the Web site posting requirement that we directed in Order No.
1000.\339\ Again, if stakeholders would like to see such timing
requirements as part of the Web site postings, they may seek to do so
as part of the compliance process. However, the Web site postings
should provide the information we require in a complete and transparent
manner so that it will be fully accessible and useful to interested
stakeholders such that they can see the status of various transmission
facilities included in the regional transmission plan.
---------------------------------------------------------------------------

    \339\ Id. P 159.
---------------------------------------------------------------------------

    290. Regarding concerns about the role of state utility regulators
in the regional transmission planning process, we support states'
efforts to take an active role in the regional transmission planning
process and encourage proposals that seek to establish a formal role
for state commissions in the regional transmission planning process as
well as proposals to establish cost recovery for state regulators'
participation. However, for the reasons noted below, we will not
require one formal method for how states will participate in the
process.
    291. We recognize that state utility regulators play an important
and unique role in transmission planning processes, given that the
states often have authority over transmission, permitting, siting, and
construction, and that many state regulatory commissions require
utilities to engage in integrated resource planning. We also expect
that state utility regulators will play an active role in working with
public utility transmission providers and other stakeholders in the
Order No. 1000 compliant regional transmission planning processes.
    292. That being said, the Commission finds that it would be
premature in a generic proceeding to mandate any particular role for
state regulators in regional transmission planning processes. Instead,
we believe the best place for a state to determine the role it is to
play is in the Order No. 1000 compliance process that will develop a
regional transmission planning process that will be filed for
Commission review. This is appropriate because individual states can be
the best advocates for the role they wish to take in that process. For
example, in large, multistate regions, states may seek to join a
committee of state regulators that, in their view, may be a more
effective vehicle for collective action than any single state could do
individually. On the other hand, some states may feel that its best to
have a more independent role if, for example, they believe that joining
a formalized committee of state regulators may dilute their ability to
participate in the regional transmission planning process. Some states
may have a stronger interest in transmission planning issues than
others.
    293. We understand and appreciate the concerns expressed by NARUC
and others that Order No. 1000 may appear to lump state utility
regulators with all other stakeholders. That was not the Commission's
intent. We understand that state regulators play a crucial role in
transmission planning and that the role of state regulators is unique
and distinctly different from the roles played by other stakeholders in
transmission planning. We agree with Wisconsin PSC that the differences
between state utility regulators and other stakeholders may well lead
to a regional transmission planning process to treat state utility
regulators differently than other stakeholders. However, for the
reasons discussed next, we decline to adopt the various suggestions
made by Wisconsin PSC and others to establish the same formal state
commission role in every transmission planning region through a generic
rulemaking proceeding, although all the regions are free to use the
same formal process for state participation if they choose to do so.
With respect to Illinois Commerce Commission's specific concerns about
the roles state regulators might be allowed to play consistent with
state law, we encourage it and other state regulators to raise such
concerns during the compliance process.
    294. We are aware of the wide range of views expressed by state
utility commissions and others, both in rehearing petitions and
previously in comments on the Proposed Rule, regarding the appropriate
role of the states in regional transmission planning. Some state
commissions argue for a strong role in shaping regional transmission
plans, while others are concerned that their states' laws limit their
ability to participate in forming plans that may come before them in
regulatory proceedings. Respecting this range of views the Commission
believes that each state commission, or the state commissions
collectively in a region, is in the best position, in the first
instance and in consultation with the transmission providers subject to
their jurisdiction, to define the appropriate role for the state
commissions in a particular region. This role will take into account
the authorities and restrictions conferred by their own states'
statutes and their own policy preferences. Thus, the Commission
believes it would be inappropriate for us to define the role of all
state commissions in every regional transmission planning process in a
single generic proceeding, both because a state commission's authority
and responsibility is established by its own state's laws--not by this
Commission--and because a one-size-fits-all state role would not
accommodate the wide range of views expressed by state commissions.
    295. Instead, we believe the best place to determine the role any
state commission plays is through the development of each region's
transmission planning process. This is appropriate because individual
state commissions can be the best advocates for the role they wish and
are able to play in that process. We believe that, in a multistate
region, the state commissions may want to establish a committee of
state regulators, which may be more effective by acting collectively
rather than individually. On numerous occasions, the Commission has
expressed strong support for such regional state committees, and we
continue to do so here. But we have not prescribed that states act
though regional state committees. Some state commissions may want an
independent role in regional transmission planning. Others may believe
they lack authority under their states' laws to engage in planning
facilities that are outside the state's borders. Finally, some states
may have a stronger interest in regional transmission planning issues
than others that simply have little interest in participating actively.
    296. In response to Illinois Commerce Commission and Florida PSC's
concerns regarding funding for state regulator participation in the
regional transmission planning process, we affirm the approach taken in
Order No. 1000. This approach adopted Order No. 890's requirement that
public utility transmission providers propose a mechanism for recovery
of planning costs in their compliance filings, including relevant cost
recovery for state regulators, to the extent requested.\340\
Accordingly, we encourage public utility transmission providers to
engage respective state regulators regarding such provisions in their
compliance filings.
---------------------------------------------------------------------------

