Cir. 1985) (citing FCC v. RCA Communications, Inc., 346 U.S. 86, 96
(1953)).
    \244\ 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).
---------------------------------------------------------------------------

    269. Finally, we disagree with San Diego Gas & Electric that the
elimination of a federal right of first refusal raises concerns under
FPC v. Hope Natural Gas Co. and Bluefield Water Works v. Public Serv.
Comm'n. As San Diego Gas & Electric notes, these cases stand for the
principle that utilities are entitled to receive a reasonable return on
their investment. They do not, however, speak to the issue of who may
make an investment. They thus require only that a utility receive a
reasonable rate of return on the investments that it makes, not that
the utility receive a preferential right to make those investments.
2. Legal Authority To Remove a Federal Right of First Refusal
a. Commission Proposal
    270. In the Proposed Rule, the Commission explained that the
existing planning process may not result in a cost-effective solution
to regional transmission needs and transmission projects that are in a
regional transmission plan therefore may be developed at a higher cost
than necessary. The Commission stated that the result may be that
regional transmission services may be provided at rates, terms and
conditions that are not just and reasonable.\245\ The Commission also
stated that it may be unduly discriminatory or preferential to deny a
nonincumbent public utility transmission developer that sponsors a
project that is in a regional transmission plan the rights of an
incumbent public utility transmission developer that are created by a
public utility transmission provider's tariffs or agreements subject to
the Commission's jurisdiction. Under these circumstances, the
Commission noted that nonincumbent transmission developers may be less
likely to participate in the regional transmission planning process.
The Commission stated that, if the regional transmission planning
process does not consider and evaluate transmission projects proposed
by nonincumbents, it cannot meet the principle of being ``open.''
---------------------------------------------------------------------------

    \245\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 87-88.
---------------------------------------------------------------------------

b. Comments Regarding the Commission's Authority To Implement the
Proposal
    271. Several commenters argue that the Commission has adequate
statutory authority to undertake the reforms in the Proposed Rule.\246\
Some of the commenters supporting the Commission's proposal to
eliminate federal rights of first refusal from Commission-
jurisdictional tariffs and agreements specifically addressed the scope
of the Commission's authority under section 206 of the FPA. Primary
Power contends that the Commission is authorized under section 206 to
remove or limit the right of first refusal, which is a rule, practice,
or contract condition subject to its jurisdiction. Primary Power states
that, while the proposal to eliminate the right of first refusal
represents a change in the Commission's policy of tolerance or
occasional acceptance of the right of first refusal, this change in
policy is justified as in the public interest. Primary Power

argues that rights of first refusal are creatures of regulated services
that are subject to federally-regulated tariffs and, therefore,
proponents of rights of first refusal must find some independent legal
basis for the property rights they seek to protect.
---------------------------------------------------------------------------

    \246\ E.g., Iberdrola Renewables; 26 Public Interest
Organizations; Exelon; ITC Companies; LS Power; Multiparty
Commenters; and Primary Power.
---------------------------------------------------------------------------

    272. LS Power argues that the Commission has a duty to stamp out
all forms of discrimination in the form of a right of first refusal,
whether written in the OATT or other agreement, or simply as part of a
long-standing bias arising from a closed planning process. LS Power
contends that eliminating rights of first refusal is a critical step
toward true competition in the electric industry, and essential to
ensuring that new transmission infrastructure is provided to consumers
at just and reasonable rates. LS Power notes that the Commission has
historically required the elimination of provisions that are
anticompetitive on their face.\247\ Joined by American Forest & Paper,
LS Power further argues that elimination of a federal right of first
refusal would not be inconsistent with existing state laws, noting the
support for the Commission proposal by a number of state commissions
submitting comments.
---------------------------------------------------------------------------

    \247\ LS Power (citing Gulf States Utils. Co., 5 FERC ] 61,066
(1978)).
---------------------------------------------------------------------------

    273. Other commenters contend that the Commission does not have the
legal authority to implement the proposed reforms related to rights of
first refusal in Commission-jurisdictional tariffs or agreements. Some
commenters argue that the FPA does not give the Commission the
authority to address discrimination between incumbent and nonincumbent
transmission developers, arguing that the FPA's protection against
undue discrimination is concerned with the protection of consumer
interests and does not extend to nonincumbent transmission
developers.\248\ Ad Hoc Coalition of Southeastern Utilities states that
precedent shows that the rights of competitors are neither protected
nor contemplated in FPA section 205(b)'s proscription against undue
discrimination.\249\ Edison Electric Institute agrees, arguing that an
undue discrimination analysis in the context of the right of first
refusal provisions and planning processes is unsupportable, explaining
that such provisions are not rates, terms, and conditions of a service
that a transmission owner provides to its customers. Edison Electric
Institute states that the Commission previously has not taken the step
of characterizing transmission planning as an obligation or service to
non-customers to facilitate their competing efforts to own transmission
facilities. Edison Electric Institute further states that the
comparability analysis for undue discrimination could not apply because
ownership is not a service that a transmission owner provides to
itself.
---------------------------------------------------------------------------

    \248\ E.g., Ad Hoc Coalition of Southeastern Utilities; Large
Public Power Council; Nebraska Public Power District; Omaha Public
Power District; Xcel; and Indicated PJM Transmission Owners (citing
Grand Council of the Crees v. FERC, 198 F.3d 950, 956 (DC Cir.
2000)).
    \249\ Ad Hoc Coalition of Southeastern Utilities cites to
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 487-89
(1977), Cargill, Inc. v. Montfort of Colorado, Inc., 479 U.S. 104,
115-17 (1976), City of Frankfort v. FERC, 678 F.2d 699, 707 (7th
Cir. 1982).
---------------------------------------------------------------------------

    274. Indicated PJM Transmission Owners contend that the undue
discrimination concerns underlying Order. No. 888, regarding access to
transmission facilities for loads and for competing suppliers of
wholesale electricity, are not present here. Indicated PJM Transmission
Owners argue the Commission does not and cannot find that relying on
incumbent transmission owners to build necessary upgrades to their
systems discriminates either in the terms of service available to
different classes of transmission customers or in the terms upon which
wholesale sellers and buyers gain access to the transmission system.
    275. Some commenters analogize to the Commission's jurisdiction
under section 205 of the FPA, arguing that there are only two types of
undue discrimination actionable under section 205: treating similar
customers differently or affording similar treatment to dissimilar
customers.\250\ Some of these commenters assert that the court in City
of Frankfort v. FERC \251\ noted that section 205 provisions focus on
the fair treatment of customers. Similarly, Nebraska Public Power
District states Public Service Commission of Indiana \252\ stands for
the proposition that the antidiscrimination policy in section 205(b) is
violated where one consumer has its rates raised significantly above
what other similarly situated consumers are paying.
---------------------------------------------------------------------------

    \250\ E.g., Nebraska Public Power District; Large Public Power
Council; and MISO Transmission Owners. Some of these commenters cite
to Alabama Elec. Coop., Inc. v. FERC, 684 F.2d 20, 27-28 (DC Cir.
1984), Sacramento Mun. Util. Dist. v. FERC, 474 F.3d 797, 802 (DC
Cir. 2007), City of Vernon v. FERC, 845 F.2d 1042, 1046 (DC Cir.
1988), Ohio Power Co. v. FERC, 744 F.2d 162, 165 n.3 (DC Cir. 1984),
and ``Complex'' Consol. Edison Co. v. FERC, 165 F.3d 992, 1012 (DC
Cir. 1999).
    \251\ City of Frankfort v. FERC, 678 F.2d 699, 704 (7th Cir.
1982).
    \252\ Pub. Serv. Comm'n of Indiana, Inc. v. FERC, 575 F.2d 1204,
1213 (7th Cir. 1978).
---------------------------------------------------------------------------

    276. Other commenters also argue that the Commission lacks general
jurisdiction over the siting, construction, or ownership of
transmission facilities, matters they assert Congress intentionally
left to the states, as demonstrated by a comparison between the FPA and
the Natural Gas Act.\253\ Commenters assert that the proposal to adopt
rules governing who can build transmission within an incumbent
transmission owner's zone exceeds the authority conferred upon the
Commission under the FPA to regulate the terms and conditions of
service and, in essence, create a federal franchise for transmission
service.\254\
---------------------------------------------------------------------------

    \253\ E.g., Ad Hoc Coalition of Southeastern Utilities; Nebraska
Public Power District; Oklahoma Gas and Electric Company; Omaha
Public Power District; PPL Companies; Large Public Power Council;
Xcel; Indianapolis Power & Light; Edison Electric Institute;
Indicated PJM Transmission Owners; and Virginia State Corporation
Commission. Indicated PJM Transmission Owners cite to Altamont Gas
Transmission Co. v. FERC, 92 F.3d 1239, 1248 (DC Cir. 1996).
    \254\ E.g., PPL Companies and PSEG Companies.
---------------------------------------------------------------------------

    277. Other commenters argue that the Commission is provided only
limited backstop siting authority under section 216 of the FPA, a grant
of authority that the courts have emphasized is subservient to the
primary jurisdiction of the states.\255\ Oklahoma Gas & Electric
Company argues that, in enacting section 215 of the FPA, Congress
expressly declined to grant the Commission the authority to require the
construction of facilities or the expansion of the grid. PPL Companies
contend that the Commission's jurisdiction under FPA sections 210 and
211 to order existing utilities to enlarge their facilities, if
necessary to permit transmission service or interconnection, can be
invoked only pursuant to specific procedures and after specific
findings are made.
---------------------------------------------------------------------------

    \255\ E.g., Ad Hoc Coalition of Southeastern Utilities;
Indicated PJM Transmission Owners; Oklahoma Gas & Electric Company;
and PPL Companies. Indicated PJM Transmission Owners cite to
Piedmont Envtl. Council v. FERC, 558 F.3d 304 (4th Cir. 2009).
---------------------------------------------------------------------------

    278. Oklahoma Gas & Electric Company asserts that, for the
Commission to extend its jurisdiction over actions that indirectly
affect activity otherwise governed by the states, the Commission must
show that the action in question has a direct and significant effect on
jurisdictional rates. Oklahoma Gas & Electric Company argues that the
courts are unwilling to allow the Commission to regulate activity if,
in so doing, the Commission is directly regulating activity that was
specifically reserved for the states.\256\

Oklahoma Gas & Electric Company cites to National Association of
Regulatory Utility Commissioners v. FERC, 475 F.3d 395, 401 (DC Cir.
2004), where the court found that Commission regulations related to
generator interconnection procedures bore a close enough relationship
to its authority over jurisdictional transmission services that the
exercise of jurisdiction over interconnection service was permissible.
---------------------------------------------------------------------------

    \256\ Oklahoma Gas & Electric Company (citing Northwest Central
Pipeline Corp. v. State Corp. Comm'n of Kansas, 489 U.S. 493 (1989);
Connecticut Dept. of Pub. Util. Control v. FERC, 569 F.3d 477, 484
(DC Cir. 2009); Mississippi Indus. v. FERC, 808 F.2d 1525, 1542-43
(DC Cir. 1987)).
---------------------------------------------------------------------------

    279. Commenters opposing the Commission's proposed reforms
generally reject the notion that the Commission is acting only to
eliminate the federal right of first refusal, stating that the Proposed
Rule would go much farther by regulating the protocols for determining
the entity responsible to construct an upgrade. Indicated PJM
Transmission Owners argue that, to the extent a state-created right is
reflected in an RTO or ISO tariff or agreement, it cannot then be
converted by the Commission into a federal based right that the
Commission can eliminate by its own regulation. Indicated PJM
Transmission Owners assert that the fact that the transmission provider
may be an RTO or ISO does not expand the Commission's jurisdiction
because the transmission owner is still the public utility that makes
and supports financial investments. They argue that the Commission
cannot use such a voluntary association to require utilities to
surrender their statutory rights, in accordance with Atlantic City
Electric Co. v. FERC.\257\
---------------------------------------------------------------------------

