and ensures that the process is open and
transparent.
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    18. Georgia PSC argues that the Commission should recognize ongoing
transmission processes that utilities are participating in and allow
them to work before inserting another process that will strain
resources.
    19. Ad Hoc Coalition of Southeastern Utilities and Large Public
Power Council assert that the Commission misread National Fuel, arguing
that the court faulted the Commission for failing to support its
decision with record evidence, and was non-committal on whether a
decision might be supported by theory alone.\33\ They state that it is
incumbent on an agency to ``examine the relevant data and articulate a
satisfactory explanation for its action including a rational connection
between the facts found and the choice made.'' \34\ They further note
that National Fuel commented that ``[p]rofessing that an order
ameliorates a real industry problem but then citing no evidence
demonstrating that there is in fact an industry problem is not reasoned
decision-making.'' \35\
---------------------------------------------------------------------------

    \33\ Ad Hoc Coalition of Southeastern Utilities at 16 (quoting
National Fuel, 468 F.3d at 844 (``[W]e express no view here whether
a theoretical threat alone would be sufficient to justify an order
extending the Standards to non-marketing affiliates.'')).
    \34\ Id. at 16 (quoting Motor Vehicles Mfrs. Ass'n of U.S. v.
State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983) (State Farm)).
    \35\ Ad Hoc Coalition of Southeastern Utilities at 16 (quoting
National Fuel, 468 F.3d at 843).
---------------------------------------------------------------------------

    20. Several petitioners take issue with the Commission's conclusion
that it may act by citing to a ``theoretical threat'' rather than
providing concrete evidence that the reforms are necessary.\36\ For
example, petitioners argue that the Commission failed to set forth
substantial evidence, or any evidence, of undue discrimination to
support its reforms.\37\ Xcel adds that the Commission appears to
concede that it lacks actual evidence of undue discrimination. Ad Hoc
Coalition of Southeastern Utilities and Large Public Power Council
argue that it is reasonable to conclude that the Commission has
effectively conceded that there is no evidence justifying Order No.
1000 and that the Commission is relying on theory alone.\38\
---------------------------------------------------------------------------

    \36\ See, e.g., Ad Hoc Coalition of Southeastern Utilities;
Large Public Power Council; North Carolina Agencies; and Southern
Companies.
    \37\ See, e.g., FirstEnergy Service Company; PSEG Companies at
25-32 (citing the APA, as well as National Fuel Gas Supply Corp. v.
FERC, 468 F.3d 831, 838 (D.C. Cir. 2006) and Florida Gas
Transmission Co. v. FERC, 604 F.3d 636, 645 (D.C. Cir. 2010)); Xcel;
PSEG Companies; Sponsoring PJM Transmission Owners; Baltimore Gas &
Electric at 15 (citing Order No. 1000, FERC Stats. & Regs. ] 31,323
at P 229); Ad Hoc Coalition of Southeastern Utilities at 55 (quoting
in part Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 253);
Large Public Power Council; and MISO Transmission Owners Group 2.
    \38\ Large Public Power Council also claims that the D.C.
Circuit has taken judicial notice of the efficiencies derived from
vertical integration. According to Large Public Power Council, this
means that the court is effectively insisting that the Commission
offer evidence that decisions to disaggregate utility operations
planning must overcome a presumption that the efficiencies derived
from vertical integration are not in the public interest. Large
Public Power Council at n.38 (citing National Fuel, 468 F.3d at 840
(citing Tenneco Gas v. FERC, 969 F.2d 1187, 1197 (D.C. Cir. 1992))).
---------------------------------------------------------------------------

    21. Ad Hoc Coalition of Southeastern Utilities and Large Public
Power Council, as well as North Carolina Agencies, argue that the flaw
in the Commission's decision is that both the problem it aims to solve
and the solution are theoretical. Ad Hoc Coalition of Southeastern
Utilities contends that reasoned decision-making calls for
substantially more than a hypothesis that existing planning and cost
allocation mechanisms may be suboptimal, and speculation that the
mechanisms discussed in the order will result in the development of
more efficient transmission. Southern Companies also argue that the
Commission's explanation of the need for the transmission planning and
cost allocation reforms in Order No. 1000 is built entirely on
speculation.\39\ Given this, Southern Companies contend that Order No.
1000 fails to represent lawful, reasoned agency decision-making by
depending on a speculative theoretical threat to support the required
reforms rather than providing the required assessment.\40\
---------------------------------------------------------------------------

    \39\ Southern Companies at 89-90 (citing Algonquin Gas
Transmission Co. v. FERC, 948 F.2d 1305 (D.C. Cir. 1991)).
    \40\ Southern Companies at 91 (citing State Farm, 463 U.S. 29,
43 (1983)).
---------------------------------------------------------------------------

    22. Southern Companies and Ad Hoc Coalition of Southeastern
Utilities state that Order No. 1000's reliance on an alleged
theoretical threat misinterprets precedent that agencies need to prove
theories beyond mere hypothesis or conjecture.\41\ They argue that
courts have historically allowed agencies to support orders by theory
alone when the theory itself is well supported and represents a highly
developed prediction of what actually happens in the real world.
Southern Companies, Ad Hoc Coalition of Southeastern Utilities, and
Large Public Power Council cite to Business Roundtable v. SEC, \42\
where the court concluded that the Securities and Exchange Commission
(SEC) had not adequately considered the effects of a proposed rule on
efficiency, competition and capital formation. They maintain that the
case deals with matters that are similar to the present proceeding.
---------------------------------------------------------------------------

    \41\ Southern Companies at 14 (citing National Fuel; Electricity
Consumer Resource Council v. FERC, 747 F.2d 1511, 1517 (D.C. Cir.
1984) (ELCON)); Ad Hoc Coalition of Southeastern Utilities at 22-23
(citing same).
    \42\ Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011).
---------------------------------------------------------------------------

    23. With respect to federal rights of first refusal, Sponsoring PJM
Transmission Owners state that Order No. 1000's hypothetical
discrimination stands in marked contrast to the concrete findings in
Order No. 888 justifying the implementation of open transmission access
and assert the Commission offers no evidentiary support for its
findings. Baltimore Gas & Electric argues that the Commission is taking
away a tariff-sanctioned right with nothing more than a ``concern''
that a right of first refusal may be leading towards rates that may
become too high. It states that if the Commission believes that the
problem is that rates will become too high, it should deal with the
problem directly by lowering them, rather than by eliminating rights of
first refusal.\43\
---------------------------------------------------------------------------

    \43\ Baltimore Gas & Electric at 18 (quoting National Fuel Gas
Supply Corp. v. FERC, 468 F.3d 831, 844 (D.C. Cir. 2006)).
---------------------------------------------------------------------------

    24. FirstEnergy Service Company takes issue with the Commission's
reliance on National Fuel and asserts that a tenuous application of
theory cannot support a rulemaking.\44\

According to FirstEnergy Service Company, while the court in National
Fuel acknowledged the possibility of an agency proceeding on theory
alone to support a rulemaking, it also cautioned that such reliance
required a substantial showing of the need in order to proceed.\45\
California ISO makes a similar argument. Both FirstEnergy Service
Company and California ISO assert that the Commission has not made any
showing similar to that described in National Fuel to justify its sole
reliance on theory.
---------------------------------------------------------------------------

    \44\ FirstEnergy Service Company at 15 (citing National Fuel
Supply Corp. v. FERC, 468 F.3d 831 (D.C. Cir. 2006) (National
Fuel)).
    \45\ FirstEnergy Service Company at 15 (quoting National Fuel,
468 F.3d 831 at 844-45).
---------------------------------------------------------------------------

    25. On the issue of the Commission's nonincumbent transmission
developer reforms, Southern Companies assert that they do not have a
federal right of first refusal and that there are no restrictions on a
nonincumbent developer's ability to pursue transmission projects in the
SERTP planning process. Southern Companies argue the Commission has
failed to articulate a legal basis for imposing its nonincumbent
requirements upon Southern Companies, when it has no right of first
refusal. Furthermore, Southern Companies argue that the reason for the
lack of nonincumbents in the Southeast is because the incumbent
transmission owners have developed a robust transmission grid and are
adequately investing in transmission. Southern Companies also assert
that there have been no significant merchant transmission projects
within their footprint because there is no congestion and generation is
not remotely located. Thus, Southern Companies argue that Order No.
1000's generic findings of undue discrimination against nonincumbents
are counter to record evidence and that to date no nonincumbents have
proposed alternative transmission projects in the SERTP. In addition,
Southern Companies state that the Commission does not have the
authority to impose nonincumbent-related development rights sua sponte
generically upon the industry.
    26. Petitioners also argue that the Commission failed to identify
any established theoretical principles in support of its reforms.\46\
Southern Companies maintain that the Commission's reasoning does not
meet the scientific standards of a ``good theory,'' which it defines as
satisfying two conditions: ``[i]t must accurately describe a large
class of observations on the basis of a model that contains only a few
arbitrary elements, and it must make definite predictions about the
results of future observations.'' \47\ Xcel argues that if the
Commission intends to rely only on theoretical evidence, it must
satisfy the requirements of National Fuel by explaining why the
individual complaint procedure provided an insufficient remedy.\48\
MISO Transmission Owners Group 2 asserts that National Fuel did not
authorize the Commission to issue a rulemaking solely on the basis of a
``theoretical threat'' but indicated that if the Commission attempted
to do so, it would be required to provide a substantial explanation. It
argues that the Commission provides no such analysis, but rather
summarily indicates that the threat of abuse ``is not one that can be
addressed adequately or efficiently through the adjudication of
individual complaints.'' \49\ MISO Transmission Owners Group 2 contends
that a case-by-case analysis would be particularly appropriate in this
instance given the dearth of empirical evidence demonstrating harm,
compared to the actual examples of nonincumbent transmission developer
participation in transmission planning processes in MISO and elsewhere.
---------------------------------------------------------------------------