    \340\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 162
(quoting Order No. 890, FERC Stats. & Regs. ] 31,241 at n.339 & P
586).
---------------------------------------------------------------------------

    297. With respect to arguments raised by petitioners concerning
Order No. 1000's discussion of the role of merchant transmission
developers in the regional transmission planning

process, we deny rehearing. As the Commission found in Order No. 1000,
because a merchant transmission developer assumes all financial risk
for developing and constructing its transmission facility, it is
unnecessary to require such a developer to participate in a regional
transmission planning process for purposes of identifying the
beneficiaries of its transmission facility that would otherwise be the
basis for securing eligibility to use a regional cost allocation method
or methods. However, because a merchant developer's transmission
facility may nevertheless have an impact on a region's transmission
network, we will continue to require a merchant transmission developer
to provide adequate information and data, as explained in more detail
in Order No. 1000, to allow public utility transmission providers in
the transmission planning region to assess the potential reliability
and operational impacts of the merchant transmission developer's
proposed transmission facilities on other systems in the region. We
will allow public utility transmission providers in each transmission
planning region, in consultation with stakeholders, in the first
instance to propose what information would be required. Public utility
transmission providers should include these requirements in their
filings to comply with Order No. 1000.\341\
---------------------------------------------------------------------------

    \341\ Id. P 163.
---------------------------------------------------------------------------

    298. In response to APPA and Transmission Dependent Utility
Systems, we believe that by requiring merchant transmission developers
to provide information regarding their projects, including information
regarding reliability and operational impacts, public utility
transmission providers and stakeholders will have sufficient
information to analyze how a merchant transmission facility may impact
the transmission planning region. In short, we believe that Order No.
1000's information sharing requirement balances the need for public
utility transmission providers and stakeholders in transmission
planning regions to know about the impacts of potential merchant
transmission facilities in their regions with our view that it is
unnecessary to require a specific degree of participation by merchant
transmission developers in the regional transmission planning process
when they are not establishing a cost-based rate base to be allocated
to other beneficiaries of that facility.
    299. We disagree with National Rural Electric Coops that we are
establishing a ``special'' class of public utilities by requiring
merchant transmission developers to comply only with an informational
requirement, rather than being subject to the full panoply of
requirements that will be applicable to all other public utility
transmission providers. However, it should be noted that merchant
transmission developers are those for which the costs of constructing
the proposed transmission facilities will be recovered through
negotiated rates instead of cost-based rates, so that this fact alone
serves to distinguish them from other developers.\342\ As noted above,
merchant transmission developers are not seeking to allocate the costs
associated with their merchant transmission facilities to other
entities. Thus, we affirm our decision in Order No. 1000.
---------------------------------------------------------------------------

    \342\ Id. P 119.
---------------------------------------------------------------------------

    300. We also decline Transmission Dependent Utility Systems'
request that we clarify that merchant transmission developers not
participating in the regional transmission planning process should be
obligated to internalize the costs of any adverse reliability effects
on the grid posed by its transmission facility or any need for upgrades
caused by a change in power flows. Every new facility affects the
facilities around it, whether it is a merchant facility or a cost-based
facility, just as the actions of one region may have positive or
negative affects on neighboring regions. A generic proceeding on
internalizing the costs of all new facilities, whether merchant or
otherwise, is beyond the scope of Order No. 1000, and may not be suited
for a blanket determination in any generic proceeding as such a
determination would likely require an evaluation of the specific facts
and circumstances of each particular new facility. The Commission
reiterates, however, that Order No. 1000 provides that a merchant
transmission developer has to pay for upgrades on neighboring
systems.\343\
---------------------------------------------------------------------------