    \257\ 295 F.3d 1 (DC Cir. 2002) (Atlantic City).
---------------------------------------------------------------------------

    280. Other commenters similarly agree that not every provision of a
Commission-jurisdictional rate schedule or tariff governs the terms and
conditions of jurisdictional services.\258\ For example, PPL Companies
argues that there are numerous provisions in agreements required to be
filed with the Commission that are not rates or other terms or
conditions that affect rates, such as provisions addressing force
majeure and indemnification. PPL Companies and others point to
provisions in transmission owner agreements or RTO operating agreements
that establish governance as an example of terms that are beyond the
Commission's jurisdiction.\259\ Indicated PJM Transmission Owners argue
that, consistent with CAISO v. FERC, section 206 is not implicated
because the building and owning of an upgrade is not a practice or
contract that affects a rate, charge, or classification for
transmission. Indicated PJM Transmission Owners argue that regulation
of the determination of which entity constructs transmission additions
and expansions is a regulation of whether the utility can provide a
service at all, not the rate for the service. Indicated PJM
Transmission Owners explain that CAISO v. FERC noted that the FPA
provides the Commission with limited power regarding corporate
governance in section 305, which involves interlocking directorates,
and this supports the proposition that section 206 was not intended to
reach such matters.\260\
---------------------------------------------------------------------------

    \258\ E.g., Oklahoma Gas & Electric; and PPL Companies. In
support, Oklahoma Gas & Electric Company cites to PSI Energy, Inc.,
55 FERC ] 61,254, at 61,811 (1991), reh'g denied, 56 FERC ] 61,237
(1991).
    \259\ PPL Companies (citing CAISO v. FERC, 372 F.3d 395 (DC Cir.
2004)).
    \260\ In addition, FirstEnergy Service Company states that the
court in CAISO v. FERC explained that a more expansive
interpretation of ``practice'' would allow the Commission to
regulate a range of subjects that the court considered to be plainly
beyond the Commission's authority.
---------------------------------------------------------------------------

    281. Indicated PJM Transmission Owners contend that each of the
choices a utility's management makes potentially constitutes a
``practice'' that eventually affects rates insofar as the utility seeks
to recover the resulting costs. If the Commission concludes that an
investment or other business decision is the product of imprudent
management, Indicated PJM Transmission Owners contend that the
Commission has authority to consider denying recovery of excessive
costs resulting from that decision, not to supplant the public
utility's management's decision-making authority.\261\ Joined by
FirstEnergy Service Company, Indicated PJM Transmission Owners argue
that a fundamental premise of the FPA is that a utility has a right to
recover prudently incurred costs, and a corollary of this principle is
that a utility must have the right to decide whether to make those
investments.\262\
---------------------------------------------------------------------------

    \261\ Indicated PJM Transmission Owners (citing Town of Norwood
v. FERC, 80 F.3d 526, 531 (DC Cir. 1996)).
    \262\ Indicated PJM Transmission Owners (citing Mo. ex. rel.
Southwestern Bell Tel. Co. v. Pub. Serv. Comm'n, 262 U.S. 276, 289
n.1 (1923)). Indicated PJM Transmission Owners also note that
Congress did provide similar authority in laws that parallel the
FPA, such as section 402 of the Transportation Act of 1920, and
sections 5 and 7 of the Natural Gas Act.
---------------------------------------------------------------------------

    282. Indicated PJM Transmission Owners disagree with the
Commission's statement that the regional transmission planning
processes that do not consider and evaluate of projects proposed by
nonincumbent transmission developers cannot meet the principle of being
``open.'' They argue that the Commission cannot, by relying upon
nondiscrimination principles, bootstrap authority it does not have for
mandating the sponsorship model. Citing Office of Consumers' Counsel v.
FERC,\263\ Indicated PJM Transmission Owners argue that the Commission
cannot redefine the transmission planning principles adopted in Order
No. 890 to encompass matters that were never contemplated when it was
issued. Indicated PJM Transmission Owners assert that nothing about the
transmission owners' construction rights and obligations prohibits
parties from participating in the process or proposing transmission
projects. They state that the Commission has offered no rationale for
concluding that the requirement of openness must be redefined to
include a new sponsorship model.
---------------------------------------------------------------------------

    \263\ Office of Consumers' Counsel v. FERC, 655 F.2d 1132, 1148
(DC Cir. 1980).
---------------------------------------------------------------------------

    283. National Grid notes that the rights and obligations of
transmission owners in New England to own and construct transmission
facilities or upgrades located within or connected to their existing
electric systems were extensively litigated in the proceeding where the
Commission found that ISO New England satisfied the requirements to be
an RTO. National Grid states that in that proceeding, the Commission-
approved contractual language in Section 3.09 of ISO New England's
Transmission Operating Agreement providing that, absent agreement of
ISO New England and the participating transmission owners to an
amendment to these provisions, they will be subject to the Mobile-
Sierra doctrine. Therefore, National Grid argues that the subject
provisions cannot be modified by the Commission unless it finds they
are contrary to the public interest. It submits that there is no
evidence to meet this high standard. National Grid requests that
Commission should either clarify that Commission-approved rights to
build of transmission owners like those in New England would not be
affected by the proposed NOPR requirements, or modify those
requirements in the Final Rule to allow transmission owners in New
England to continue to meet regional needs under the existing planning
process.
c. Commission Determination
    284. The Commission determines that it has the authority under
section 206 of the FPA to implement the reforms adopted to eliminate
provisions in Commission-jurisdictional tariffs and agreements that
grant federal rights of first refusal to incumbent transmission

providers with respect to the construction of transmission facilities
selected in a regional transmission plan for purposes of cost
allocation. The Commission's remedial authority under FPA section 206
of the FPA is broad and allows us to act, as we do here, to revise
terms in jurisdictional tariffs and agreements that may cause the
rates, terms or conditions of transmission service to become unjust and
unreasonable or unduly discriminatory or preferential.\264\ As
explained in the preceding section, granting incumbent transmission
providers a federal right of first refusal with respect to transmission
facilities selected in a regional transmission plan for purposes of
cost allocation effectively restricts the universe of transmission
developers offering potential solutions for consideration in the
regional transmission planning process. This is unjust and unreasonable
because it may result in the failure to consider more efficient or
cost-effective solutions to regional needs and, in turn, the inclusion
of higher-cost solutions in the regional transmission plan. It is
squarely within our authority under FPA section 206 to correct this
deficiency.
---------------------------------------------------------------------------

    \264\ Associated Gas Distributors, 824 F.2d 981, 1008 (DC Cir.
1985).
---------------------------------------------------------------------------

    285. A federal right of first refusal is, in the language of
section 206(a), a ``rule, regulation, practice, or contract'' affecting
the rates for jurisdictional transmission service. Where the Commission
finds that such rules, regulations, practices or contracts are
``unjust, unreasonable, unduly discriminatory, or preferential,'' the
Commission must determine ``the just and reasonable rate, charge,
classification, rule, regulation, practice, or contract to be
thereafter observed and in force, and shall fix the same by order.'' In
light of our finding above that federal rights of first refusal in
favor of incumbent transmission providers deprive customers of the
benefits of competition in transmission development, and associated
potential savings, the Commission is compelled under section 206(a) to
take corrective action here. The court in CAISO v. FERC explained that
the Commission is empowered under section 206 to assess practices that
directly affect or are closely related to a public utility's rates and
``not all those remote things beyond the rate structure that might in
some sense indirectly or ultimately do so.'' \265\ The Commission here
is focused on the effect that federal rights of first refusal in
Commission-approved tariffs and agreements have on competition and in
turn the rates for jurisdictional transmission services. As explained
in greater depth below, these matters fall directly within the ambit of
the court's interpretation of a practice affecting rates.
---------------------------------------------------------------------------

    \265\ CAISO v. FERC, 372 F.3d 395 at 403.
---------------------------------------------------------------------------

    286. In addition, federal rights of first refusal create
opportunities for undue discrimination and preferential treatment
against nonincumbent transmission developers within existing regional
transmission planning processes. The Commission has long recognized
that it has a responsibility to consider anticompetitive practices and
to eliminate barriers to competition.\266\ Indeed, the Supreme Court
has said that ``the history of Part II of the Federal Power Act
indicates an overriding policy of maintaining competition to the
maximum extent possible consistent with the public interest.'' \267\ In
requiring the elimination of federal rights of first refusal from
Commission-jurisdictional tariffs and agreements, we are acting in
accordance with our duty to maintain competition.
---------------------------------------------------------------------------

    \266\ Gulf States Utils. Co., 5 FERC ] 61,066 at 61,098.
    \267\ Otter Tail Power Co. v. United States, 410 U.S. 366 at 374
(1973).
---------------------------------------------------------------------------

    287. Eliminating a federal right of first refusal in Commission-
jurisdictional tariffs and agreements does not, as some commenters
contend, result in the regulation of matters reserved to the states,
such as transmission construction, ownership or siting. The reforms are
focused solely on public utility transmission provider tariffs and
agreements subject to the Commission's jurisdiction. While many
commenters indicate that they disagree with these statements, none of
them has explained adequately how our actions will override or conflict
with state laws or regulations. The Commission acknowledges that there
may be restrictions on the construction of transmission facilities by
nonincumbent transmission providers under rules or regulations enforced
by other jurisdictions. Nothing in this Final Rule is intended to
limit, preempt, or otherwise affect state or local laws or regulations
with respect to construction of transmission facilities, including but
not limited to authority over siting or permitting of transmission
facilities. It does not follow that the Commission has no authority to
remove such restrictions in the tariffs or agreements subject to its
jurisdiction.
    288. The Commission disagrees with commenters arguing that the
effect of a federal right of first refusal on jurisdictional rates is
too tenuous to support action. These commenters argue that the holding
of CAISO v. FERC,\268\ prevents us from treating a federal right of
first refusal as a practice that affects transmission rates. In that
case, the court held that the Commission has no authority to replace
the selection method or membership of the governing board of the
California ISO, which had been established under state law.\269\ The
court found that such internal governance practices were too remote
from the California ISO's rate structure to be considered practices
that affect rates for purposes of section 206 and, as a result,
rejected the Commission's attempt to impose governance requirements
that conflicted with state law.\270\
---------------------------------------------------------------------------

    \268\ 372 F.3d 395 at 399.
    \269\ CAISO v. FERC, 372 F.3d 395 at 398.
    \270\ Id. at 403.
---------------------------------------------------------------------------

    289. Here, however, the Commission is focused on the effect that
federal rights of first refusal in Commission-approved tariffs and
agreements have on the rates for jurisdictional transmission services
and on undue discrimination. This extends well beyond the internal
corporate governance matters at issue in CAISO v. FERC. The federal
rights of first refusal at issue in this proceeding can have the effect
of limiting the identification and evaluation of potential solutions to
regional transmission needs and, as a result, increasing the cost of
transmission development that is recovered from jurisdictional
customers through rates. The selection of transmission facilities in a
regional transmission plan for purposes of cost allocation is
therefore, unlike corporate governance matters, directly related to
costs that will be allocated to jurisdictional ratepayers.
    290. Other commenters rely on Mo. ex. rel. Southwestern Bell Tel.
Co. v. Pub. Serv. Comm'n for the proposition that, because a utility
has a right to recover prudently incurred costs, it has a corollary
right to decide whether to incur those costs, which the Commission
cannot violate by eliminating a federal right of first refusal. In that
case, the court explained that a utility's right to make investment
decisions is grounded in the business judgment rule, which prevents
courts from substituting their judgment on the prudence of investment
decisions for that of corporate directors and officers.\271\ Nothing in
that case, however, supports a claim to an exclusive right to make
investments under a federal right of first refusal, only the need to
defer to business judgment when investment decisions are in fact

made. In removing a federal right of first refusal from Commission-
jurisdictional tariffs and agreements, the Commission is drawing no
conclusion regarding the prudence of any investment decision, nor is
the Commission seeking to determine which particular entity should
construct any particular transmission facility. The effect of these
reforms is to allow more types of entities to be considered for
potential construction responsibility, not to make choices among those
transmission developers or their proposed transmission facilities.
---------------------------------------------------------------------------