    \46\ See, e.g., FirstEnergy Service Company; Xcel; Sponsoring
PJM Transmission Owners; PSEG Companies; and Xcel.
    \47\ Southern Companies at 15 (quoting Stephen Hawking & Leonard
Mlodinow, A Briefer History of Time 13-14 (2005)).
    \48\ Xcel at 13-14 (citing Nat'l Fuel, 468 F.3d 831, 834, 844
(D.C. Cir. 2006)).
    \49\ MISO Transmission Owners Group 2 at 15 (quoting Order No.
1000, FERC Stats. & Regs. ] 31,323 at P 52).
---------------------------------------------------------------------------

    27. Other petitioners add that the reforms are unnecessary because
there is evidence that transmission expansion has increased
significantly over the past several years.\50\ Large Public Power
Council states that Order No. 1000 does not rely on any finding
regarding the need to increase transmission development. Some
petitioners also point to existing processes in the Southeast as
undercutting the predicate for Order No. 1000.\51\ North Carolina
Agencies assert that there is error in the Commission's unwillingness
to consider the highly developed planning processes in the region as a
relevant factor in ascertaining the need for new rules. They also claim
that although the anticipated demand for significant interregional
transmission projects to transfer large amounts of remotely located
renewable energy to fulfill public policy mandates is a major factual
predicate for the proposals articulated, this is simply not present in
the Southeast due to its resource base. They note that the Southeast
already has a robust transmission system, as recognized in DOE's 2009
Transmission Congestion Study. North Carolina Agencies state that
utilities in the Southeast remain vertically integrated and provide
bundled retail service; the bulk of the resulting transmission cost is
included in, and recovered through, state approved bundled retail
rates. Thus, they argue that the evidence demonstrates that needed
transmission investment is not lacking with respect to the utilities in
the Southeast.
---------------------------------------------------------------------------

    \50\ See, e.g., PSEG Companies.
    \51\ See, e.g., Ad Hoc Coalition of Southeastern Utilities;
North Carolina Agencies; and Southern Companies.
---------------------------------------------------------------------------

    28. Southern Companies raise similar arguments with respect to
existing regional transmission planning, interregional transmission
coordination, and cost allocation processes in the Southeast, claiming
that the new planning processes will not be associated with any
previously unidentified new load growth, supply or demand side
resource, or transmission service request because all of those elements
are already addressed in the bottom-up planning processes. Southern
Companies further argue that because Order No. 1000 lacks a process to
identify new solutions, it will only serve to potentially optimize
existing upgrades, which is already occurring due to extensive
coordination with neighboring utilities in the Southeast. Ad Hoc
Coalition of Southeastern Utilities raise similar arguments, and add
that Order No. 1000's concern that some regional transmission planning
processes permitted by Order No. 890 are only a forum to confirm
simultaneous feasibility does not apply to planning processes in the
Southeast.
    29. Southern Companies explain that their Order No. 890 Attachment
K compliance filing was accepted as of July 2010, and none of the
changed circumstances cited in Order No. 1000 has occurred since then.
Southern Companies assert that the Commission ignored evidence
addressing their existing transmission planning processes and
explaining how those processes assure consideration of better regional
solutions and support just and reasonable rates. Southern Companies
assert that unless detailed facts show existing cost allocation methods
are impairing the proposal and consideration of better regional
solutions, Order No. 1000 may not lawfully determine they are causing
Southern Companies' rates, terms, and conditions for transmission
service to be unjust and unreasonable. They also argue that, although
the Commission is permitted in certain circumstances to make generic
findings in support of its rulemaking, specific findings for specific
entities are required when the

actual facts applicable to those entities run counter to generic
principles.\52\ They add that, on rehearing, the Commission must
address substantial evidence that supports the justness and
reasonableness of Southern Companies' existing processes in determining
whether the reforms of Order No. 1000 should be applied to supplant
such processes, or exclude Southern Companies from Order No. 1000's
generic findings.
---------------------------------------------------------------------------

    \52\ Southern Companies at 92 (citing National Fuel, 468 F. 3d
at 839).
---------------------------------------------------------------------------

    30. Ad Hoc Coalition of Southeastern Utilities add that there are
no planning gaps that need to be filled in the Southeast by the
Commission's interregional coordination requirements. Ad Hoc Coalition
of Southeastern Utilities and Southern Companies assert that the
Southeastern utilities already share on an interregional basis data
containing all of the information needed to make informed and efficient
planning decisions. Ad Hoc Coalition of Southeastern Utilities further
argues that the implication that additional interregional coordination
will identify whether interregional transmission facilities are more
efficient or cost-effective than regional transmission facilities is
unfounded, and involves integrated resource planning analysis and
`optimatization' analyses along the seams/interfaces that already occur
in the Southeast. Ad Hoc Coalition of Southeastern Utilities concludes
that the Commission's holdings regarding its interregional coordination
requirements are unfounded and counter to the record evidence.
    31. Moreover, Ad Hoc Coalition of Southeastern Utilities and
Southern Companies assert that the factual record in this rulemaking
demonstrates that the required interregional coordination reforms are
likely to do more harm than good. For instance, Ad Hoc Coalition of
Southeastern Utilities and Southern Companies state that it is costly
to negotiate many coordination agreements and parallel OATT language
with many different entities and to prospectively implement multiple
bureaucratic requirements.
    32. Sacramento Municipal Utility District argues that a generic
rule is arbitrary and inappropriate to address a problem that exists,
if at all, only in isolated pockets.\53\ It also argues that the
Commission cannot defend its actions on purely theoretical grounds
unless it abandons its unsubstantiated claim that an actual problem
exists.\54\ Sacramento Municipal Utility District states that to the
extent the Commission's rule was adopted to address a theoretical
problem, it has failed to meet its burden of establishing that the
burdens and costs imposed by the rule are justified by the threat to be
addressed.\55\ With respect to transmission planning in particular,
Sacramento Municipal Utility District contends that the assertion that
regional planning taking place under Order No. 890 is insufficient and
producing unjust and unreasonable rates is premised on the existence of
an actual, not theoretical, problem. It states that there is no
evidence to support this assertion, and no evidence that the alleged
problem affects more than a few isolated regions of the country.
Sacramento Municipal Utility District adds that Order No. 1000 scarcely
acknowledges comments documenting the success of various regional
planning efforts, but instead refers to generalized statements of
concern about potential problems in unidentified regions of the country
involving unidentified utilities. It states that this is not the type
of evidence upon which a rule purporting to address a national problem
can be sustained and this is the same problem that resulted in the
remand in National Fuel.\56\ It argues that the Commission failed to
establish that the burdens imposed by Order No. 1000 are justified by
the threat addressed,\57\ and that Order No. 1000 fails the test of
reasoned decision-making, citing the fact that Order No. 1000 failed to
take into account whether imposition of its mandatory cost allocation
provisions will discourage rather than facilitate regional planning.
Alabama PSC likewise contends that the speculative benefits identified
in Order No. 1000 are not legally sufficient to justify the rule's
burdens and disruptions and, as such, Order No. 1000 is not justified
under the Commission's authority under section 206. Alabama PSC
encourages the Commission to consider a regional or case-by-case
approach if the Commission continues to believe that it should move
forward with this initiative.
---------------------------------------------------------------------------