    \343\ Id. P 165.
---------------------------------------------------------------------------

    301. Finally, in response to those petitioners seeking
clarification of what constitutes a ``new'' transmission facility, we
will affirm the Commission's approach taken in Order No. 1000.\344\
Order No. 1000 purposely does not define what type of evaluation or
reevaluation of transmission facilities needs to occur to determine
whether a previously approved facility may be subject to Order No.
1000. That is because we understand that different transmission
planning regions may use different processes based on their unique
needs and characteristics. We intentionally did not prescribe what such
an evaluation or reevaluation must look like, and we leave it to public
utility transmission providers, in consultation with stakeholders, to
develop proposals addressing this issue as part of their Order No. 1000
compliance filings. If a stakeholder believes that these proposals are
unduly discriminatory or preferential (e.g., they favor incumbent
transmission owners to the detriment of nonincumbent transmission
developers), it should raise these concerns during the development of
the Order No. 1000 compliance filing and, if it is not successful at
that stage, it may raise the issue before the Commission after the
compliance filing is submitted. For these reasons, we decline to
provide the clarifications requested by Western Independent
Transmission Group and LS Power.
---------------------------------------------------------------------------

    \344\ Id. P 65.
---------------------------------------------------------------------------

3. Consideration of Transmission Needs Driven by Public Policy
Requirements
a. Final Rule
    302. Order No. 1000 directed public utility transmission providers,
in consultation with stakeholders, to amend their OATTs to describe
procedures that provide for the consideration of transmission needs
driven by Public Policy Requirements in the local and regional
transmission planning processes.\345\ By considering transmission needs
driven by Public Policy Requirements, the Commission explained that it
meant: (1) The identification, with stakeholders, of transmission needs
driven by Public Policy Requirements; and (2) the evaluation of
potential solutions, including those proposed by stakeholders, to meet
those needs.\346\ The Commission emphasized that it would allow local
and regional flexibility in designing these procedures.\347\
Additionally, to ensure that requests to include transmission needs are
reviewed in a fair and non-discriminatory manner, Order No. 1000
required public utility transmission providers to post on their Web
sites an explanation of which transmission needs driven by Public
Policy Requirements will be evaluated for potential solutions in the
local or regional transmission planning process, as well as an
explanation of why other suggested transmission needs will not

be evaluated.\348\ The Commission further explained that Order No. 1000
did not establish an independent requirement to satisfy such Public
Policy Requirements such that the failure of a public utility
transmission provider to comply with a Public Policy Requirement
established under state law would constitute a violation of its
OATT.\349\
---------------------------------------------------------------------------

    \345\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 203.
    \346\ Id. PP 205-11.
    \347\ Id. P 208.
    \348\ Id. P 209.
    \349\ Id. P 213.
---------------------------------------------------------------------------

    303. The Commission did not require public utility transmission
providers to consider in the local and regional transmission planning
processes any transmission needs that go beyond those driven by state
or federal laws or regulations or to specify additional public policy
principles or public policy objectives.\350\ However, the Commission
reiterated and clarified that Order No. 1000 does not preclude any
public utility transmission provider from considering in its
transmission planning process transmission needs driven by additional
public policy objectives not specifically required by state or federal
laws or regulations.\351\
---------------------------------------------------------------------------

    \350\ Id. P 214.
    \351\ Id. P 216.
---------------------------------------------------------------------------

b. Requests for Rehearing and Clarification
    304. Several petitioners filed requests for rehearing and
clarification regarding Order No. 1000's requirement that public
utility transmission providers include in their OATTs language
providing for the consideration of transmission needs driven by Public
Policy Requirements. Some petitioners assert that the Commission has
not spelled out with sufficient detail what is required of public
utility transmission providers.\352\ ELCON, AF&PA, and the Associated
Industrial Groups, as well as PSEG Companies, contend that Order No.
1000 provides virtually no practical guidance as to how disparate state
policies are to be reconciled. PSEG Companies also contend that the
Commission's reforms may undermine competitive wholesale energy markets
by driving market outcomes, explaining that predictions about
generation additions and retirements that will occur in a competitive
market are too speculative for a transmission provider to rely upon
and, if a transmission provider were to make such judgments, then it
would be a market maker or market influencer.
---------------------------------------------------------------------------