    \271\ See Mo. ex. rel. Southwestern Bell Tel. Co. v. Pub. Serv.
Comm'n, 262 U.S. 276, 289 (1923).
---------------------------------------------------------------------------

    291. The Commission therefore determines that these reforms
regarding elimination of federal rights of first refusal from
Commission-jurisdictional tariffs and agreements are not prevented by
state law or otherwise limited by the FPA. In directing the removal of
a federal right of first refusal from Commission-jurisdictional tariffs
and agreements, the Commission is not ordering public utility
transmission providers to enlarge their transmission facilities under
sections 210 or 211 of the FPA, nor making findings related to our
authorities under section 215 or 216. Similarly, nothing in our actions
today is inconsistent with our obligations under section 217. Indeed,
section 217(b)(4) directs the Commission to exercise its authority ``in
a manner that facilitates the planning and expansion of transmission
facilities to meet the reasonable needs of load serving entities to
satisfy [their] load serving obligations.'' Greater participation by
transmission developers in the transmission planning process may lower
the cost of new transmission facilities, enabling more efficient or
cost-effective deliveries by load serving entities and increased access
to resources.
    292. We decline to address at this time the merits of National
Grid's arguments that section 3.09 of the ISO New England Transmission
Operating Agreement establishes a federal right of first refusal that
can be modified only if the Commission makes the findings that National
Grid contends are required by application of the Mobile-Sierra
doctrine.\272\ We find that the record is not sufficient to address the
specific issues raised by National Grid in this generic proceeding.
Moreover, we generally do not interpret an individual contract in a
generic rulemaking, and we are not persuaded to do so here given the
limited record developed so far on section 3.09. Thus, we conclude that
these arguments, including National Grid's argument as to the
applicable standard of review, are better addressed as part of the
proceeding on ISO New England's compliance filing pursuant to this
Final Rule, where interested parties may provide additional
information.
---------------------------------------------------------------------------

    \272\ In support of its argument, National Grid cites ISO New
England, Inc., 109 FERC ] 61,147, at P 78 (2004). In that order, the
Commission stated, ``We will grant Mobile-Sierra treatment, as
requested by the Filing Parties. Section 3.09 provides direction to
the Transmission Owners and the ISO-NE RTO to follow planning
procedures contained in the ISO-NE RTO OATT. As such, this provision
will have no adverse impact on third parties or the New England
market.''
---------------------------------------------------------------------------

3. Removal of a Federal Right of First Refusal From Commission-
Jurisdictional Tariffs and Agreements
a. Commission Proposal
    293. In the Proposed Rule, the Commission sought comment on a
framework to eliminate from a transmission provider's OATT or
agreements subject to the Commission's jurisdiction provisions that
establish a federal right of first refusal for an incumbent
transmission provider with respect to transmission facilities that are
included in a regional transmission plan. The Commission proposed to
require each public utility transmission provider to revise its OATT
to: (1) Establish appropriate qualification criteria for determining an
entity's eligibility to propose a project in the regional transmission
planning process, whether that entity is an incumbent transmission
owner or a nonincumbent transmission developer; (2) include a form by
which a prospective project sponsor would provide information in
sufficient detail to allow the proposed project to be evaluated in the
regional transmission planning process, and provide a single, specified
date by which proposals must be submitted; (3) describe a transparent
and not unduly discriminatory or preferential process used by the
region for evaluating whether to include a proposed transmission
facility in a regional transmission plan; (4) remove, along with
corresponding changes in any other Commission-jurisdictional agreement,
provisions that establish a federal right of first refusal for an
incumbent transmission provider and include a description of how the
regional transmission planning process provides a right to construct a
selected project to the project sponsor, including potential
modifications to proposed projects; (5) provide the right to develop a
project for a defined period of time if not initially included in a
regional transmission plan; and, (6) provide a comparable opportunity
for incumbent and nonincumbent transmission project developers to
recover the cost of a transmission facility through a regional cost
allocation method.\273\
---------------------------------------------------------------------------

    \273\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 90-96.
---------------------------------------------------------------------------

    294. Under this framework, the Commission proposed that neither
incumbent nor nonincumbent transmission facility developers should, as
a result of a Commission-approved OATT or agreement, receive different
treatment in a regional transmission planning process. The Commission
stated that both should share similar benefits and obligations
commensurate with that participation, including the right, consistent
with state or local laws or regulations, to construct and own a
transmission facility that it sponsors in a regional transmission
planning process and that is selected in the regional transmission
plan. The Commission proposed that the tariff changes to implement
these proposed reforms would be developed through an open and
transparent process involving the public utility transmission provider,
its customers, and other stakeholders.
    295. Given the interrelated nature of comments regarding the first
two and the remaining four elements of the Commission's proposed
framework, the Commission groups comments accordingly and then turns to
addressing the comments collectively.
b. Comments Regarding Developer Qualification and Project
Identification
    296. A number of commenters address issues related to the first two
aspects of the Commission's proposed framework, governing mechanisms by
which entities could propose a project in the regional transmission
planning process.\274\ San Diego Gas & Electric contends that any
qualification criteria for potential transmission developers should
address all of the technical and financial capabilities necessary for
the entity to support the transmission project, if approved, for its
expected lifetime, including provisions of security and insurance, as
well as other requirements, such as those relating to the proponent's
capital structure. Wind Coalition agrees that transmission project
developers should be required to satisfy certain financial standards to
ensure that they can properly construct and maintain their proposed
projects. According to Wind Coalition, the experience of the
Competitive

Renewable Energy Zones in ERCOT has demonstrated the need for a
selection procedure that provides for: Clearly defined standards for
selection; selection within a reasonable time period; and a definite
beginning and ending date to avoid unnecessary delay in selection and
construction and to prevent a strategy of delay or gamesmanship.
---------------------------------------------------------------------------

    \274\ E.g., American Transmission; Connecticut & Rhode Island
Commissions; Federal Trade Commission; Integrys; ISO-NE; Large
Public Power Council; MidAmerican; Massachusetts Departments;
NEPOOL; New England States Committee on Electricity; New England
Transmission Owners; New Jersey Board; NextEra; Northeast Utilities;
and Western Independent Transmission Group.
---------------------------------------------------------------------------

    297. Most commenters that weighed in on this issue urge the
Commission not to adopt a one-size-fits-all set of requirements and,
instead, allow each region to develop criteria appropriate for the
region.\275\ A number of commenters, however, encourage the Commission
to identify the types of criteria that must be addressed to codify
expectations and ensure that all entities are operating under the same
requirements.\276\ Old Dominion recommends that the following criteria
be used to evaluate proposers of projects: Financial viability;
technical expertise; authority or ability to obtain and meet all
necessary regulatory requirements, including condemnation where
necessary; and an exit strategy to address how the facilities can or
will be transferred if an entity is no longer able to meet financial or
other obligations associated with the project. PJM supports a
requirement that each project developer demonstrate that it has
received up-front authority to site its project from the relevant
states because, without such authority, it would be fruitless to
designate a project to the prospective project developer. In reply,
however, Atlantic Wind Connection disagrees with PJM, instead
suggesting that developers receive state siting approval within a
reasonable time after selection of the project in a regional
transmission plan.
---------------------------------------------------------------------------

    \275\ E.g., New York ISO; Transmission Agency of Northern
California; California Commissions; Arizona Public Service Company;
Northeast Utilities; and SPP.
    \276\ E.g., Edison Electric Institute; California ISO; Pacific
Gas & Electric; Exelon; Southern California Edison; Southern
Companies; PJM; and National Grid.
---------------------------------------------------------------------------

    298. While many commenters endorse requiring project developers to
meet qualification criteria showing their financing and technical
capabilities, some argue that the rules cannot be one-sided against
nonincumbents so as to amount to a backdoor right of first
refusal.\277\ LS Power states, for example, that an entity that is
financially qualified but is deemed to not be technically qualified
should be permitted to partner with a technically qualified entity.
Pattern Transmission states that, if a transmission provider determines
that a project developer does not meet the qualification criteria, it
should be required to provide the rationale for that determination to
the applicant in writing so that any future attempt to meet the
qualification criteria will be better informed. Other commenters
express concern that the qualification criteria not be so onerous that
they cannot be readily satisfied by existing transmission owners.\278\
APPA and Transmission Access Policy Group suggest that qualification
criteria be crafted in a way that supports a variety of ownership
arrangements, including joint ownership by public power systems.
---------------------------------------------------------------------------

    \277\ E.g., Anbaric and PowerBridge; LS Power; and Pattern
Transmission; and Primary Power. Anbaric and PowerBridge cite to New
England Indep. Transmission Co., L.L.C., 118 FERC ] 61,127 (2007).
    \278\ E.g., New York ISO; Transmission Agency of Northern
California; California Commissions; Arizona Public Service Company;
Northeast Utilities; and SPP.
---------------------------------------------------------------------------

    299. Some commenters oppose or otherwise raise concerns regarding
the use of qualification criteria to determine eligibility to propose
projects in the regional transmission planning process.\279\ PPL
Companies state that RTOs do not have experience in evaluating the
capabilities of nonincumbent transmission developers and that both the
establishment and application of the criteria are likely to result in
disputes and litigation. Indianapolis Power & Light states that,
because incumbents have existing state obligations to serve, incumbent
transmission owners should be deemed to meet any qualification criteria
without any additional showing. Pacific Gas & Electric similarly argues
that qualification criteria should take into consideration the ability
of incumbent transmission owners to provide cost and efficiency
benefits that may not be available from a single-project transmission
owner, such as in obtaining siting and permitting approvals.
---------------------------------------------------------------------------

    \279\ E.g., PPL Companies; Indianapolis Power & Light; and
Pacific Gas & Electric.
---------------------------------------------------------------------------

    300. Several commenters address the use of a form to obtain
information from prospective transmission developers as to projects
submitted for evaluation in the regional transmission planning
process.\280\ LS Power asks the Commission to set forth the requisite
project information required in such a form, subject to any region or
transmission provider obtaining Commission approval to modify such
requirements. California ISO suggests that, notwithstanding its general
opposition to the elimination of federal rights of first refusal, any
requirements imposed on project developers to submit information in
support of a proposal should include the submission of sufficient study
results evidencing a prima facie case that the project is needed.
Exelon contends that project proposals should be required to include
technical analyses demonstrating that they meet the region's
requirements and that a developer should not be provided with any
priority rights without such supporting documentation. Transmission
Agency of Northern California asks the Commission to clarify that the
evaluation form should be developed in the regional transmission
planning process and that a project developer would not be required to
submit separate and distinct forms to each public utility transmission
provider that participates in a given regional transmission planning
process.
---------------------------------------------------------------------------

    \280\ E.g., California ISO; Edison Electric Institute; LS Power;
and Transmission Agency of Northern California.
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    301. LS Power supports the proposal for public utility transmission
providers to identify a specified date by which to submit proposed
transmission projects, generally arguing that a submission deadline
would promote orderly and fair consideration of projects.\281\ Others
oppose the proposal, generally arguing that existing transmission
planning processes are iterative in nature.\282\ For example, New
England States Committee on Electricity states that establishing such a
deadline could have the unintended consequence of discouraging
discussion of emerging needs and alternative ways to meet them. It
suggests that the Commission leave such procedural matters to the
regions for consideration. Some commenters express concern that the
Commission's proposal invites gaming, creating an incentive to propose
a host of projects so that individual entities may obtain their own
time-based rights of first refusal to develop proposals.\283\ LS Power
disagrees in reply, arguing that such concerns could be addressed by
requiring transmission developers to post a reasonable deposit, which
could be based in part on the total estimated cost to develop the
annual plan and the number of transmission projects evaluated in the
plan, to avoid new projects being filed in an effort to prevent others
from developing them.
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    \281\ E.g., LS Power.
    \282\ E.g., Edison Electric Institute; California ISO; ISO New
England; NEPOOL; Northeast Utilities; New England States Committee
on Electricity; and National Rural Electric Coops.
    \283\ E.g., Edison Electric Institute; Exelon; MISO Transmission
Owners; California ISO; ISO New England; NEPOOL; Northeast
Utilities; New England States Committee on Electricity; and National
Rural Electric Coops.