    \53\ Sacramento Municipal Utility District at 4 (citing
Associated Gas Distributors, 824 F.2d 981 at 1019).
    \54\ Sacramento Municipal Utility District at 5 (citing National
Fuel, 468 F.3d at 839).
    \55\ Sacramento Municipal Utility District at 5 (citing National
Fuel, 468 F.3d at 844).
    \56\ Sacramento Municipal Utility District at 32 (citing Nat'l
Fuel Gas Supply Corp. v. FERC, 468 F.3d 831, 844 (D.C. Cir. 2006)).
    \57\ Sacramento Municipal Utility District at 33 (citing Nat'l
Fuel Gas Supply Corp. v. FERC, 468 F.3d 831, 844 (D.C. Cir. 2006)).
---------------------------------------------------------------------------

    33. Similarly, Ad Hoc Coalition of Southeastern Utilities contends
that Order No. 1000 violates the guidance provided by National Fuel
regarding what may be permissible by an order solely based upon a
theory, arguing that the record demonstrates that there will be little
benefit, and possible harm, if the interregional transmission
coordination requirements are implemented. Additionally, Ad Hoc
Coalition of Southeastern Utilities contend that these reforms would be
burdensome to implement, because public utility transmission providers
would have to negotiate a number of coordination agreements and
parallel OATT language with many different entities and then
prospectively implement a number of bureaucratic requirements.\58\
Southern Companies agree.
---------------------------------------------------------------------------

    \58\ Ad Hoc Coalition of Southeastern Utilities at 66 (quoting
National Fuel, 468 F.3d at 844 (arguing that the Commission must
explain how the ``potential danger * * * unsupported by a record of
abuse, justifies such costly prophylactic rules.'')).
---------------------------------------------------------------------------

    34. NARUC argues that Order No. 1000 does not identify actual
concerns or problems or rely on any factual record, but relies entirely
on the conclusory statement that planning and cost allocation may be
impeding the development of beneficial transmission lines. It also
argues that efforts to sort through the ambiguities and comply with
Order No. 1000 may stall existing local, regional, and DOE-funded
interconnectionwide planning processes, creating uncertainty and
requiring limited resources to be reallocated to compliance filings
rather than to finalizing plans. NARUC further asserts that Order No.
1000 is premature because the results of the interconnectionwide
planning process may eliminate the need for reform or indicate a need
for different reforms.
    35. Some petitioners also take issue with the Commission's efforts
to distinguish Order No. 1000 from Associated Gas Distributors.\59\
Large Public Power Council argues that the Commission is in error in
attempting to minimize the exacting evidentiary standard for generic
rulemaking called for in Associated Gas Distributors on the ground that
the impact of the decision here is not ``comparable.'' \60\ It argues
that while the Commission states in Order No. 1000 that compliance
``will involve implementation of additional processes and procedures''
and many public utility transmission providers

``already engage in processes and procedures of this type,'' the goal
of Order No. 1000 is to remedy unjust and unreasonable rates on a
national basis by implementing new planning and cost recovery
procedures.\61\ Large Public Power Council asserts that even if this is
not the case, the implications of Order No. 1000 involve cost shifting
for the recovery of potentially hundreds of billions of dollars in
transmission investment. Ad Hoc Coalition of Southeastern Utilities
raises similar concerns, explaining that the attempt to distinguish
Associated Gas Distributors ``gives short shrift to the Commission's
ambitions in promulgating Order No. 1000, which is to implement new
planning and cost recovery procedures.'' \62\
---------------------------------------------------------------------------

    \59\ See, e.g., Large Public Power Council; Ad Hoc Coalition of
Southeastern Utilities; MISO Transmission Owners Group 2; Southern
Companies; and Sacramento Municipal Utility District.
    \60\ Large Public Power Council at 17 (quoting Order No. 1000,
FERC Stats. & Regs. ] 31,323 at P 56).
    \61\ Large Public Power Council at 17-18 (quoting Order No.
1000, FERC Stats. & Regs. ] 31,323 at 56).
    \62\ Ad Hoc Coalition of Southeastern Utilities at 18.
---------------------------------------------------------------------------

    36. MISO Transmission Owners Group 2 maintains that, while the
Commission argued that Associated Gas Distributors states that it need
not provide empirical data for every proposition upon which it depends,
the Commission has a duty to ``respond meaningfully'' to the objections
raised by opponents of its proposal, which it failed to do.\63\
Southern Companies argue that the Commission did not squarely address
comments asserting that there was no need for an industrywide solution
when the problem applies only to a limited portion of the industry.
---------------------------------------------------------------------------

    \63\ MISO Transmission Owners Group 2 at 13.
---------------------------------------------------------------------------

    37. Similarly, California ISO argues that the Commission cannot
find support in Associated Gas Distributors for acting based on a
theoretical threat.\64\ In contrast to Associated Gas Distributors,
California ISO asserts that the Commission is not relying on an
economic theory to determine the means for achieving its goal, but
rather is attempting to rely on theory to establish the statutory
predicate for action.\65\ Furthermore, California ISO argues that the
Commission's hypothesis that, in a regulated market, the absence of an
ex ante cost allocation method will cause rates to be unjust or
unreasonable is not based on an established economic theory. California
ISO asserts that there is no empirical evidence for this hypothesis,
and that the Commission has not cited any peer-reviewed or other
economic analysis supporting its conclusion. As such, California ISO
concludes that such a hypothesis cannot support action under section
206.
---------------------------------------------------------------------------

    \64\ California ISO at 16 (citing Associated Gas, 824 F.2d 981
at 1008-09).
    \65\ California ISO at 17 (citing Associated Gas, 824 F.2d 981
at 1008-09).
---------------------------------------------------------------------------

    38. In addition, California ISO argues that the Commission has not
identified any evidence to support a causal connection between a cost
allocation methodology and improved cost-effectiveness. California ISO
acknowledges two commenters that provided concrete examples that
uncertainty about cost allocation was preventing some projects from
going forward, but argues that these examples do not support the
Commission's finding.
    39. MISO Transmission Owners Group 2 asserts that the Commission
relies on general suppositions to support its mandate that all rights
of first refusal be removed from Commission-jurisdictional tariffs and
contracts. For example, it states that Order No. 1000 states that
nonincumbent transmission developers seeking to invest in transmission
can be discouraged from doing so, but the Commission never identifies a
single instance of a nonincumbent transmission developer foregoing an
opportunity to invest in a transmission facility because of any
existing federal right of first refusal. MISO Transmission Owners Group
2 maintains that the Commission ignored examples it and others gave of
nonincumbent transmission developer involvement in regional planning
processes, such as the CapX2020 Transmission Capacity Expansion
Initiative, in which eleven entities, including MISO Transmission
Owners, nonincumbent transmission developers, and transmission
dependent utilities are engaged in a collaborative effort to construct
nearly 700 miles of new extra-high voltage transmission facilities from
the Dakotas to Wisconsin.
    40. Similarly, MISO argues that while its existing regional
planning processes have resulted in significant transmission expansion
in the past and will result in even greater transmission construction
in the future, Order No. 1000 does not identify any evidence that
transmission planning, expansion and/or cost allocation have been
hindered or harmed by the Transmission Owners Agreement provisions
relating to the obligation to build, including any associated rights
whose nature and effects may resemble rights of first refusal. It
asserts that the Commission cannot use any evidence that may involve
other RTO, ISOs, or public utilities to draw conclusions about any
unjustness and unreasonableness of provisions in MISO's Transmission
Owners Agreement, and to require the removal or modification of such
provisions.
    41. Baltimore Gas & Electric states that the Commission's rationale
for eliminating the right of first refusal has no applicability to it
and other transmission owner members of PJM since they have all
relinquished transmission planning decisions to PJM. According to
Baltimore Gas & Electric, it does not matter that transmission owners
have an economic incentive to be unduly discriminatory in transmission
planning once they have transferred that role to an RTO. Baltimore Gas
& Electric asserts that PJM's Order No. 890 compliance filing ensures
an open, transparent, and stakeholder-participatory transmission
planning process that no transmission owner member has the ability to
manipulate for anticompetitive purposes. In any event, Baltimore Gas &
Electric states that the opportunity for undue discrimination existed
in the abstract when federal right of first refusal rights were
initially approved by the Commission, and that nothing has changed to
warrant their removal now. Baltimore Gas & Electric adds that there are
opportunities for any lawfully sanctioned activity to be misused. Thus,
Baltimore Gas & Electric concludes that speculation as to how some bad
actors may misuse rights is not a rational basis for eliminating the
rights for all actors.
    42. Similarly, Sunflower, Mid-Kansas, and Western Farmers dispute
Order No. 1000's conclusion that it is not in the economic self-
interest of public utility transmission providers, at least in the SPP
region, to expand the grid to permit access to competing sources of
supply to serve their customers.\66\ They note that no state in the SPP
region has enacted retail competition and, consequently, those states
would not stand for anticompetitive behavior by incumbent transmission
owners that would result in higher rates to consumers.\67\
---------------------------------------------------------------------------