    \352\ See, e.g., Coalition for Fair Transmission Policy; ELCON,
AF&PA, and the Associated Industrial Groups; and PSEG Companies.
---------------------------------------------------------------------------

    305. Ad Hoc Coalition of Southeastern Utilities is concerned that
Order No. 1000's public policy planning requirements will be confusing
and counterproductive and are likely to result in skewed decision-
making. Coalition for Fair Transmission Policy argues that any
construct of benefits associated with public policy-driven transmission
projects would require speculation and deviate from industry norms that
use models to project system conditions and dynamics for planning
purposes. Long Island Power Authority argues that the process for
identifying transmission needs driven by Public Policy Requirements is
incomplete because it is necessary to identify what parties are subject
to the Public Policy Requirements and whether such parties have a need
for a transmission solution to meet those requirements.
    306. Sacramento Municipal Utility District explains that current
transmission planning processes take into account state renewable
energy goals, adding that, to the extent that Public Policy
Requirements spur development of new projects that create demand for
new transmission, such projects would be incorporated into existing
planning processes, even if those processes do not expressly reference
the Public Policy Requirement that created the demand. Ad Hoc Coalition
of Southeastern Utilities argue that Order No. 1000 fails to account
for the fact that, at least in the Southeast, existing practices take
into account Public Policy Requirements.
    307. A number of petitioners seek rehearing or clarification on
several other issues related to Order No. 1000's requirement that local
and regional transmission planning processes consider transmission
needs driven by Public Policy Requirements. APPA, for example, seeks
clarification that the term ``Public Policy Requirements'' is intended
to include duly enacted laws, ordinances, and regulations passed by
units of state and local government regulating public power systems,
such as city councils, utility district boards, and other governing
bodies. MISO Northeast argues that the Commission should limit the
definition of ``Public Policy Requirements'' to those requirements that
create transmission-related benefits.
    308. AEP seeks clarification that transmission providers are
required to include specific, evaluated solutions to all transmission
needs in the transmission plan, explaining that it is concerned that
transmission providers may simply identify possible solutions to needs
driven by Public Policy Requirements without including solutions that
address such needs in an actionable transmission plan. As an example,
AEP states that PJM is considering the ``FYI to Market'' approach,
where PJM identifies projects that might respond to certain public
policy needs and lets the market determine, without any PJM
involvement, which projects are built.
    309. Southern Companies contend that Order No. 1000's requirement
that transmission needs driven by Public Policy Requirements must be
considered in transmission planning processes is vague. Specifically,
they claim that Order No. 1000's directive that public utility
transmission providers post on their Web sites an explanation of which
public policy considerations are and are not considered in the
transmission planning process is impermissibly vague and overbroad. In
support, Southern Companies explain that their native load has numerous
federal and state legal requirements driving their load projections.
    310. American Transmission seeks clarification on issues related to
Order No. 1000's direction that the consideration of transmission needs
driven by Public Policy Requirements applies to local, as well as
regional, transmission planning processes. American Transmission seeks
clarification that it is necessary and appropriate for it to amend its
local planning process to include provisions for public policy-driven
transmission projects.\353\ It explains that it is a transmission-
owning member of MISO, which has a Commission-approved regional
planning process, but that it also has a Commission-approved local
planning process, through which transmission projects are identified
and included in the Midwest ISO MTEP process.
---------------------------------------------------------------------------

    \353\ American Transmission at 8-9 (citing what it terms as an
inconsistency between paragraph 203 and footnote 185 of Order No.
1000).
---------------------------------------------------------------------------