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c. Comments Regarding Project Evaluation and Selection
    302. Commenters also address the remaining four aspects of the
Commission's proposed framework for eliminating federal rights of first
refusal, relating to mechanisms to evaluate, select and recover the
costs of projects proposed in the regional transmission planning
process. Most commenters support the proposal that each public utility
transmission provider participate in a regional transmission planning
process that evaluates the proposals submitted through a transparent
and not unduly discriminatory or preferential process.\284\ For
example, Duke and National Grid state that existing regional
transmission planning processes already evaluate proposed projects
through an open process described in the relevant public utility
transmission providers' OATTs.
---------------------------------------------------------------------------

    \284\ E.g., Federal Trade Commission; PUC of Nevada;
Massachusetts Departments; New England States Committee on
Electricity; California Commissions; Connecticut & Rhode Island
Commissions; LS Power; FirstWind; National Grid; Western Independent
Transmission Group; Transmission Agency of Northern California;
Northern California Power Agency; Pattern Transmission; American
Transmission; California State Water Project; Anbaric and
PowerBridge; PPL Companies; Green Energy and 21st Century; Duke; and
Old Dominion.
---------------------------------------------------------------------------

    303. Several commenters suggest that regional flexibility is needed
when determining the procedures by which transmission projects are
evaluated and selected.\285\ For example, Connecticut & Rhode Island
Commissions and Massachusetts Departments state that ensuring equal
rights and obligations of incumbent and nonincumbent transmission
developers would raise a number of questions that will need to be
addressed through the stakeholder process, including how projects and
developers are selected, how non-transmission alternatives will be
evaluated, how rights of way are negotiated, and how to address cost
overruns. They state that the Final Rule should recognize the many
issues that would arise following the proposed change and allow the
stakeholder process flexibility to identify and develop solutions to
these challenges. Western Independent Transmission Group suggests the
use of an independent third-party observer may be necessary to oversee
the evaluation and selection of competing transmission projects to give
market participants and the Commission assurance that the process is
fairly and efficiently managed.
---------------------------------------------------------------------------

    \285\ E.g., Connecticut & Rhode Island Commissions; National
Grid; New England States Committee on Electricity; KCP&L Edison
Electric Institute; and WIRES.
---------------------------------------------------------------------------

    304. A number of commenters characterize the Commission's proposal
as implementing a sponsorship model that conflicts with the
collaborative nature of current transmission planning processes.\286\
North Dakota & South Dakota Commissions state that the sponsorship
paradigm will turn current transmission planning processes into an
unmanageable free for all, undermining the effective evaluation of
potential transmission solutions. Integrys and Southern Companies
contends that sponsorship rights may do more harm than good and will
defeat the objective of an orderly and systematic planning and
construction process, increasing disputes, creating queuing problems,
disrupting existing OATT processes, harming reliability, and resulting
in a loss of flexibility. Baltimore Gas & Electric argues that those
that want to claim sponsorship rights also do not want to provide the
RTO with discretion to deny their claim and that such entities could
tie up transmission construction as long as they want until they ensure
they are the builders. National Rural Electric Coops suggest that the
Commission convene a technical conference to address complex
implementation issues.
---------------------------------------------------------------------------

    \286\ E.g., Baltimore Gas & Electric; Edison Electric Institute;
Integrys; MISO Transmission Owners; North Dakota & South Dakota
Commissions; PSEG Companies; PPL Companies; and Southern Companies.
---------------------------------------------------------------------------

    305. Southern Companies also question how transmission proposals
submitted by nonincumbent transmission providers should be evaluated in
the regional transmission planning process. Southern Companies state
that the Proposed Rule could be viewed as permitting any qualified
entity to sponsor projects at the regional level, where a ``black box''
evaluation process would be applied to determine the ``winners.''
Southern Companies suggest that nonincumbent transmission developers be
treated similarly to the integration of merchant generation so that
state law would not be undermined. That is, Southern Companies
recommend that, if a nonincumbent transmission developer has a proposal
that the incumbent utility believes to be cost-effective and reliable,
that developer would have to join with Southern Companies to petition
the relevant state regulatory authorities for approval for construction
and rate recovery.
    306. Some commenters argue that the Commission should not require
development of mechanisms that provide construction rights to
nonincumbent transmission developers seeking to develop projects solely
within an existing transmission owner's footprint or that use rights-
of-way held by existing transmission owners.\287\ For example, Edison
Electric Institute asks the Commission to clarify that only an
incumbent transmission owner should be allowed to propose local, single
system facilities that are simply rolled up into a regional plan, as
well as upgrades or modifications to facilities owned by an incumbent
transmission provider, including reconductoring, tower change outs,
additional facilities in existing substations, facilities in a right of
way owned by the incumbent, and new substations cut into existing
lines. It argues that allowing nonincumbent transmission developers to
perform upgrades to an incumbent transmission owner's transmission
facilities could delay upgrades necessary to maintain system
reliability and increase the costs of constructing and maintaining such
transmission facilities. PJM agrees, arguing that existing transmission
owners are in the best position to use their own resources. Imperial
Irrigation District expresses concern regarding the potential impact of
the Proposed Rule on contractual rights in existing joint ownership and
operation agreements governing existing facilities. LS Power cautions
that, to the extent the Commission provides for the retention of
federal rights of first refusal for existing facilities, the
limitations of such an exclusion must be clearly described in the OATT.
---------------------------------------------------------------------------

    \287\ E.g., Anbaric and PowerBridge; California Municipal
Utilities; Edison Electric Institute; Exelon; Imperial Irrigation
District; LS Power; PJM; and Southern California Edison.
---------------------------------------------------------------------------

    307. A number of commenters suggest that the Commission modify the
proposal for sponsors of proposed transmission projects to retain the
right to build projects of a similar scope for a defined period of
time.\288\ Bonneville Power states that this proposed reform creates
the potential for increased litigation to determine whether an
incumbent transmission owner's project is substantially similar to a
previously proposed non-incumbent transmission developer's project.
Xcel and others \289\ contend that selection among similar projects for
inclusion in the regional transmission plan is inherently subjective
and, therefore, determining whether a project is a modification of a
previously proposed project or sufficiently different to be considered
a

new project would be difficult. National Rural Electric Coops ask the
Commission to clarify that the proposal does not prevent an incumbent
transmission provider from making minor modifications to a competing
transmission project to better meet the needs of the participants in
the process.
---------------------------------------------------------------------------

    \288\ E.g., California Municipal Utilities; Exelon; LS Power;
Northern Tier Transmission Group; and Transmission Agency of
Northern California.
    \289\ E.g., Duke; PPL Companies; MidAmerican; and North Dakota
and South Dakota Commissions.
---------------------------------------------------------------------------

    308. Some commenters argue that the Commission should implement
competitive bidding processes for selecting project developers instead
of relying on a sponsor-based mechanism for determining construction
rights.\290\ For example, Transmission Access Policy Study Group
contends that competitive bidding yields lower costs to consumers,
includes mechanisms to limit cost overruns, and restricts the ability
of winning bidders to transfer construction rights. It suggests that
any competitive bidding process employed by the Commission favor
projects that are jointly owned. California ISO states that its
competitive solicitation framework for economic and public policy
transmission projects meets the Commission's goals of ensuring
development of cost-effective transmission facilities, providing
ratepayer benefits, optimizing participation in the transmission
planning process, and providing opportunities for nonincumbent
transmission developers, although California ISO opposes the use of
competitive solicitations for reliability projects. Edison Electric
Institute and Ad Hoc Coalition of Southeastern Utilities contend that
mandating competitive bidding would undermine existing transmission
planning processes and allow nonincumbent developers to bid selectively
only for advantageous projects. Pattern Transmission responds that such
``cherry picking'' concerns can be addressed through properly
structured competitive bidding processes.
---------------------------------------------------------------------------

    \290\ E.g., Transmission Access Policy Study Group; Pattern
Transmission; and Indianapolis Power & Light.
---------------------------------------------------------------------------

    309. With regard to the period for which development rights could
be retained, LS Power recommends that a transmission developer that
sponsors a transmission project be permitted to retain the right to
build or build and own the transmission project for a minimum of five
years, while California Municipal Utilities suggest a period of two
years. Others express concern with the impact of the Commission's
proposal, generally arguing such a policy would encourage entities to
submit multiple proposals to maximize potential development
opportunities.\291\ For example, National Rural Electric Coops suggest
this would create an approach to transmission planning in which
immutable transmission proposals compete against each other in a form
of baseball arbitration (in which the arbitrator must pick one side's
offer without modification), even if minor changes to one or more of
the proposals would allow them to better meet the needs of consumers in
the region. LS Power and Transmission Agency of Northern California
disagree, arguing that objective rules can be established to identify
when a modified project is the functional equivalent of a sponsored
project.
---------------------------------------------------------------------------

    \291\ E.g., Connecticut & Rhode Island Commissions; Indianapolis
Power & Light; Indicated PJM Transmission Owners; Massachusetts
Departments; National Rural Electric Coops; and Oklahoma Gas &
Electric.
---------------------------------------------------------------------------

    310. Arizona Corporation Commission stresses that, in all cases,
proposed transmission projects resubmitted for consideration must be
freshly evaluated in each transmission planning cycle so that projects
address current needs and requirements. Northern Tier Transmission
Group recommends that a project that is not selected in the regional
transmission plan must have similar performance characteristics and
costs when resubmitted for consideration. California Municipal
Utilities argue that a project sponsor should not receive a priority
right during resubmission if the transmission project sponsor is only
interested in selling that right.
    311. Some commenters seek clarification of the obligations that
would be imposed on nonincumbent transmission developers as a result of
selection of its project for construction.\292\ MISO Transmission
Owners and New York Transmission Owners contend that, if the proposed
reforms are implemented, the Commission should make clear that a
nonincumbent transmission developer's right to participate in the
transmission planning process must be accompanied by an obligation that
it satisfy all the requirements expected of transmission developers in
the regional transmission planning process. MISO Transmission Owners
state that this clarification is particularly important because
institutional investors may seek to invest in transmission facilities
to earn the stable return on their investment that a rate-regulated
business would provide but have no intention to become public utilities
once the facility is placed into service and put under the functional
control of an RTO. Minnesota PUC and Minnesota Office of Energy
Security suggest that winning transmission projects, regardless of
ownership type, should be subject to regulatory scrutiny to make sure
that when completed the transmission project fulfills the needs
initially ascribed to it and that the transmission project costs are
consistent with the cost levels initially proposed.
---------------------------------------------------------------------------

    \292\ E.g., New York Transmission Owners; Edison Electric
Institute; MISO Transmission Owners; Southern Companies; and
Transmission Agency of Northern California.
---------------------------------------------------------------------------