    \66\ Sunflower, Mid-Kansas, and Western Farmers at 3 (citing
Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 254).
    \67\ Sunflower, Mid-Kansas, and Western Farmers argue that this
is borne out by activity in SPP of at least two independent
transmission developers (ITC Great Plains, LLC and Prairie Wind
Transmission, LLC).
---------------------------------------------------------------------------

    43. Petitioners also disagree with the Commission's conclusion that
it can rely on the benefits of competition to support the rule without
a ground for a reasonable expectation that competition may have some
beneficial impact.\68\ These petitioners disagree with the Commission's
interpretation of, and

citation to, Wisconsin Gas.\69\ Ad Hoc Coalition of Southeastern
Utilities and Large Public Power Council argue that Wisconsin Gas dealt
with the benefits of competition associated with promoting competitive
sales of natural gas, which Congress made a national policy. In
contrast, they argue that there is no indication that Congress has
endorsed promoting competition for the development of transmission
infrastructure. Large Public Power Council quotes the language from
Wisconsin Gas where the court stated that ``unsupported or abstract
allegations of benefits that will accrue from increased competition
cannot substitute for a conscientious effort to take into account what
is known as to past experience and what is reasonably predictable about
the future.'' \70\ Large Public Power Council asserts that here, the
Commission not only lacks any legitimate basis for a presumption that
competition in the transmission development business serves the public
interest, but fails to amass any evidence for its view.
---------------------------------------------------------------------------

    \68\ See, e.g., PSEG Companies; Ad Hoc Coalition of Southeastern
Utilities at 55 (quoting Order No. 1000, FERC Stats. & Regs. ]
31,323 at P 268); and Large Public Power Council.
    \69\ See, e.g., PSEG Companies; Ad Hoc Coalition of Southeastern
Utilities at 56 (citing Order No. 1000, FERC Stats. & Regs. ] 31,323
at P 268, n.243); and Large Public Power Council.
    \70\ Large Public Power Council at 28 (quoting Wisconsin Gas,
770 F.2d 1144 at 1158).
---------------------------------------------------------------------------

    44. A number of petitioners question the Commission's assertion
that adding more transmission developers may lead to the identification
of more efficient alternatives.\71\ Oklahoma Gas and Electric Company
asserts that the Commission has not supported the assumption that
competition between potential developers in the process of evaluating
and selecting proposed projects will result in more cost-effective
transmission service rates. Sponsoring PJM Transmission Owners argue
that precedent does not support the Commission's conclusion that the
mere invocation of general beneficial impacts of competition suffices
to support modifying rates pursuant to section 206. Sponsoring PJM
Transmission Owners also assert the real issue is not competition
between transmission providers, but rather which entity will be the
monopoly owner of a transmission line. Oklahoma Gas and Electric
Company states that nothing in Order No. 1000 will result in head-to-
head competition between service providers, or between competing lines.
It elaborates that the market will not be choosing who constructs new
projects, but rather the stakeholder process will be used to make a
choice based on uncertain estimates and inputs.
---------------------------------------------------------------------------

    \71\ See, e.g., Southern Companies; Sponsoring PJM Transmission
Owners at 16, 20 (citing Williston Basin Interstate Pipeline Co. v.
FERC, 358 F.3d 45, 50 (D.C. Cir. 2004)); Ad Hoc Coalition of
Southeastern Utilities at 57 (quoting Washington Gas, 770 F.2d at
1158).
---------------------------------------------------------------------------

    45. Sponsoring PJM Transmission Owners argue the Commission has not
explained or demonstrated how competition among transmission developers
would reduce the cost of transmission construction and consequently
transmission service. For instance, Sponsoring PJM Transmission Owners
state that even if a nonincumbent submits a proposal that it projects
will have the lowest cost, the Commission has produced no evidence that
its actual costs of construction will be lower than the cost the
incumbent would incur. Instead, they argue that the incumbent is far
more likely to have existing rights of way and more experience with
construction and logistical issues that may arise in its area, and thus
is better positioned politically to overcome local objections to
siting. Baltimore Gas & Electric notes that the Commission has
recognized that incumbents have certain advantages, such as a unique
knowledge of their own systems and other matters, and that the
Commission has stated that such factors can be highlighted in the
decisional process leading to project selection. Baltimore Gas &
Electric states that it is thus unclear to why the Commission would
require that the existing federal right of first refusal provision
should be eliminated if the same result can be achieved in the
decisional process by taking into account that the incumbent is better
placed to construct and own a project.
    46. Sponsoring PJM Transmission Owners argue the Commission has not
explained how any reduction in construction costs--assuming it could be
achieved--would translate into lower rates, after taking into account
differing corporate structures, rates of return, and Commission-granted
incentives. Ad Hoc Coalition of Southeastern Utilities and Large Public
Power Council argue that the efficiencies that the Commission presumes
will be associated with its decisions, and that it assumes will
overcome added costs and risks, are not a matter that the Commission is
entitled to presume. Xcel argues that the Commission's rationale to
increase competition does not apply to reliability projects, which have
the narrow function of ensuring reliable service to customers.\72\
---------------------------------------------------------------------------

    \72\ Xcel at 12-13 (citing Order No. 1000, FERC Stats. & Regs. ]
31,323 at P 284-85).
---------------------------------------------------------------------------

    47. Some petitioners argue that the mixed record does not justify
the Commissions ruling.\73\ For instance, petitioners argue that the
Commission must, as a matter of law, take notice of efficiencies lost
and reliability problems created by the Commission's decision.\74\
Specifically, Large Public Power Council argues that planning engineers
will spend time addressing stakeholder and competitors' concerns in
Commission-sponsored planning forums rather than working to meet the
needs of their native loads. Additionally, it states that countless
hours will be needed to perform studies, reengineer systems, and
coordinate third-party construction schedules and priorities. Ameren
adds that MISO will have to expend considerable resources to re-assess
years of transmission planning work to apply the new rule.
---------------------------------------------------------------------------

    \73\ See, e.g., Baltimore Gas & Electric at 16-17 (citing
Central Iowa Power Cooperative v. FERC, 606 F.2d 1156 (D.C. Cir.
1979)).
    \74\ See, e.g., Ad Hoc Coalition of Southeastern Utilities;
Large Public Power Council at 27 (citing National Fuel and Tenneco
Gas).
---------------------------------------------------------------------------

    48. Sponsoring PJM Transmission Owners argue the Commission has
ignored other potential costs associated with eliminating the right of
first refusal, including expensive mitigation plans in the event that a
nonincumbent abandons a reliability project. Similarly, Xcel asserts
that Commission's statement in P 344 of Order No. 1000 indicates the
Commission's belief that certain nonincumbent transmission developers
will not be able to complete the projects assigned to them. Xcel adds
that other risks will increase from the utility transmission providers'
inability to guarantee reliable service, such as litigation arising
from outages.
    49. Ad Hoc Coalition of Southeastern Utilities asserts that
Commission policy has persistently treated transmission as a natural
monopoly, and therefore the court's decision in Wisconsin Gas should
serve as a warning light rather than the license that the Commission
assumes it to be. Southern Companies contend that Order No. 1000
assumes that vertical integration is unduly discriminatory because it
requires nonincumbents to have a right to propose, own, build and
operate integrated network elements. Southern Companies assert that
they operate under the traditional regulatory compact, with
efficiencies of vertical integration, economy of scale, duty to serve,
and adequate return on investment, which ensures necessary transmission
is constructed on schedule and is appropriately operated and
maintained. Southern Companies state that by not recognizing and
rationally explaining this change in precedent, the

Commission has acted arbitrarily and capriciously.