    311. While others raise concerns about the reach of Order No. 1000
on this issue, AWEA argues that transmission planners should be
required to do more than ``consider'' state and federal requirements,
stating that the Commission recognized that when a transmission
provider focuses only on the needs of its franchised or contract-load
customers, it creates opportunities for undue discrimination. It
suggests that the Commission require transmission providers to
undertake scenario studies to plan and direct the build-out of the
transmission system for those entities with signed interconnection
agreements. It also suggests that the Commission require that scenarios
account for transmission that may be necessary to accommodate

individual or multiple RPS requirements or other state and federal
requirements, and that transmission providers then would present these
analyses to stakeholders and include recommended projects and
anticipated costs under each scenario. Otherwise, it seeks
clarification regarding the following: (1) That transmission providers
must actively address public policy considerations within their local
and regional planning processes; (2) the requirements imposed on
transmission providers in meeting the requirement to consider public
policy goals; and (3) that a transmission provider has an independent
duty to identify needs, rather than being passive if no participant
raises any concerns or needs.
    312. Some petitioners raise concerns that the requirements will put
transmission planners into the role of policymakers. Coalition for Fair
Transmission Policy argues that, under the top-down planning permitted
in Order No. 1000, the regional planning group would be placed in the
position of making decisions that affect how utilities and other
entities with the responsibility to meet Public Policy Requirements
would meet those requirements. Coalition for Fair Transmission Policy
asserts that Order No. 1000 thus authorizes submission of regional
transmission planning processes that would reduce those with public
policy obligations and state regulators to mere stakeholders in the
regional transmission planning process. It argues that, with respect to
transmission needs driven by Public Policy Requirements, regional
transmission plans can be developed only through a bottom-up process.
PPL Companies argue that requiring Public Policy Requirements in the
transmission planning process could become a justification to unduly
discriminate against ``non-renewable'' generation, which would violate
the Commission's open access policies. They also assert that, to the
extent public utility transmission providers are mandated to consider
transmission needs driven by Public Policy Requirements in local and
regional transmission planning processes, the Commission should clarify
that such considerations need not, and cannot, trump the FPA's
requirement that rates be just and reasonable.
    313. Transmission Access Policy Study Group raises a similar
concern, pointing to Order No. 1000's statement regarding the
consideration of public policy goals not codified in laws and
regulations. Florida PSC argues that provisions allowing transmission
providers to consider additional public policy objectives not
specifically required by state or federal laws or regulations should be
struck. Instead, Florida PSC argues that transmission planning
decisions should be based on meeting the policy requirements of state
and federal law. It also states that it is unclear whether there will
be enough flexibility to adjust planning decisions to respond to
changes in uncodified public policies. Transmission Access Policy Study
Group believes that allowing public utility transmission providers to
consider such goals would allow them to substitute their own agenda for
that of state and federal legislatures and regulators.
    314. Transmission Access Policy Study Group raises the example that
a public utility transmission provider's definition of a ``public
policy'' may be influenced by the potential for incentive rate recovery
or that it may define ``public policy'' to advance its own generation
interests. It claims that, despite Order No. 1000's statement that
public utility transmission providers always had the ability to plan
for any transmission system needs that it foresees, public utility
transmission providers in non-RTO regions have never before been
authorized to allocate costs for transmission projects aimed at policy
objectives not grounded in law or regulation.\354\ It argues that
planning for these goals should be grounded in terms of satisfying
needs identified by load-serving entities, and requests that the
Commission at least provide guidance that any plans developed based on
public utility transmission providers' own public policy vision should
be structured to ensure their usefulness by supporting multiple likely
power supply scenarios should the original vision prove faulty. It
believes this approach is more rational for integrating public policies
into the planning process and will help focus planning on constructing
broadly supported upgrades needed under multiple potential power supply
and public policy scenarios.\355\
---------------------------------------------------------------------------

    \354\ Transmission Access Policy Study Group also cites to Order
No. 1000's reference to PJM's inability to go beyond specific
interconnection requests in its planning mechanism as a reason for
requiring the consideration of transmission needs driven by Public
Policy Requirements, claiming that this shows that the authorization
to go beyond public policies embodied in state or federal laws or
regulations may not be the status quo in some RTO regions.
    \355\ Transmission Access Policy Study Group at 18-19 (citing
the CapX 2020 project, planning processes in MISO and New England,
and California ISO's ``least regrets'' planning criteria).
---------------------------------------------------------------------------