    312. Finally, commenters also address whether the selection of a
transmission facility proposed by a nonincumbent transmission developer
for inclusion in the regional transmission plan should be eligible for
regional cost allocation.\293\ Massachusetts Departments and
Connecticut & Rhode Island Commissions agree with the basic principle,
but argue that recovery should be determined by project criteria and
not on the basis of the type of developer proposing the project. SPP
and Old Dominion support the proposal, provided that the nonincumbent
transmission developer is subject to the same responsibilities as
incumbent transmission owners pursuant to the transmission planning
requirements. MISO Transmission Owners raise the possibility that a
nonincumbent project selected in the regional transmission planning
process may be rejected by a state agency in favor of an incumbent
transmission owner and question whether under this scenario an
incumbent transmission owner would be required to build the project but
would not be eligible for regional cost recovery. Ad Hoc Coalition of
Southeastern Utilities assert that the proposal may conflict with
state-based mandates, explaining that the majority of transmission
costs in the Southeast are incurred to serve native load, and are
included in rates established pursuant to state or local regulation.
---------------------------------------------------------------------------

    \293\ E.g., Ad Hoc Coalition of Southeastern Utilities;
FirstEnergy Service Company; MISO Transmission Owners; New York ISO;
Old Dominion; and SPP.
---------------------------------------------------------------------------

d. Commission Determination
    313. The Commission directs public utility transmission providers,
subject to the modifications to the Proposed Rule discussed below and
subject to the framework discussed and adopted below, to eliminate
provisions in Commission-jurisdictional tariffs and agreements that
establish a federal right of first refusal for an incumbent
transmission provider with respect to transmission facilities selected
in a

regional transmission plan for purposes of cost allocation.
    314. As explained in the preceding sections, the elimination of
federal rights of first refusal from Commission-jurisdictional tariffs
and agreements is necessary and appropriate to ensure that rates for
jurisdictional services are just and reasonable. However, based on the
comments received in response to the Proposed Rule, the Commission
modifies the specific requirements placed on public utility
transmission providers to implement the proposal and provides
clarification regarding those requirements to facilitate
compliance.\294\
---------------------------------------------------------------------------

    \294\ The requirements adopted here apply only to public utility
transmission providers that have provisions in their tariffs or
other Commission-jurisdictional agreements granting a federal right
of first refusal that is inconsistent with the requirements of this
Final Rule. If no such provisions are contained in a public utility
transmission provider's tariff or other Commission-jurisdictional
agreement, it should state so in its compliance filing.
---------------------------------------------------------------------------

    315. To place our actions in context, the Commission reiterates the
existing requirements of Order No. 890 as implemented by public utility
transmission providers. As noted by commenters, Order No. 890 already
requires public utility transmission providers to have in place
processes for evaluating the merits of proposed transmission solutions
offered by potential developers.\295\ To ensure comparable treatment of
all resources, the Commission has required public utility transmission
providers to include in their OATTs language that identifies how they
will evaluate and select among competing solutions and resources.\296\
This includes the identification of the criteria by which the public
utility transmission provider will evaluate the relative economics and
effectiveness of performance for each alternative offered for
consideration.\297\ Given that the regions already have processes in
place to evaluate competing transmission projects in their transmission
planning process, the fundamental question raised in the Proposed Rule
is whether additional requirements are needed to ensure that these
processes are not adversely affected by federal rights of first
refusal. The Commission concludes that such requirements are necessary
and, accordingly, adopts the framework set forth in the Proposed Rule
with modification.
---------------------------------------------------------------------------

    \295\ See Order No. 890, FERC Stats. & Regs. ] 31,241 at P 494;
Order No. 890-A, FERC Stats. & Regs. ] 61,297 at P 215-16.
    \296\ See, e.g., New York Independent System Operator, Inc., 129
FERC ] 61,044 at P 35.
    \297\ Id.
---------------------------------------------------------------------------

    316. Opponents of the Commission's proposed elimination of federal
rights of first refusal argue that this framework represents a
fundamental shift in the way that transmission is planned in existing
regional processes. These commenters contend that characterizing
existing transmission owners as developers of sponsored transmission
facilities that are to be evaluated on a comparable basis to proposals
submitted by nonincumbent transmission developers transforms, in their
view, the collaborative and iterative transmission planning process
into a sponsorship-driven competition for new investment opportunities.
As we explain elsewhere, the reforms adopted in this Final Rule build
upon the requirements of Order No. 890 with respect to transmission
planning. Public utility transmission providers already have put in
place mechanisms to provide for comparative evaluation of competing
solutions. We recognize that the mechanisms for evaluating proposals
under this Final Rule will have greater implications because we are
also requiring a just and reasonable and not unduly discriminatory
process to grant to a transmission developer the ability to use the
regional cost allocation method associated with each transmission
facility selected in the regional transmission plan for purposes of
cost allocation. However, we disagree that the reforms in the Proposed
Rule, as modified herein, will make the planning process unmanageable,
as suggested by some commenters.
    317. Some of the concerns expressed by commenters appear to be
driven by the phrasing used in the Proposed Rule to present the
framework for removing federal rights of first refusal. There, the
Commission stated that both incumbent and nonincumbent transmission
developers should share similar benefits and obligations, including the
right, consistent with state or local laws or regulations, to construct
and own a transmission facility that it sponsors in a regional
transmission planning process and that is selected in the regional
transmission plan.\298\ The Commission's focus in the Proposed Rule on
sponsorship of proposed transmission facilities, whether by incumbent
transmission providers or nonincumbent transmission developers, appears
to have led many commenters to conclude that every transmission
facility being planned by an incumbent transmission provider is, in
effect, sponsored by that entity and, therefore, could no longer be
subject to a federal right of first refusal. The Commission clarifies
that this was not the intent of the Proposed Rule, nor is it the intent
of the requirements adopted in this Final Rule.
---------------------------------------------------------------------------

    \298\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 93.
---------------------------------------------------------------------------

    318. The Commission's focus here is on the set of transmission
facilities that are evaluated at the regional level and selected in the
regional transmission plan for purposes of cost allocation.\299\ As
Edison Electric Institute notes, in those regions relying on ``bottom
up'' local transmission planning, a transmission facility that is in a
public utility transmission provider's local transmission plan might be
``rolled-up'' and listed in a regional transmission plan to facilitate
analysis at the regional level. However, the transmission facility from
the local transmission plan might not have been proposed in the
regional transmission planning process and might not have been selected
in the regional transmission plan for purposes of cost allocation by
going through an analysis in the regional transmission planning
process. The Commission does not, in this Final Rule, require removal
from Commission-jurisdictional tariffs and agreements of a federal
right of first refusal as applicable to a local transmission facility,
as that term is defined herein.\300\
---------------------------------------------------------------------------

    \299\ In order for a transmission facility to be eligible for
the regional cost allocation methods, the region must select the
transmission facility in the regional transmission plan for purposes
of cost allocation. For those facilities not seeking cost
allocation, the region may nonetheless have those transmission
facilities in its regional transmission plan for information or
other purposes, and then having such a facility in the plan would
not trigger regional cost allocation.
    \300\ See definition supra section II.D of this Final Rule.
---------------------------------------------------------------------------

    319. In addition, the Proposed Rule emphasized that our reforms do
not affect the right of an incumbent transmission provider to build,
own and recover costs for upgrades to its own transmission facilities,
such as in the case of tower change outs or reconductoring, regardless
of whether or not an upgrade has been selected in the regional
transmission plan for purposes of cost allocation.\301\ In other words,
an incumbent transmission provider would be permitted to maintain a
federal right of first refusal for upgrades to its own transmission
facilities. In addition, the Commission affirms that proposal here, and
in response to commenters adds that our reforms are not intended to
alter an incumbent transmission provider's use and control of its
existing rights-of-way. That is, this Final Rule does not remove or
limit any right an incumbent may have to build, own and

recover costs for upgrades to the facilities owned by an incumbent, nor
does this Final Rule grant or deny transmission developers the ability
to use rights-of-way held by other entities, even if transmission
facilities associated with such upgrades or uses of existing rights-of-
way are selected in the regional transmission plan for purposes of cost
allocation. The retention, modification, or transfer of rights-of-way
remain subject to relevant law or regulation granting the rights-of-
way.
---------------------------------------------------------------------------

    \301\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 97.
---------------------------------------------------------------------------

    320. Through the reforms to regional planning required in this
Final Rule, the Commission is seeking to ensure that a robust process
is in place to identify and consider regional solutions to regional
needs, whether initially identified through ``top down'' or ``bottom
up'' transmission planning processes. Combined with the cost allocation
and other reforms adopted in this Final Rule, implementation of this
framework to remove federal rights of first refusal will address
disincentives that may be impeding participation by nonincumbent
transmission developers in the regional transmission planning process.
The extent to which any existing regional transmission planning process
must be changed to implement the framework set forth below will depend
on the mechanisms used by the region to evaluate competing transmission
projects and developers.
    321. For example, this Final Rule permits a region to use or retain
an existing mechanism that relies on a competitive solicitation to
identify preferred solutions to regional transmission needs, and such
an existing process may require little or no modification to comply
with the framework adopted in this Final Rule.\302\ In regions relying
primarily on ``top down'' mechanisms pursuant to which regional
planners independently identify regional needs and more efficient and
cost-effective solutions, existing procedures that allow for
stakeholders to offer potential solutions for consideration could
provide a foundation for implementing the framework below. In other
regions emphasizing the development of local transmission plans prior
to analysis at the regional level of alternative solutions, additional
procedures may be required to distinguish between those transmission
facilities that are proposed to be selected in the regional
transmission plan for purposes of cost allocation and those that are
merely ``rolled up'' for other purposes.
---------------------------------------------------------------------------

    \302\ For example, the Commission has found that competitive
solicitation processes can provide greater potential opportunities
for independent transmission developers to build new transmission
facilities. See, e.g., California Indep. Sys. Operator, 133 FERC ]
61,224 (2010). However, the Commission declines to adopt commenter
suggestions to mandate a competitive bidding process for selecting
project developers. While the Commission agrees that a competitive
process can provide benefits to consumers, we continue to allow
public utility transmission providers within each region to
determine for themselves, in consultations with stakeholders, what
mechanisms are most appropriate to evaluate and select potential
transmission solutions to regional needs.
---------------------------------------------------------------------------

    322. The Commission concludes that the framework adopted below
provides sufficient flexibility for public utility transmission
providers in each region to determine, in the first instance, how best
to address the removal of federal rights of first refusal from
Commission-jurisdictional tariffs and agreements. Because we are
allowing for regional flexibility and encouraging stakeholders to
participate fully in the implementation of this framework by public
utility transmission providers, we decline to decide in this Final Rule
to convene a technical conference to further explore issues related to
federal rights of first refusal, as suggested by some commenters. With
the foregoing background in mind, the Commission turns to the specific
requirements of this framework below.
i. Qualification Criteria To Submit a Transmission Project for
Selection in the Regional Transmission Plan for Purposes of Cost
Allocation
    323. First, the Commission requires each public utility
transmission provider to revise its OATT to demonstrate that the
regional transmission planning process in which it participates has
established appropriate qualification criteria for determining an
entity's eligibility to propose a transmission project for selection in
the regional transmission plan for purposes of cost allocation, whether
that entity is an incumbent transmission provider or a nonincumbent
transmission developer. These criteria must not be unduly
discriminatory or preferential. The qualification criteria must provide
each potential transmission developer the opportunity to demonstrate
that it has the necessary financial resources and technical expertise
to develop, construct, own, operate and maintain transmission
facilities.
    324. The Commission agrees with commenters that qualification
criteria are necessary, and that adoption of one-size-fits-all
requirements would not be appropriate. It is important that each
transmission planning region have the flexibility to formulate
qualification criteria that best fit its transmission planning
processes and addresses the particular needs of the region. Such
criteria could address a range of issues raised by commenters, such as
commitments to be responsible for operation and maintenance of a
transmission facility.\303\ The Commission stresses, however, that
appropriate qualification criteria should be fair and not unreasonably
stringent when applied to either the incumbent transmission provider or
nonincumbent transmission developers. The qualification criteria should
allow for the possibility that an existing public utility transmission
provider already satisfies the criteria and should allow any
transmission developer the opportunity to remedy any deficiency. Within
these general parameters, we leave it to each region to develop
qualification criteria that are workable for the region, including
procedures for timely notifying transmission developers of whether they
satisfy the region's qualification criteria and opportunities to
mitigate any deficiencies.\304\
---------------------------------------------------------------------------