C. Commission Determination

    50. We deny the requests for rehearing that challenge the
Commission's determination that the reforms instituted by Order No.
1000 are needed. As we noted in Order No. 1000, changes are at work in
the electric utility industry that have created an additional, and
potentially significant, need for new transmission infrastructure.
Order No. 1000 cited studies conducted by the North American Electric
Reliability Corporation (NERC) and Edison Electric Institute (EEI) that
confirmed an increase in transmission development over the last several
years, and the Commission cited to an EEI-commissioned Brattle Group
study suggesting that approximately $298 billion in new transmission
facilities will be required over the period 2010 to 2030.\75\ Order No.
1000 explained that these changes are being driven in large part by the
changes in the generation mix, and it cited NERC's 2009 Assessment,
which stated that existing and potential environmental regulation and
state renewable portfolio standards are driving significant changes in
the generation mix, resulting in early retirements of coal-fired
generation, an increasing reliance on natural gas, and large-scale
integration of renewable generation.\76\
---------------------------------------------------------------------------

    \75\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at PP 44-45.
    \76\ Id. P 45.
---------------------------------------------------------------------------

    51. The Commission concluded in Order No. 1000 that current
transmission planning and cost allocation requirements are inadequate
to meet these challenges. Current requirements threaten to thwart
identification of transmission solutions that are more efficient or
cost-effective than would be the case without the reforms contained in
Order No. 1000. As a result, the Commission concluded--and we affirm
here--that it is necessary and appropriate that we take proactive steps
to ensure that this threat does not result in such adverse
consequences. The narrow focus of current transmission planning
requirements, and the shortcomings of current cost allocation
practices, represent a threat that justifies Order No. 1000's
requirements, and it is not one that the Commission can address
adequately or efficiently through the adjudication of individual
complaints.\77\ The Commission explained that the actual experiences
cited in the record provide additional support for action but are not
necessary to justify the remedy, and that the remedy is justified by
the theoretical threat identified therein.
---------------------------------------------------------------------------

    \77\ Id. P 52.
---------------------------------------------------------------------------

    52. Order No. 1000 addresses the inadequacy of existing
requirements by establishing minimum criteria that the transmission
planning process must satisfy, including general principles that cost
allocation practices must follow. These criteria are interrelated and
were designed as a package to ensure that an effective transmission
planning process is in place in each region.\78\ Effective transmission
planning requires coordination among transmission planning entities; is
open and transparent, which is necessary for any process that involves
multiple entities with a variety of needs or views regarding this
process; considers all transmission needs of all transmission
customers; results in an identifiable product reflecting regional
determinations; and does not create unnecessary barriers to the
consideration of good ideas or the selection of the most advantageous
transmission solutions, regardless of whether the developer of a
transmission solution is an incumbent transmission developer/provider
or a nonincumbent transmission developer. Effective transmission
planning should also recognize that there may be even more efficient or
cost-effective solutions that are identified through interregional
transmission coordination efforts than those solutions identified in a
regional transmission planning process. Finally, effective transmission
planning is performed with a clear ex ante understanding of who will
pay for a facility selected in a regional transmission plan for
purposes of cost allocation. Without that understanding, the likelihood
that selected facilities will be implemented is diminished, undermining
the entire purpose of the transmission planning process, namely, the
development of efficient and cost-effective transmission solutions.
---------------------------------------------------------------------------

    \78\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at 42; Order
No. 1000, FERC Stats. & Regs. ] 31,323 at P 47.
---------------------------------------------------------------------------

    53. These basic principles encompass all the reforms found in Order
No. 1000 and show how the reforms are interrelated to serve a common
purpose. If any of the reforms are absent, the effectiveness of
transmission planning and cost allocation processes would be
undermined. We are not able to identify any argument raised on
rehearing that demonstrates that any of these principles are invalid.
Instead, the overriding objection raised by the petitioners to the
Commission's discussion of the need for the reforms in Order No. 1000
is that the Commission either has not demonstrated the existence of a
problem that requires correction through implementation of new
requirements, or that it has not shown that the problems it has
identified exist in all regions of the country, thus undermining the
need for generic rules that apply to all public utility transmission
providers. The petitioners that raise these objections maintain that
the development of needed transmission facilities is proceeding apace,
either nationally or in a specific region, and thus currently there is
nothing amiss that requires correction. From this, petitioners conclude
that the Commission has not presented substantial evidence of a current
problem that shows the need for its reforms.
    54. We disagree. As the Commission noted in Order No. 1000, the
expansion of the transmission grid is the result of a complex and often
contentious process that occurs over a long time horizon.\79\ It is
capital intensive and subject to numerous regulatory hurdles. It is
further complicated by the problem of determining how costs for the
expansion will be allocated in instances when multiple entities
benefit. Given the fundamental importance of transmission
infrastructure, and the many difficulties involved in its development,
including the long lead times involved, we continue to believe that a
proactive approach is necessary. As discussed in Order No. 1000 and
reiterated below, such an approach is fully consistent with the
applicable legal requirements.
---------------------------------------------------------------------------

    \79\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 50.
---------------------------------------------------------------------------

    55. Petitioners' specific arguments that the Commission has not
adequately justified the need for the reforms in Order No. 1000 fall
under six broad headings: (1) The Commission has failed to demonstrate
that any existing rate, term or condition of or for transmission
service is unjust and unreasonable or unduly discriminatory or
preferential; (2) the Commission supports its need for reform based
solely on the existence of a theoretical threat, and it is not clear in
National Fuel whether such a decision can be supported on this basis
alone: (3) the theoretical threat that the Commission uses to justify
its reforms in Order No. 1000 amounts to hypothesis and speculation and
ignores existing realities, especially in the Southeast; (4) the
Commission has not identified a theoretical threat that justifies the
removal of federal rights of first refusal from Commission-

jurisdictional tariffs and agreements and that the Commission has not
shown that there is a reasonable expectation that competition in
transmission development may have some beneficial impact on rates; (5)
the burdens imposed by the Commission's reforms outweigh the benefits;
and (6) other issues that do not fall into a general category. We
address each of these arguments in turn below.

Whether Is It Necessary That the Commission Demonstrate That Any
Existing Rate, Term or Condition of or for Transmission Service Is
Unjust and Unreasonable or Unduly Discriminatory or Preferential

    56. California ISO, PPL Companies, Southern Companies, and Oklahoma
Gas and Electric Company challenge the Commission on the grounds that
it has failed to demonstrate that any existing rate, term or condition
of or for transmission service is unjust and unreasonable or unduly
discriminatory or preferential. However, the Commission is not required
to make individual findings concerning the rates of individual public
utility transmission providers when proceeding under FPA section 206 by
means of a generic rule.\80\ When the Commission proceeds by rule it
can conclude that ``any tariff violating the rule would have such
adverse effects * * * as to render it `unjust and unreasonable' ''
within the meaning of section 206 of the FPA.\81\
---------------------------------------------------------------------------

    \80\ Associated Gas Distributors v. FERC, 824 F.2d at 1008.
    \81\ Id. (emphasis in original).
---------------------------------------------------------------------------

    57. One circumstance that can justify the application of this
principle is the existence of a threat that, in the absence of
Commission action, would materialize and cause rates to be unjust and
unreasonable, or unduly discriminatory or preferential. A threat that
has not yet materialized is what the court in National Fuel described
as a ``theoretical threat.'' The Commission justified the need for the
reforms in Order No. 1000 based on such a threat created by the
inadequacy of existing transmission planning and cost allocation
requirements to meet the anticipated challenges facing the industry, a
threat whose existence was illustrated by actual problems that the
Commission noted in the order, but that are not necessary to justify
its response to the threat.\82\
---------------------------------------------------------------------------

    \82\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 53.
---------------------------------------------------------------------------

Whether the Reforms in Order No. 1000 can be Supported on the Basis of
a Theoretical Threat Alone

    58. A number of petitioners call into question the use of a
theoretical threat as the basis for the Commission's reforms.\83\ For
example, Ad Hoc Coalition of Southeastern Utilities maintains that,
based on National Fuel, it is not clear whether a decision might be
supported by theory alone. We disagree that the court in National Fuel
was non-committal on this point. The court specifically stated that the
Commission could choose ``to rely solely on a theoretical threat.''
\84\ While it listed certain matters that the Commission would need to
address on remand, it did not comment on the possibility of addressing
them successfully, nor did it say anything to suggest that this
approach might be defective in principle. FirstEnergy Service Company
argues that the list of specific matters that the court listed defines
the showing that must be made to rely on a theoretical threat in all
cases. However, the court's list of matters to be addressed on remand
was simply a reflection of the specific issues it saw in the case at
hand, not what was required in all cases. Moreover, when the court
stated in National Fuel that it expressed ``no view here whether a
theoretical threat alone would justify an order * * *,'' \85\ it was
referring to the justification of an order in the matter at hand, not
any and every possible proceeding. Additionally, we note that the same
court subsequently reconfirmed the legitimacy of reliance on
theoretical threats, and it based its conclusion directly on the ruling
it made in National Fuel.\86\
---------------------------------------------------------------------------

    \83\ See, e.g., Ad Hoc Coalition of Southeastern Utilities; and
Large Public Power Council.
    \84\ National Fuel, 468 F.3d at 844.
    \85\ Id. at 844.
    \86\ BNSF Railway Co. v. Surface Transportation Board, 526 F.3d
770, 778 (D.C. Cir. 2008) (BNSF Railway Co.) (finding that the
Surface Transportation Board could adopt a new method to correct
excessive railroad rates arising through gaming behavior by the
railroads even when there was no evidence of such behavior on their
part).
---------------------------------------------------------------------------

Whether the Commission's Argument That the Reforms in Order No. 1000
Are Needed Amounts to Hypothesis and Speculation and Ignores Existing
Realities, Especially in the Southeast

    59. Several petitioners characterize the Commission's approach as
based on hypothesis and speculation. For example, Southern Companies
claim that the Commission is making ``little more than a guess--a
speculative hypothesis,'' \87\ and Ad Hoc Coalition of Southeastern
Utilities and Alabama PSC also claim that the Commission is acting on
mere conjecture. Southern Companies insist that the Commission must
provide detailed facts showing that existing cost allocation methods
are impairing better regional transmission solutions. NARUC states that
the Commission does not identify actual concerns or problems or rely on
any factual record and instead proceeds in a conclusory fashion. Some
petitioners also maintain that the existing situation in the Southeast
undercuts the Commission's position.
---------------------------------------------------------------------------

    \87\ Southern Companies at 16.
---------------------------------------------------------------------------

    60. As an initial matter, we note that, based on our expertise and
knowledge of the industry, we do not consider it to be speculation or
conjecture to conclude that regional transmission planning is more
effective if it results in a transmission plan, is open and
transparent, and considers all transmission needs. Nor do we consider
it speculation or conjecture to state that barriers to the proposal and
evaluation of alternative transmission solutions will inhibit more
efficient or cost-effective transmission solutions, or that the
implementation of transmission plans will be improved where there is a
clear ex ante understanding of who will pay for the facilities selected
in the regional transmission plan for purposes of cost allocation. As
we explain in the following discussion, such propositions are fully
consistent with the grounds for action that courts have accepted in the
past.
    61. To argue that drawing such conclusions amounts to speculation
or conjecture also conflicts with the principle articulated above that
the Commission is not required to make individual findings under
section 206 when formulating generic rules. They also imply that a
threat that can justify Commission action in a rulemaking must be
actual, i.e., one whose consequences have been realized, not one whose
consequences are anticipated or, as the court expressed it in National
Fuel, a threat that is ``theoretical.''
    62. These criticisms thus mischaracterize what the courts mean by
proceeding on the basis of a theoretical threat. It means to proceed on
the basis of a particular type of fact, ``generic'' facts that
constitute the basis for ``generic factual predictions'' that can
constitute a rational basis for an agency's decision.\88\ The court in
Associated Gas Producers gave the following as an example of an
acceptable generic factual prediction: ``the increased incentive to
compete

vigorously in the market would eventually lead to lower prices for all
consumers.'' \89\ The court treated such predictions as based on
behavioral assumptions that are not subject to serious dispute. Thus
the court stated that ``[a]gencies do not need to conduct experiments
in order to rely on the prediction that an unsupported stone will fall;
nor need they do so for predictions that competition will normally lead
to lower prices.'' \90\ Indeed, the court acknowledged that such
propositions can be accepted without record evidence when the
prediction is viewed ``as at least likely enough to be within the
Commission's authority.'' \91\
---------------------------------------------------------------------------

    \88\ Associated Gas Distributors, 824 F.2d 981 at1008.
    \89\ Id. (citing Wisconsin Gas, 770 F2d at 1161).
    \90\ Id. at 1008-9.
    \91\ Id. at 1008.
---------------------------------------------------------------------------

    63. Other courts have recognized that when promulgating rules of
general and prospective applicability, agencies can draw ``factual
inferences * * * in the formulation of a basically legislative-type
judgment, for prospective application only.'' \92\ Such judgments are
closely bound up to what are sometimes referred to as ``legislative
facts,'' i.e., ``facts which help the tribunal determine the content of
law and of policy and help the tribunal to exercise its judgment or
discretion in determining what course of action to take.'' \93\ The
District of Columbia Circuit has stated that ``legislative facts are
crucial to the prediction of future events and to the evaluation of
certain risks, both of which are inherent in administrative
policymaking.'' \94\ The Supreme Court has ruled that when dealing with
matters that are ``primarily of a judgmental or predictive nature * * *
complete factual support in the record for [an agency's] judgment or
prediction is not possible or required; `a forecast of the direction in
which future public interest lies necessarily involves deductions based
on the expert knowledge of the agency.' '' \95\ This is precisely what
is involved in the Commission's reasoning in Order No. 1000.
---------------------------------------------------------------------------

    \92\ United States v. Florida East Coast Ry., 410 U.S. 224, 246
(1973); United Air Lines, Inc. v. Civil Aeronautics Board, 766 F.2d
1107, 1119 (7th Cir 1985).
    \93\ Association of National Advertisers, Inc., v. FTC, 627 F.2d
1151, 1161-62 (D.C. Cir. 1979) (Ass'n of National Advertisers)
(quoting 2 K. Davis, Administrative Law Treatise, Sec.  15.03, at
353 (1958)).
    \94\ Id. at 1162.
    \95\ FCC v. National Citizens Committee for Broadcasting, 436
U.S. 775, 814 (1978) (quoting FPC v. Transcontinental Gas Pipe Line
Corp., 365 U.S. 1, 29 (1961)); see also Ass'n of National
Advertisers, Inc., 627 F.2d at 1162.
---------------------------------------------------------------------------

    64. We disagree with the arguments made by various petitioners that
we have ignored evidence that disproves our reasoning. The evidence in
question consists of a description of the current state of transmission
planning and development in a specific region combined with an
expression of satisfaction with the current situation. For example,
North Carolina Agencies state that there is no evidence that
transmission is lacking in the Southeast and that there is no need in
this region for transmission projects that can transfer large amounts
of renewable energy. North Carolina Agencies state that the
transmission planning processes in the Southeast are already highly
developed, and Southern Companies state that in the Southeast all
transmission needs have already been planned for.
    65. First, the Commission is authorized not simply to make generic
findings but also to act on generic factual predictions.\96\ To state
that the facts in a particular region run counter to the Commission's
assessment of the future course of events is to argue either that
present circumstances can be expected to persist into the future or
that certain basic principles, such as the proposition that
transmission developers are more likely to invest if they have a
mechanism by which their costs will be allocated, do not apply in the
region. We do not find the latter sort of claim to be credible, and the
former claim simply overlooks the fact that the present is not a
prediction of the future. The Commission is authorized to make rules
with prospective effect that will prevent situations that are
inconsistent with the FPA from occurring, which means that it is
authorized to consider how the future may be different from the present
if the rules it proposes are not adopted. We thus also reject
Sacramento Municipal Utility Districts' claim that the Commission
cannot act unless it shows the existence of an ``actual problem'' in a
particular region, a claim that lies at the root of all the arguments
that petitioners make on this point. An ``actual problem'' is what one
has when a theoretical threat comes to fruition. To insist that the
Commission must identify the existence of an actual problem in the
present before it can act is thus to deny that a theoretical threat
that one reasonably concludes exists can be a basis for action. Such a
conclusion is inconsistent with the cases we have cited on this
point.\97\
---------------------------------------------------------------------------

    \96\ Associated Gas Distributors, 824 F.2d at 1008.
    \97\ See, e.g., BNSF Railway Co., 526 F.3d at 778.
---------------------------------------------------------------------------

    66. In addition, these arguments overlook the fact that in Order
No. 1000, the Commission identifies a minimum set of requirements that
must be met to ensure that transmission planning processes and cost
allocation mechanisms result in Commission-jurisdictional services
being provided at rates, terms, and conditions that are just and
reasonable and not unduly discriminatory or preferential. Given that
the requirements are minimum requirements, it would not be surprising
that some current practices in some regions may already satisfy many of
them. If that is the case, the public utility transmission providers
concerned need only show in their compliance filing how current
practices in their regions satisfy the Commission's standards. This
does not mean that the reforms are not needed, as all of these
requirements are not satisfied in all regions. We thus do not consider
Alabama PSC's proposal of a regional or case-by-case approach for
applying these reforms to be appropriate or necessary. We also disagree
with Southern Companies and others that assert that there is not an
issue to be remedied in their respective regions. As we note above, if
public utility transmission providers believe that they already satisfy
the minimum requirements in Order No. 1000, they may seek to
demonstrate this in their compliance filings.
    67. The concept of minimum requirements supplies the answer to
Southern Companies argument that there is no basis for requiring them
to adopt the nonincumbent transmission developer reforms of Order No.
1000 because they do not have a federal right of first refusal and
because there are no restrictions on nonincumbent transmission projects
in the SERTP planning process. Southern Companies also note that to
date no nonincumbents have proposed projects in SERTP. They attribute
this to incumbents, who they argue have developed a robust transmission
grid and are adequately investing in transmission. However, the purpose
of the minimum requirements for nonincumbent transmission developers is
to provide objective criteria that can help ensure that the lack of
nonincumbent participation will not be attributable to lack of equal
treatment or some other reason identified in Order No. 1000 as an
impairment to the identification and evaluation of more efficient or
cost-effective alternatives. Moreover, if the requirements of Order No.
1000 are in fact already met in SERTP, then Southern Companies need
only show in their compliance filing how current practices satisfy the
Commission's requirements. Finally, Southern Companies state the
Commission has no

authority to impose nonincumbent development rights, but the Commission
is not imposing any such rights in Order No. 1000. It is simply
establishing minimum requirements for the treatment of nonincumbent
transmission developers in the transmission planning process. These
requirements do not confer any rights to develop a facility. They only
confer a right to have a proposal considered.
    68. Some petitioners confuse agency judgments based on legislative
facts, i.e., factual inferences made in light of the policy underlying
a statute, with formal academic theories. Southern Companies maintain
that the theoretical basis of Order No. 1000 does not constitute good
theory by scientific standards.\98\ California ISO argues that the
Commission's hypothesis that the absence of a regional cost allocation
method will cause rates to be unjust or unreasonable is not based on an
established economic theory and the Commission cites no peer-reviewed
or other economic analysis that supports its conclusion.
---------------------------------------------------------------------------