    \303\ The Commission notes, however, that nothing in the
qualification requirement of this Final Rule precludes a
transmission developer from entering into voluntary arrangements
with third parties, including any interested incumbent transmission
provider, to operate and maintain a transmission facility.
Similarly, nothing this Final Rule creates an obligation for an
incumbent transmission provider to operate and maintain a
transmission facility developed by another transmission developer.
Additionally, nothing in the qualifications requirement of this
Final Rule is intended to change any existing RTO or ISO procedure
or practice regarding the operation of one or more existing
transmission facilities.
    \304\ To be clear, the qualification criteria required herein
should not be applied to an entity proposing a transmission project
for consideration in the regional transmission planning process if
that entity does not intend to develop the proposed transmission
project. The Order No. 890 transmission planning requirements allow
any stakeholder to request that the transmission provider perform an
economic planning study or otherwise suggest consideration of a
particular transmission solution in the regional transmission
planning process.
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ii. Submission of Proposals for Selection in the Regional Transmission
Plan for Purposes of Cost Allocation
    325. Second, the Commission requires that each public utility
transmission provider revise its OATT to identify: (a) The information
that must be submitted by a prospective transmission developer in
support of a transmission project it proposes in the regional
transmission planning process; and (b) the date by which such
information must be submitted to be considered in a given transmission
planning cycle. The Commission declines to adopt the proposal to
require a specific form to be developed for the purpose of submitting
this information, given that the data to be submitted may not be easily
reduced

to entries on a form. To ensure consistency in the region, however, the
Commission requires each public utility transmission provider that has
its own OATT to have in that OATT the same information requirements as
other public utility transmission providers in the same transmission
planning region, as requested by Transmission Agency of Northern
California.
    326. These information requirements must identify in sufficient
detail the information necessary to allow a proposed transmission
project to be evaluated in the regional transmission planning process
on a basis comparable to other transmission projects that are proposed
in the regional transmission planning process. They may require, for
example, relevant engineering studies and cost analyses and may request
other reports or information from the transmission developer that are
needed to facilitate evaluation of the transmission project in the
regional transmission planning process. Beyond these minimum
requirements, the Commission provides each region with discretion to
identify the information to be required, so long as such requirements
are fair and not so cumbersome as to effectively prohibit transmission
developers from proposing transmission projects, yet not so relaxed
that they allow for relatively unsupported proposals. Whether the
region wishes to require prima facie showings of need for a project, as
suggested by the California ISO, should be addressed in the first
instance by public utility transmission providers in consultation with
stakeholders within the region. The Commission will review the
resulting information requirements on compliance and provide further
guidance at that time, if necessary.
    327. The Commission disagrees that requiring the identification of
a date by which information must be submitted for consideration in a
given transmission planning cycle undermines the iterative nature of
transmission planning or amounts to creation of a time-based federal
right of first refusal. Without some reasonable limitation on the
submission of new information, public utility transmission providers
would never be able to complete the analysis needed to complete their
region's transmission plan. However, each region may determine for
itself what deadline is appropriate, including potentially the use of
rolling or flexible dates to reflect the iterative nature of their
transmission planning processes. Given our decision to eliminate the
proposed ongoing right to develop previously-sponsored transmission
projects, the Commission believes it is not necessary to require here
additional procedural protections such as the posting of deposits, as
suggested by LS Power. To the extent stakeholders in a particular
region believe such procedures have merit, they may consider them
during the development of OATT proposals that comply with the
requirement of this Final Rule.
iii. Evaluation of Proposals for Selection in the Regional Transmission
Plan for Purposes of Cost Allocation
    328. Third, the Commission requires each public utility
transmission provider to amend its OATT to describe a transparent and
not unduly discriminatory process for evaluating whether to select a
proposed transmission facility in the regional transmission plan for
purposes of cost allocation. This process must comply with the Order
No. 890 transmission planning principles, ensuring transparency, and
the opportunity for stakeholder coordination. The evaluation process
must culminate in a determination that is sufficiently detailed for
stakeholders to understand why a particular transmission project was
selected or not selected in the regional transmission plan for purposes
of cost allocation. In complying with this requirement, the Commission
encourages public utility transmission providers to build on existing
regional transmission planning processes that, consistent with Order
Nos. 890 and 890-A, already set forth the criteria by which the public
utility transmission provider evaluates the relative economics and
effectiveness of performance for alternative solutions offered during
the transmission planning process.
    329. In light of comments received in response to the Proposed
Rule, we also require each public utility transmission provider to
amend its OATT to describe the circumstances and procedures under which
public utility transmission providers in the regional transmission
planning process will reevaluate the regional transmission plan to
determine if delays in the development of a transmission facility
selected in a regional transmission plan for purposes of cost
allocation require evaluation of alternative solutions, including those
proposed by the incumbent transmission provider, to ensure the
incumbent transmission provider can meet its reliability needs or
service obligations. We appreciate that there are many sources of delay
that could affect the timing of transmission development, and do not
intend to require constant reevaluation of delays that do not
materially affect the ability of an incumbent transmission provider to
meet its reliability needs or service obligations. Our focus here is on
ensuring that adequate processes are in place to determine whether
delays associated with completion of a transmission facility selected
in a regional transmission plan for purposes of cost allocation have
the potential to adversely affect an incumbent transmission provider's
ability to fulfill its reliability needs or service obligations. Under
such circumstances, an incumbent transmission provider must have the
ability to propose solutions that it would implement within its retail
distribution service territory or footprint that will enable it to meet
its reliability needs or service obligations. If such other solution is
a transmission facility, public utility transmission providers in the
regional transmission planning process should evaluate the proposed
solution for possible selection in the regional transmission planning
process for purposes of cost allocation. As we have explained elsewhere
in this Final Rule,\305\ nothing herein restricts an incumbent
transmission provider from developing a local transmission solution
that is not eligible for regional cost allocation to meet its
reliability needs or service obligations in its own retail distribution
service territory or footprint.
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    \305\ See supra P 256.
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    330. The Commission appreciates that the selection of any
transmission facility in the regional transmission plan for purposes of
cost allocation requires the careful weighing of data and analysis
specific to each transmission facility and, in some instances, may be
difficult or contentious. While the Commission appreciates the
challenges presented by such an evaluation, the requirement to engage
in a comparative analysis of proposed solutions to regional needs has
been in place since Order No. 890. The Commission encourages public
utility transmission providers to consider ways to minimize disputes,
such as through additional transparency mechanisms, as they identify
enhancements to regional transmission planning processes necessary to
comply with this Final Rule.\306\ The Commission declines, however, to
mandate the use of independent third-party observers, as suggested by
Western Independent Transmission Group. To the extent public utility
transmission

providers in consultation with other stakeholders in a region wish,
they may propose to use an independent third-party observer and we will
review any such proposal on compliance.
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    \306\ Additionally, as described in section III.A, the
requirements of the dispute resolution principle order of Order No.
890 apply to the regional transmission planning process as reformed
by this Final Rule.
---------------------------------------------------------------------------

    331. By requiring the evaluation of proposed transmission solutions
in the regional transmission planning process, the Commission is not
dictating that any particular proposals be accepted or that selected
transmission facilities be constructed. Similar to the planning
requirements of Order No. 890, the Commission requires the
establishment of processes to evaluate potential solutions to regional
transmission needs, with the input of interested parties and
stakeholders. Whether or not public utility transmission providers
within a region select a transmission facility in the regional
transmission plan for purposes of cost allocation will depend in part
on their combined view of whether the transmission facility is an
efficient or cost-effective solution to their needs.\307\ Moreover, the
Commission anticipates that the processes for evaluating whether to
select a proposed transmission facility in the regional transmission
plan for purposes of cost allocation will vary from region to region,
just as other aspects of the regional transmission planning processes
may vary.
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    \307\ As noted above, for one solution to be chosen over another
in the regional transmission planning process, there should be an
evaluation of the relative efficiency and cost-effectiveness of each
solution. If a nonincumbent transmission developer is unable to
demonstrate that its proposal is the most efficient or cost-
effective, given all aspects of its proposal, then it is unlikely to
be selected as the preferred transmission solution within the
regional transmission planning process for purposes of cost
allocation.
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iv. Cost Allocation for Projects Selected in the Regional Transmission
Plan for Purposes of Cost Allocation
    332. The Commission also requires that a nonincumbent transmission
developer must have the same eligibility as an incumbent transmission
developer to use a regional cost allocation method or methods for any
sponsored transmission facility selected in the regional transmission
plan for purposes of cost allocation. More specifically, each public
utility transmission provider must participate in a regional
transmission planning process that provides that the nonincumbent
developer has an opportunity comparable to that of an incumbent
transmission developer to allocate the cost of such transmission
facility through a regional cost allocation method or methods. As
explained further in section IV.C, the cost of a transmission facility
that is not selected in a regional transmission plan for purposes of
cost allocation, whether proposed by an incumbent or by a nonincumbent
transmission provider, may not be recovered through a transmission
planning region's cost allocation method or methods.
    333. In the Proposed Rule, the Commission acknowledged that a
proposed transmission project can be modified in the regional
transmission planning process as needs and potential solutions are
analyzed and, therefore, sought comment on whether to require a
mechanism to identify the most similar project to one initially
proposed to determine which developer should have the right to
construct and own the facility. Although the Commission raised this
issue in the context of processes of construction rights, similar
issues are raised regarding the selection of a transmission facility in
the regional transmission plan for purposes of cost allocation.
    334. In light of the comments received in response to this aspect
of the Proposed Rule, we are concerned that the proposed requirement to
identify the most similar project to one initially proposed could
conflict with the way potential solutions are evaluated and selected in
some regions. For example, a requirement to identify proposals that are
``most similar'' to transmission projects in the regional transmission
plan may be meaningless in a region that relies on market proposals or
competitive solicitations to identify solutions to the region's needs.
In other regions that rely on voluntary construction decisions for
transmission facilities in a regional transmission plan, the linking of
rights to construct to a determination of similarity may be
meaningless. As discussed in the next section, in response to concerns
such as these, we have decided not to adopt the proposal that would
give a sponsor the federal right to construct and own a transmission
facility it sponsored consistent with state or local laws or
regulations. Given this change, we do not adopt the proposal to require
a mechanism to identify the most similar project to one initially
proposed to determine which developer should have the right to
construct and own the facility.
    335. Instead, we adopt and clarify the requirement that a
nonincumbent transmission developer of a transmission facility selected
in the regional transmission plan for purposes of cost allocation have
the same opportunity as an incumbent transmission developer to allocate
the cost of such transmission facilities through a regional cost
allocation method or methods. We require that each public utility
transmission provider must participate in a regional transmission
planning process that makes each transmission facility selected in the
regional transmission plan for purposes of regional cost allocation
eligible for such cost allocation. In other words, eligibility for
regional cost allocation is tied to the transmission facility's
selection in the regional transmission plan for purposes of cost
allocation and not to a specific sponsor.
    336. We also require that public utility transmission providers in
a region establish, in consultation with stakeholders, procedures to
ensure that all projects are eligible to be considered for selection in
the regional transmission plan for purposes of cost allocation. This
mechanism could be, for example, a non-discriminatory competitive
bidding process. The mechanism a regional planning process implements
could also allow the sponsor of a transmission project selected in the
regional transmission plan for purposes of cost allocation to use the
regional cost allocation method associated with the transmission
project. In that case, however, the regional transmission planning
process would also need to have a fair and not unduly discriminatory
mechanism to grant to an incumbent transmission provider or
nonincumbent transmission developer the right to use the regional cost
allocation method for unsponsored transmission facilities selected in
the regional plan for purposes of cost allocation. There may also be
other mechanisms, or combinations of mechanisms, that may comply with
our requirements.
    337. The Commission declines commenter requests to further define
the particular obligations and responsibilities that may flow from
selection of a nonincumbent transmission developer's proposal in the
regional transmission plan for purposes of cost allocation. Nothing in
this Final Rule is intended to change or limit any obligations that
would apply to a nonincumbent transmission developer under state or
local laws or under RTO or ISO agreements.
v. Rights To Construct and Ongoing Sponsorship
    338. The Proposed Rule also sought comment on whether to include
two additional features in a framework to implement the elimination of
federal rights of first refusal: Whether to require public utility
transmission providers to revise their OATTs to contain a regional
transmission planning process that

provides a right to construct and own a transmission facility; and,
whether to allow a transmission developer to maintain for a defined
period of time its right to build and own a transmission project that
it proposed but that is not selected.\308\ The Commission declines to
adopt these aspects of the Proposed Rule.
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    \308\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 95.
---------------------------------------------------------------------------

    339. In the preceding sections, the Commission adopted a framework
in which, upon selection of a transmission facility in a regional
transmission plan for purposes of cost allocation, the developer of
that transmission facility (whether incumbent or nonincumbent) will
have the ability to rely on the relevant cost allocation method or
methods within the region should it desire to move forward with its
transmission project. Nothing in this Final Rule preempts or limits any
obligations or requirements that a nonincumbent transmission developer
may be subject to under state or local laws or regulations or under RTO
or ISO agreements.
    340. With regard to ongoing sponsorship rights, the Commission
concludes on balance that granting transmission developers an ongoing
right to build sponsored transmission projects could adversely impact
the transmission planning process, potentially leading to transmission
developers submitting a multitude of possible transmission projects
simply to acquire future development rights. The Commission appreciates
that not granting such a right causes some risk for transmission
developers in disclosing their transmission projects for consideration
in the regional transmission planning process. That risk is outweighed,
however, by the potentially negative impacts such a rule could have on
regional transmission planning.
4. Reliability Compliance Obligations of Transmission Developers
a. Comments Regarding Reliability Obligations
    341. PSEG Companies and Indianapolis Power & Light contend that it
is unclear how compliance with NERC reliability standards would be
managed and whether and to what extent a third-party developer would be
responsible for NERC compliance, coordination of outages, and whether
it would need to become a member or transmission owner in an RTO. PSEG
Companies also assert that third party developers are not regulated by
state commissions and are not subject to state law obligations with
respect to reliability and safety or state law oversight of their
operations. Salt River Project argues that mandatory compliance with
NERC reliability standards places added pressure on transmission owners
and operators to be involved in every stage of planning, construction,
and obligation. It asserts that the Proposed Rule was silent as to
whether the proposed rules might work with respect to nonincumbent
developers that are subsidized for the project but who then may not be
interested or qualified to operate or own the facility, let alone
comply with reliability standards. Indianapolis Power & Light also
expresses concern that questions will remain regarding whether and to
what extent a nonincumbent transmission developer is required to comply
with NERC reliability standards. Other commenters respond that
incumbent transmission owners and nonincumbent transmission developers
are subject to and have to meet the same reliability standards.\309\
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    \309\ E.g., City of Santa Clara; Federal Trade Commission;
NextEra; Northern California Power Agency; Pattern Transmission; and
Western Independent Transmission Group.
---------------------------------------------------------------------------

b. Commission Determination
    342. As discussed in section III.B.3 above, the Commission
concludes that potentially increasing the number of asset owners
through the elimination of a federal right of first refusal in
Commission-jurisdictional tariffs and agreements does not, by itself,
make it more difficult for system operators to maintain reliability.
The Commission acknowledges, however, that a proposed transmission
facility's impact on reliability is an important factor that is
considered during evaluation of a proposed transmission facility for
potential selection. We note that, when a nonincumbent transmission
developer becomes subject to the requirements of FPA section 215 and
the regulations thereunder, it will be required to comply with all
applicable reliability obligations, as every other registered entity is
required. As part of that process, all entities, incumbent and
nonincumbents alike, that are users, owners or operators of the
electric bulk power system must register with NERC for performance of
applicable reliability functions.
    343. However, if there are still concerns regarding the lack of
clarity as to when compliance with NERC registration and reliability
standards would be triggered, we conclude that the appropriate forum to
raise these questions and request clarification is the NERC process.
    344. The Commission is sensitive to the concerns of some commenters
that contend that existing transmission providers run the risk of
violating NERC reliability standards in the event that a nonincumbent
transmission developer abandons a transmission facility meant to
address a violation. To address such concerns, the Commission clarifies
that, if a violation of a NERC reliability standard would result from a
nonincumbent transmission developer's decision to abandon a
transmission facility meant to address such a violation, the incumbent
transmission provider does not have the obligation to construct the
nonincumbent's project. Rather, the transmission provider must identify
the specific NERC reliability standard(s) that will be violated and
submit a NERC mitigation plan to address the violation. Provided the
public utility transmission provider follows the NERC approved
mitigation plan, the Commission will not subject that public utility
transmission provider to enforcement action for the specific NERC
reliability standard violation(s) caused by a nonincumbent transmission
developer's decision to abandon a transmission facility.

C. Interregional Transmission Coordination 310
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    \310\ We note that our use of the term ``coordination'' with
regard to the identification and evaluation of interregional
transmission facilities is distinct from the type of coordination of
system operations discussed in connection with section 202(a) of the
FPA. See supra section III.A.2.
---------------------------------------------------------------------------

    345. This section of the Final Rule adopts several reforms to
improve coordination among public utility transmission planners with
respect to the coordination of interregional transmission facilities.
Specifically, the Commission requires each public utility transmission
provider, through its regional transmission planning process, to
enhance existing regional transmission planning processes in the
following ways.\311\ First, the Commission requires the development and
implementation of procedures that provide for the sharing of
information regarding the respective needs of neighboring transmission
planning regions, as well as the identification and joint evaluation by
the neighboring transmission planning regions of

potential interregional transmission facilities that address those
needs. Second, to ensure that developers of interregional transmission
facilities have an opportunity for their transmission projects to be
evaluated, the Commission requires the development and implementation
of procedures for neighboring public utility transmission providers to
identify and jointly evaluate transmission facilities that are proposed
to be located in both regions. Third, to facilitate the joint
evaluation of interregional transmission facilities, the Commission
requires the exchange of planning data and information between
neighboring transmission planning regions at least annually. Finally,
to ensure transparency in the implementation of the foregoing
requirements, the Commission requires public utility transmission
providers, either individually or through their transmission planning
region, to maintain a Web site or e-mail list for the communication of
information related to interregional transmission coordination.
---------------------------------------------------------------------------

    \311\ In the Proposed Rule, the Commission sometimes referred to
the requirements of this section as ``interregional transmission
planning''; however, we believe that ``interregional transmission
coordination'' better describes what we are requiring in this Final
Rule and, therefore, we will refer herein to ``interregional
transmission coordination.''
---------------------------------------------------------------------------

    346. Through these reforms, the Commission aims to facilitate the
identification and evaluation of interregional transmission facilities
that may resolve the individual needs of neighboring transmission
planning regions more efficiently and cost-effectively. To accomplish
these reforms, public utility transmission providers in each pair of
transmission planning regions are directed to work through their
regional transmission planning processes to develop the same language
to be included in each public utility transmission provider's OATT that
describes the procedures that a particular pair of transmission
planning regions will use to satisfy the foregoing requirements.
Alternatively, if the public utility transmission providers so choose,
these procedures may be reflected in an interregional transmission
planning agreement among the public utility transmission providers
within neighboring transmission planning regions that is filed with the
Commission.\312\
---------------------------------------------------------------------------

    \312\ We discuss the filing requirements for the same language
to be included in each public utility transmission provider's OATT
that describes the procedures that a particular pair of transmission
planning regions will use to satisfy the interregional transmission
coordination requirements as well as for any interregional
transmission coordination agreements in the compliance section
below. See discussion infra section III.C.3.e. of this Final Rule.
---------------------------------------------------------------------------

1. Need for Interregional Transmission Coordination Reform \313\
---------------------------------------------------------------------------

    \313\ Legal authority issues associated with the interregional
transmission coordination reforms described herein are addressed in
the discussion above concerning regional transmission planning. See
discussion supra section III.A.2. of this Final Rule.
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a. Commission Proposal
    347. In Order No. 890, the Commission found that, when transmission
providers engage in regional transmission planning, they may identify
solutions to regional needs that are more efficient than those that
would have been identified if needs and potential solutions were
evaluated only independently by each individual transmission
provider.\314\ In Order No. 890-A, the Commission reiterated that
effective regional transmission planning must include coordination
among transmission planning regions. To that end, the Commission
required public utility transmission providers within each transmission
planning region to coordinate as necessary to share data, information,
and assumptions to maintain reliability and allow customers to consider
resource options that span a region.\315\
---------------------------------------------------------------------------

    \314\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 524.
    \315\ Order No. 890-A, FERC Stats. & Regs. ] 31,261 at P 226.
---------------------------------------------------------------------------

    348. The Commission noted in the Proposed Rule that, within the
Order No. 890 and 890-A framework, transmission providers in certain
parts of the country have organized subregional transmission planning
groups for the purpose of collectively developing transmission plans
for facilities on their combined transmission systems. These
subregional transmission plans are then analyzed at a regional level to
ensure that, if implemented, they will be simultaneously feasible and
meet reliability requirements. The Commission also acknowledged that
some neighboring transmission planning regions have undertaken joint
transmission planning pursuant to bilateral agreements.\316\
---------------------------------------------------------------------------

    \316\ Proposed Rule, FERC Stats. & Regs. ] 32,660 at P 103.
---------------------------------------------------------------------------

    349. However, the October 2009 Notice observed that there are few
processes in place to analyze whether alternative interregional
solutions more efficiently or effectively would meet the needs
identified in individual regional transmission plans. As part of the
October 2009 Notice, the Commission posed several questions related to
this issue, including whether existing transmission planning processes
are adequate to identify and evaluate potential solutions to needs
affecting the systems of multiple transmission providers. The
Commission also sought comment as to what processes should govern the
identification and selection of projects that affect multiple systems.
    350. In light of the comments received on this issue, the
Commission in the Proposed Rule expressed concern that the lack of
coordinated transmission planning processes across the seams of
neighboring transmission planning regions could be needlessly
increasing costs for customers of transmission providers, which may
result in rates that are unjust and unreasonable and unduly
discriminatory or preferential. The Commission noted that, in the few
years since the issuance of Order No. 890, interest in multiregional
transmission facilities has grown significantly.\317\ Therefore, the
Commission proposed reforms intended to improve coordination between
neighboring transmission planning regions with respect to the
evaluation of transmission facilities that are proposed to be located
in both regions, as well as other possible interregional transmission
facilities, to determine if such facilities address the needs of the
transmission planning regions more efficiently or cost-
effectively.\318\
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    \317\ The Commission cited two such recent multiregional
projects. Id. n.46 (citing Pioneer Transmission, LLC, 126 FERC ]
61,281 (2009); Green Power Express LP, 127 FERC ] 61,031 (2009)).
    \318\ Id. P 112-113.
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b. Comments
    351. Many commenters agree that there is a need to increase
coordination in interregional transmission planning,\319\ and
identified a range of deficiencies in and opportunities for enhancement
of existing interregional transmission coordination efforts. Several
commenters state that a more defined and coordinated interregional
transmission planning process is

necessary. For example, AEP, joined by Integrys, contends that utility
and regional transmission planning efforts have a limited geographic
perspective and do not consider the benefits associated with
interregional transmission projects in neighboring regions. Boundless
Energy and Sea Breeze state that in the absence of RTOs and ISOs, and
particularly in WECC, interregional transmission planning is
ineffective, overly costly, and focuses on individual transmission
projects with no relationship to the grid as a whole network or a smart
grid.
---------------------------------------------------------------------------