    \98\ See, e.g., Southern Companies.
---------------------------------------------------------------------------

    69. The courts have specifically rejected such notions. The court
in Associated Gas Distributors clearly distinguished between generic
factual predictions that are commonly made in rulemakings and the
practice of economics as an academic discipline.\99\ The court
criticized the use of another case, Electricity Consumers Resource
Council v. FERC,\100\ to invoke economic theory as a basis for decision
making in a way that is similar to the way that Southern Companies and
Ad Hoc Coalition of Southeastern Utilities invoke economic theory. For
example, Southern Companies state that ``FERC has pointed to no * * *
established theory (such as marginal pricing at issue in Electricity
Consumers) upon which it may rely to support the application of Order
No. 1000's requirements to the Southeast.'' \101\ The court in
Associated Gas Distributors stated that ``[c]learly nothing in
Electricity Consumer's reference to `economic theory' was intended to
invalidate agency reliance on generic factual predictions merely
because they are typically studied in the field called economics.''
\102\
---------------------------------------------------------------------------

    \99\ Associated Gas Distributors, 824 F.2d at 1008.
    \100\ 747 F.2d 1511 (D.C. Cir. 1984) (Electricity Consumers).
    \101\ Southern Companies at 16.
    \102\ Associated Gas Distributors, 824 F.2d at 1008; accord
Sacramento Municipal Utility District v. FERC, 616 F.3d 520, 531
(D.C. Cir. 2010) (stating that ``[n]either [Electricity] Consumers
nor any other case law prevents the Commission from making findings
based on `generic factual predictions' derived from economic
research and theory.'').
---------------------------------------------------------------------------

    70. This is the case because the court recognized that there was no
reason that an agency must demonstrate the validity of well-established
general principles such as ``that competition will normally lead to
lower prices.'' \103\ Southern Companies and Ad Hoc Coalition of
Southeastern Utilities confuse a theoretical threat, a potential threat
that has not yet materialized, with a theory used in an academic
discipline, an area of activity that is not comparable to the tasks or
responsibilities entrusted to a regulatory agency. The type of
principles that the Commission has relied upon here are fully
commensurate with those that the court in Associated Gas Distributors
said the Commission could utilize when addressing matters that fall
within its area of expertise. For these same reasons, we disagree with
the argument of California ISO that the Commission's finding that the
absence of a cost allocation method will cause rates to be unjust or
unreasonable must be based on an established economic theory and that
the Commission must cite a peer-reviewed or other economic analysis
that supports its conclusion.
---------------------------------------------------------------------------

    \103\ Associated Gas Distributors, 824 F.2d at 1009.
---------------------------------------------------------------------------

    71. Moreover, we note that the substantial evidence standard does
not require scientific certitude, a point which serves to dispel the
confusion between theoretical threats and scientific theories. It only
requires evidence that a ``reasonable mind might accept'' as ``adequate
to support a conclusion.'' \104\ In the context of rulemakings that
involve legislative facts and generic factual predictions, the relevant
criterion is whether the agency has provided a reasonable explanation
of the problem presented and its solution to it.\105\ A reasonable
justification of a policy choice is not, and given the nature of the
task involved cannot be, a scientific prediction.
---------------------------------------------------------------------------

    \104\ Dickenson v. Zurko, 527 U.S. 150, 155 (1999).
    \105\ See Federal Communications Commission v. Nat'l Citizens
Comm. for Broadcasting, 436 U.S. 775, 814 (1978) (stating that
``complete factual support in the record for the [agency's] judgment
or prediction is not possible or required''); Industrial Union v.
Hodgson, 499 F.2d 467 at 475-476 (1974). Bradford Nat'l Clearing
Corp. v. SEC, 590 F.2d 1085, 1103-04 (D.C. Cir. 1978) (judicial
deference to agency increases where agency decision rests primarily
on predictions).
---------------------------------------------------------------------------

    72. This point is confirmed by the discussion of theoretical
threats in National Fuel. While some petitioners argue that this case
requires substantial empirical verification of the existence of a
theoretical threat,\106\ a careful examination of what the courts says
shows that this is not correct. The court did not specify any
requirements for demonstrating the existence of a theoretical threat
other than a showing that the threat is ``plausible.'' \107\ A specific
theoretical threat that it found met this requirement is stated in its
entirety in the following language:
---------------------------------------------------------------------------

    \106\ See, e.g., Sacramento Municipal Utility District.
    \107\ National Fuel, 468 F.3d at 840.

    If a pipeline did not have an affiliated marketer, it would be
in its interest to disseminate widely information relevant to
operating constraints, capacity, and available receipt points,
limited only by the cost of doing so. The affiliate relationship,
however, creates an incentive for the pipeline to withhold
information that otherwise would be made available to the
affiliate's competitors. Withholding this information from non-
affiliated shippers reduces their ability to arrange transactions
efficiently.\108\
---------------------------------------------------------------------------

    \108\ Tenneco Gas v. FERC, 969 F.2d 1187, 1197 (1992) (Tenneco
Gas).

    This description of a theoretical threat, which is drawn from an
earlier decision cited by the court in National Fuel, corresponds
precisely to the type of generic factual predictions discussed above
that can justify agency action. It focuses on an incentive to withhold
information that is created simply by the existence of an affiliate
relationship. The court nowhere indicated that the plausibility of this
theory depended on additional confirmation in the form of predictive
economic models or extensive empirical data.
    73. We thus disagree with Southern Companies that our use of words
such as ``may'' and ``could'' in describing the anticipated effects of
our reforms is evidence that these reforms are based on speculation or
guesswork. When making a generic factual prediction, one is not
predicting what will occur with certainty in every instance but rather
what it is reasonable to conclude will occur with sufficient frequency
and to a sufficient degree to conclude that the reforms are needed. Our
use of words such as ``may'' and ``could'' in this context must be
understood in this sense.
    74. California ISO states that the Commission is not relying on
economic theory to determine the means for achieving its goal but
rather to establish a statutory predicate for action. However, a
theoretical threat, which should not be confused with an economic
theory, is precisely that, a predicate for agency action. The
Commission's task is to assess current circumstances and to form a
judgment on the steps necessary to avoid adverse effects on rates that
it concludes are likely to arise if the present situation persists. We
reject the idea that the only

appropriate predicates for our action in this area are current failures
that are traceable to inadequate transmission planning and cost
allocation. That would mean that the only predicate for action is a
fully realized threat, which is contrary both to the clear position
taken by the courts, and, given the special problems involved in
transmission development, to the public interest.\109\
---------------------------------------------------------------------------

    \109\ We reject for the same reasons the contention by Ad Hoc
Coalition of Southeastern Utilities and Large Public Power Council
that it is somehow significant that the Commission has effectively
conceded that there is no evidence justifying Order No. 1000 and it
is relying on theory alone. The Commission is acting on the basis of
a theoretical threat whose existence has been demonstrated through a
reasonable explanation. The identification of this threat is based
``on an assessment of the relevant market conditions'' and involves
``a forecast of the direction in which future public interest lies''
which ``necessarily involves deductions based on the expert
knowledge of the agency.'' Ass'n of National Advertisers, 627 F.2d
at 1162 (internal citations omitted). Such judgments will satisfy
evidentiary requirements in rulemakings such as this one. Id. at
1161-62.
---------------------------------------------------------------------------

    75. Finally, aside from National Fuel and Associated Gas
Distributors, the only case that petitioners cite on rehearing dealing
with evidentiary burdens in a rulemaking is Business Roundtable v. SEC.
In that case, the court vacated a rule issued by the SEC on the grounds
that it had not adequately considered the rule's effect upon
efficiency, competition, and capital formation. A number of petitioners
describe this case as involving matters that are ``remarkably'' or
``strikingly'' similar to the present proceeding.\110\ However,
Business Roundtable dealt with a failure by the SEC to comply with
specific provisions of the Exchange Act and the Investment Company Act
of 1940 that require it to assess the economic impacts of a new rule.
The court described these requirements as being ``unique'' to the
SEC.\111\ Requirements that apply uniquely to the SEC under statutes
that it administers do not address requirements that apply to this
Commission under the FPA or its compliance with them. Moreover, the
petitioners that rely on Business Roundtable point to no requirements
in the FPA that are similar to those that applied to the SEC under its
statutes and that might show how the case applies to this proceeding.
We are, of course, required to consider the burdens that Order No. 1000
creates in relation to the benefits that we expect its requirements to
produce.\112\ However, we have done that and have concluded that, in
light of the substantial investment in new transmission facilities that
is generally expected to occur, the potential benefits from improved
planning for new transmission facilities outweigh the burdens involved
in complying with the requirements of Order No. 1000 to revise existing
transmission tariffs and institute additional planning procedures.
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    \110\ See, e.g., Southern Companies; Ad Hoc Committee of
Southeastern Utilities; and Large Public Power Council.
    \111\ Business Roundtable at 1148.
    \112\ See, e.g., National Fuel, 468 F.3d at 844; Associated Gas
Distributors, 824 F.2d at 1019.
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Whether the Commission Has Identified a Theoretical Threat That
Justifies the Removal of Federal Rights of First Refusal From
Commission Jurisdictional Tariffs and Agreements and Has Shown That
There Is a Reasonable Expectation That Competition in Transmission
Development May Have Some Beneficial Impact on Rates

    76. A number of petitioners contend that the Commission has not
identified a theoretical threat that justifies the removal of federal
rights of first refusal from Commission jurisdictional tariffs and
agreements and that the Commission has not shown that there is a
reasonable expectation that competition in transmission development may
have some beneficial impact on rates. In fact, the record in this
proceeding includes the type of evidence that courts have found
appropriate in these circumstances. The Federal Trade Commission, one
of the two federal agencies responsible for enforcement of the
antitrust laws, supported the elimination of federal rights of first
refusal as a means for promoting consumer benefit, support that it
described as consistent with antitrust policy disfavoring regulatory
barriers to entry in all but a limited number of instances.\113\ While
we possess our own expertise on barriers to entry when dealing
specifically with the transmission grid, we note that the court in
Tenneco Gas attributed considerable weight to analogous remarks by the
Department of Justice that supported the identification of a
theoretical threat.\114\
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    \113\ Federal Trade Commission Comments on Proposed Rule at 2,
7.
    \114\ Tenneco Gas, 969 F.2d at 1202.
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    77. Large Public Power Council maintains that Wisconsin Gas
contains strictures regarding agency action premised on the benefits of
competition that the Commission has violated. This case requires only
``that there must be `ground for reasonable expectation that
competition may have some beneficial impact.' '' \115\ We think that
there is a reasonable expectation that removal of a barrier to entry in
the area of transmission development will have benefits of the type
that competition creates in most industries. When the court in
Wisconsin Gas stated that ``unsupported or abstract allegations of the
benefits that will accrue from increased competition'' \116\ do not
form an adequate basis for agency action, it did this in response to
the Commission's position on a complex rate issue whose effects were
difficult to discern. Order No. 1000 does not involve a comparable
situation. In fact, the court's full argument was that such allegations
``cannot substitute for `a conscientious effort to take into account
what is known as to past experience and what is reasonably predictable
about the future.' '' \117\ In fact, we have made just such an effort,
and on that basis we find it quite reasonable to expect benefits from
removing barriers to transmission development. Moreover, as noted
above, this analysis is consistent with that of the Federal Trade
Commission.
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    \115\ Wisconsin Gas, 770 F.2d 1144, at 1158 (quoting FCC v. RCA
Communications, Inc., 346 U.S. 86, 96-7 (1953)).
    \116\ Id. at 1158.
    \117\ Id. (quoting American Public Gas Association v. FPC, 567
F.2d 1016, 1037 (D.C. Cir. 1977)).
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    78. We also see no significance in the fact that Wisconsin Gas
involved competitive sales of natural gas in accordance with a policy
established by Congress. Ad Hoc Committee of Southeastern Utilities and
Large Public Power Council state that Congress has voiced no similar
policy regarding competition in the development of transmission
infrastructure, but it likewise has not objected to it. We thus do not
see how this difference between Wisconsin Gas and this proceeding is
controlling. Barriers to entry in this area can adversely affect rates,
and our action to ensure that such barriers in the form of federal
rights of first refusal do not adversely affect rates is well within
the scope of actions that we are authorized to take under section 206
of the FPA. The fact that Congress expressed a policy regarding
competitive sales of natural gas does not affect this conclusion. These
points also address the objections by Oklahoma Gas and Electric Company
and Sponsoring PJM Transmission Owners that the Commission has not
supported the conclusion that competition between potential developers
will result in more efficient or cost effective solutions or that this
conclusion suffices to support Commission action under section 206.
    79. Xcel and MISO Transmission Owners Group 2 argue that the

Commission has not explained why problems created by federal rights of
first refusal cannot be dealt with through individual complaints.
Rights of first refusal create barriers to participation in the
transmission development process. To require nonincumbent transmission
developers to overcome those barriers solely through individual
complaint proceedings, requiring litigation each time they seek to
engage in the development process would create expense, delay, and
uncertainty that would serve as a further disincentive to
participation. That is, they would have to invest in project
development and participate in an extensive regional transmission
planning process, and if the project is then taken over by an incumbent
transmission developer/provider who exercises a federal right of first
refusal, they would have to invest still more time and resources in
litigation. As long as the federal right of first refusal remains in a
Commission-approved tariff or agreement, their chances of succeeding in
litigation would be severely diminished. They would likely forego
participating in that region in the first place and place their efforts
elsewhere. The remedy suggested by Xcel and MISO Transmission Owners
Group 2 would thus itself act as a form of barrier to entry.
    80. MISO Transmission Owners 2, Xcel, and MISO argue that the
Commission has not identified an instance where federal rights of first
refusal have led to adverse effects on rates, discrimination against a
nonincumbent transmission developer, or failure by a nonincumbent to
invest in a transmission facility. While the Commission did receive
evidence that nonincumbent transmission developers experience
discriminatory treatment,\118\ we think the more important point is
that the practical effect of a federal right of first refusal is to
discourage investment by nonincumbent transmission developers. We do
not think it is surprising that there is limited evidence of exclusion
of nonincumbent transmission developers in a situation that discourages
them from proposing projects in the first place. While Sponsoring PJM
Transmission Owners contrast the evidence of specific discrimination
provided in Order No. 888 to support open access transmission with the
number of specific examples of barriers to participation by
nonincumbent transmission developers in this proceeding, they fail to
acknowledge that Order No. 888 and Order No. 1000 involve different
factual circumstances and bases for Commission action. Order No. 888
dealt with instances of undue discrimination in transmission access
involving entities that were already connected to the transmission
grid. Order No. 1000, by contrast, deals as much or more with the
effect on rates of excluding entities whose ability even to become
involved in the transmission planning process is being hindered from
the outset.
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    \118\ See LS Power Comments on Proposed Rule at 3.
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    81. MISO Transmission Owners 2 state that the Commission ignored
the example of nonincumbent transmission developer participation in
CapX2020, which they maintain shows that existing construction rights
are not a disincentive to investment, at least with respect to the
Midwest ISO.\119\ However, MISO Transmission Owners 2 do not identify
any nonincumbent transmission developer that independently proposed a
transmission project and was able to develop it despite the existence
of a federal right of first refusal, and initially referred only to
certain transmission dependent utilities that had been ``renters'' of
the transmission system'' \120\ but that had chosen to invest in and
own a portion of CapX2020.\121\ While the Commission supports
investment in transmission infrastructure by transmission dependent
utilities, the existence of a single joint project like CapX2020 does
not demonstrate that nonincumbent transmission developers are treated
in a manner that is not unduly discriminatory or preferential.
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    \119\ Midwest Transmission Owners 2 Petition for Rehearing at
12.
    \120\ Midwest Transmission Owners Reply Comments on Proposed
Rule at 14.
    \121\ Midwest Transmission Owners Comments on the Proposed Rule
at 37 and n.89. Midwest Transmission Owners 2 consists of all the
entities that compose Midwest Transmission Owners, with the
exception of American Transmission Company LLC.
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    82. We disagree with Baltimore Gas & Electric that if our concern
is the effect of federal rights of first refusal on transmission rates,
we should deal with rates directly rather than federal rights of first
refusal. Barriers to entry affect markets in various ways. These
include their ability to discourage innovation. Federal rules should
not prevent consumers from being able to benefit from the full range of
advantages that competition can provide, which the preservation of
barriers to entry does not allow.
    83. We also disagree with Baltimore Gas & Electric that our
rationale for eliminating federal rights of first refusal has no
applicability to the transmission owner members of PJM because they
have relinquished all transmission planning decisions to PJM and thus