    \319\ E.g., AEP; Allegheny Energy Companies; AWEA; CapX2020
Utilities; Clean Line; Duke; East Texas Cooperatives; Edison
Electric Institute; Energy Future Coalition; Environmental Defense
Fund; Exelon; Federal Trade Commission; First Energy Service
Company; Integrys; ISO New England; ITC Companies; Kansas City Power
& Light and KCP&L Greater Missouri; LS Power; Massachusetts
Departments; MidAmerican; MISO; MISO Transmission Owners; Minnesota
PUC and Minnesota Office of Energy Security; National Grid; Natural
Resources Defense Council; NEPOOL; New York ISO; NextEra; Northeast
Utilities; Old Dominion; Organization of MISO States; Pattern
Transmission; Pennsylvania PUC; PHI Companies; Pioneer Transmission;
Powerex; PSEG Companies; PUC of Nevada; San Diego Gas & Electric;
Sonoran Institute; Sunflower and Mid-Kansas; Transmission Access
Policy Study Group; Vermont Electric; Westar; Wilderness Society and
Western Resource Advocates; WIRES; and Wisconsin Electric Power
Company.
---------------------------------------------------------------------------

    352. Other commenters argue that there is no coordinated process
between regions with respect to evaluating interregional transmission
projects.\320\ AEP and MidAmerican specify that the lack of a
coordinated process between transmission planning regions creates
hurdles for projects (especially proposed extra high voltage
facilities) that are unreasonably higher than those faced by
intraregional transmission projects. MidAmerican contends that
different regions have different planning protocols and rules for
project evaluation and justification, and focus too narrowly on
planning criteria that are limited to reliability, generator
interconnection, and economic congestion relief to demonstrate the need
for a project. It states that many transmission planning regions do not
have joint planning protocols or other tariff authority under which an
interregional project could be approved based on the total benefits
that it provides to the planning regions; and that there is a lack of
coordinated planning to identify the most economically efficient
solutions. Transmission Dependent Utility Systems state that the
ultimate objective of the Final Rule should be the development of a
regional transmission plan that jointly optimizes solutions for
transmission across the regions to allow access to economically-priced
energy by all transmission providers and customers to best serve their
native loads. 26 Public Interest Organizations state that without
interregional coordination of planning assumptions and procedures, it
may not be possible to develop regional transmission plans that the
Commission can rely on to determine whether rates are just and
reasonable.
---------------------------------------------------------------------------

    \320\ E.g., East Texas Cooperatives; AEP; Kansas City Power &
Light and KCP&L Greater Missouri; Anbaric and PowerBridge; Edison
Electric Institute; MISO Transmission Owners; TDU Systems; AWEA; and
PSEG Companies.
---------------------------------------------------------------------------

    353. Some other commenters state that improved interregional
transmission coordination would result in a more orderly and timely
transmission planning process.\321\ Pioneer Transmission indicates that
improved interregional transmission planning would require planning
regions to adopt broader planning goals and objectives, plan
transmission and generation in a coordinated and cohesive fashion, and
recognize that the benefits of interregional transmission projects will
multiply and that their beneficiaries often expand over time.
---------------------------------------------------------------------------

    \321\ E.g., First Wind; Solar Energy Industries; and Large-scale
Solar.
---------------------------------------------------------------------------

    354. Several commenters also discuss the positive impacts that the
proposed interregional transmission planning requirements would have on
renewable resources. For example, some state that these requirements
would facilitate access to renewable energy and help meet state,
federal and other renewable energy goals.\322\ Pattern Transmission
indicates that unless a formal interregional planning process is
required, approval of transmission projects needed to allow load to
access renewable resources will be difficult, particularly for
remotely-located resources. Wind Coalition states that without
interregional planning, location-constrained resources located in one
region that could be cost-effectively accessed to serve the needs of an
adjacent, or even more distant region, will not be available or may be
accessed through a more expensive and less efficient transmission
solution than would be possible with interregional transmission
planning.
---------------------------------------------------------------------------

    \322\ E.g., Edison Electric Institute; AWEA; Clean Line;
American Transmission; and Solar Energy Industries and Large-scale
Solar.
---------------------------------------------------------------------------

    355. Some commenters argue that seams issues have prevented
efficient use of existing transmission infrastructure and adequate
consideration of the needs of load-serving entities at the seams.\323\
Several commenters cite difficulties they have had in the MISO and PJM,
Entergy and SPP, PJM and New York ISO, and Pacific Northwest
regions.\324\ For example, East Texas Cooperatives state a lack of
coordination between SPP and Entergy has hindered its ability to obtain
network service for a new generating plant. Specifically, East Texas
Cooperatives state that in 2009 they submitted a request to SPP for 335
MW of network service sourcing and sinking in SPP to access the
Harrison County generating plant. When studying the request, SPP
determined that it may cause impacts on Entergy's system. After
multiple iterations of the SPP Aggregate Study Process and two Affected
System Analysis were conducted, the Entergy system identified $30.7
million of upgrades necessary to facilitate the request, the cost of
which were to be directly assigned to East Texas Cooperatives. East
Texas Cooperatives identified several potential issues in the SPP and
Entergy studies that appeared to stem, at least in part, from a lack of
queue coordination between Entergy and SPP. East Texas Cooperatives
state that after significant effort on their part and additional study
costs being incurred, which may not have been necessary with better
coordination between Entergy and SPP, the cost of the necessary
upgrades on the Entergy system was dramatically reduced. However, East
Texas Cooperatives state that errors in SPP's planning studies and a
lack of coordination between SPP and Entergy in addressing East Texas
Cooperatives' network service request, resulted in a long delay in
securing the necessary financing for the Harrison County project.
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    \323\ E.g., AEP; Anbaric and PowerBridge; Connecticut & Rhode
Island Commissions; East Texas Cooperatives; Edison Electric
Institute; Energy Consulting Group; MISO Transmission Owners;
Northeast Utilities; and Omaha Public Power District.
    \324\ E.g., Pennsylvania PUC; MidAmerican; Exelon; East Texas
Cooperatives; PSEG Companies; and Powerex.
---------------------------------------------------------------------------

    356. Similarly, ITC Companies state that it has been difficult to
move forward on its Green Power Express project because there is no
applicable planning process for projects that extend beyond the
boundaries of a single RTO. Exelon states that its experience on the
seam between MISO and PJM supports the contention that mandatory
interregional planning is needed at this time. For instance, Exelon
cites issues in studying and building transmission projects identified
in the MISO's Regional Generation Outlet Study as necessary to deliver
35 GW of wind energy to load centers in the MISO. Exelon states that
several of the projects are located in PJM, but will not be studied
further by the MISO because MISO states that it has no authority to
order its members or PJM members to build transmission on PJM's system.
In addition, Exelon states that current coordination protocols between
the MISO and PJM are failing to prevent increased congestion in PJM,
resulting in deteriorating operations at the seam such as increased
transmission loading relief (TLR) events on the Commonwealth Edison
system. PJM, however, disputes Exelon's assertions regarding both the
cause and the total number of TLR events on the Commonwealth Edison
system.
    357. PSEG Companies recommend that where there is evidence of

significant seams issues that affect operations, the Commission should
require that the affected planning regions: (1) coordinate the planning
of their systems, including sharing information needed to forecast,
measure, and monitor impacts; and (2) form an agreement to address how
the costs associated with cross-border impacts will be allocated that
incorporates the ``beneficiary pays'' approach. Pennsylvania PUC states
that the Commission's proposed interregional transmission planning
requirements may help to improve interregional operational efficiency
between RTOs.
    358. Organization of MISO States and Pattern Transmission discuss
the effect of improved interregional coordination between RTO and non-
RTO regions. Organization of MISO States notes that the proposed
requirements would enhance the incorporation of non-RTO regions into
interregional transmission planning processes. According to Pattern
Transmission, interregional transmission planning is particularly
important in non-RTO and non-ISO regions, where the lack of a
structured regional transmission planning process effectively restricts
transmission development by nonincumbent developers to merchant
transmission developers.
    359. Transmission Dependent Utility Systems urge the Commission to
adopt the proposed interregional transmission planning reforms without
delay as they are necessary to promote cost-effective interregional
transmission planning and to remedy the unduly discriminatory exclusion
of transmission customers that are load-serving entities from these
activities. They assert that transmission providers have little
incentive to develop transmission that would allow competing suppliers
to serve customers and that in many regions, interregional transmission
planning efforts are either nonexistent or are often implemented
through bilateral agreements that provide no opportunity for active
participation by transmission customers that are load-serving entities
or other stakeholders.
    360. Several commenters stress that the Commission's actions in
this proceeding must not interfere with the ARRA-funded transmission
planning initiatives.\325\ Allegheny Energy Companies believe in the
potential success of the ARRA-funded process. They state that the ARRA-
funded interconnectionwide transmission planning initiatives may
develop into a potential model for an open, interconnectionwide
transmission planning process and in effect could help resolve some of
the planning issues currently being encountered. Western Area Power
Administration urges the Commission to consider the positive
developments associated with the implementation of these initiatives
while developing any Final Rule.
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    \325\ E.g., Indianapolis Power & Light; NARUC; PHI Companies;
Pennsylvania PUC; PSC of Wisconsin; SPP; and Transmission Access
Policy Study Group.
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    361. Some commenters argue that interregional transmission planning
reforms are needed notwithstanding the ARRA-funded interconnectionwide
transmission planning initiatives.\326\ SPP states that the ARRA-funded
process will not ensure that the most cost-effective solutions are
implemented across planning regions or the entire interconnection.
Transmission Dependent Utility Systems also contend that the ARRA-
funded process does not address short-range needs for interregional
projects and may have too wide of a geographic scope to conduct the
bottom-up planning necessary to ensure that the needs of load-serving
entities are met. AEP encourages the Commission to provide as much
direction as possible to the planning authorities to ensure that the
ARRA initiatives accomplish more than the cumulative assembly of the
isolated plans of each region and planning entity.
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    \326\ E.g., SPP; Minnesota PUC and Minnesota Office of Energy
Security; AEP; and Transmission Dependent Utility Systems.
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    362. Conversely, other commenters suggest that the Commission
postpone imposing new requirements until after the ARRA-funded
interconnection-wide transmission planning process is complete.\327\
For example, Southwest Area Transmission Sub-Regional Planning Group
encourages the Commission to support existing planning activities,
postponing the proposal for additional requirements until after the
ARRA-funded interconnectionwide transmission planning initiatives are
complete. ColumbiaGrid and ISO New England argue that their
transmission planning processes already comply with the Commission's
proposed requirements. The New England Transmission Owners support the
Commission's interregional transmission planning objectives, but urge
the Commission to give the ISO New England's existing interregional
transmission planning process time to mature before imposing any new or
additional requirements. PHI Companies argue that the Commission should
require that existing interregional planning processes that meet the
Commission's articulated principles be followed whenever the objectives
of one region have the potential to impose burdens or costs on another
region.