    315. Some state electric regulatory agencies are concerned about
the role they will play in the process to identify and evaluate
transmission needs driven by Public Policy Requirements.\356\ Illinois
Commerce Commission asserts that the Commission should have clarified
that, when state commissions in a region, either acting individually or
via committee, decide that a unique role or special weight should be
given to state authorities in the regional planning process regarding
the consideration of transmission needs driven by Public Policy
Requirements, then the transmission provider should be required by the
Commission to defer to that decision. It maintains that by leaving the
role of state authorities in the regional planning process up to the
transmission providers, the Commission allows for the possibility that
transmission providers can thwart the will of regionally organized
state authorities. It also seeks clarification that the ``committee of
regulators'' envisioned for the purpose of identifying transmission
needs driven by Public Policy Requirements would not need to consist
solely of personnel employed by state regulatory commissions, but could
include other state authorities as well. It further seeks clarification
that the engagement of such a committee will be at the discretion of
the regional state committee, not at the transmission provider's
discretion. It asks that the Commission clarify how its statement that
authorizes use of ``a committee of state regulators'' to ``identify
those transmission needs for which potential solutions will be
evaluated in the transmission planning processes'' fits with the
requirement that public utility transmission providers ``have in place
processes that provide all stakeholders the opportunity to provide
input into what they believe are transmission needs driven by Public
Policy Requirements.''
---------------------------------------------------------------------------

    \356\ See, e.g., Illinois Commerce Commission; and New York PSC.
---------------------------------------------------------------------------

    316. Similarly, New York PSC requests clarification that when state
regulators play a formal role in the planning process, their
determinations regarding transmission needs driven by state public
policies will be entitled to deference.
c. Commission Determination
    317. We affirm Order No. 1000's reforms regarding the consideration
of transmission needs driven by Public Policy Requirements. We
recognize that Order No. 1000 could have been more clear regarding what
the Commission intended, as evidenced by many of the petitioners'
arguments suggesting that Order No. 1000 requires the

consideration of Public Policy Requirements themselves, which is not
the case. In this section, we clarify what the Commission intended by
these reforms. We believe that these clarifications will be helpful in
dispelling some of the misconceptions about this requirement that
appear in many of the petitioners' requests for rehearing and
clarification.
    318. Order No. 1000 requires that public utility transmission
providers amend their OATTs to provide for the consideration of
transmission needs driven by Public Policy Requirements. Order No. 1000
did not require that Public Policy Requirements themselves be
considered. This is a critical distinction. As discussed more fully
below in response to requests for rehearing on this issue, we are not
placing public utility transmission providers in the position of being
policymakers or allowing them to substitute their public policy
judgments in the place of legislators and regulators. Transmission
needs driven by Public Policy Requirements, and not the Public Policy
Requirements themselves, are what must be considered under Order No.
1000.
    319. First, we discuss the elements of Order No. 1000's requirement
regarding the consideration of transmission needs driven by Public
Policy Requirements. Order No. 1000 defined ``Public Policy
Requirements'' as public policy requirements established by state or
federal laws and regulations.\357\ Order No. 1000 explained that
``state or federal laws and regulations'' means ``enacted statutes
(i.e., passed by the legislature and signed by the executive) and
regulations promulgated by a relevant jurisdiction, whether within a
state or at the federal level.'' \358\ We grant APPA's clarification
that Public Policy Requirements established by state or federal laws or
regulations includes duly enacted laws or regulations passed by a local
governmental entity, such as a municipal or county government. This is
the intent of the word ``within'' in Order No. 1000's explanation that
``state or federal laws or regulations,'' meant ``enacted statutes * *
* and regulations promulgated by a relevant jurisdiction, whether
within a state or at the federal level.'' \359\ In response to MISO
Northeast, we will not revise the definition of Public Policy
Requirements to limit it to those that provide transmission-related
benefits. Order No. 1000 does not require the consideration of Public
Policy Requirements: Rather, it requires the consideration of
transmission needs driven by Public Policy Requirements. We also will
not exclude any particular state or federal law or regulation from the
definition of Public Policy Requirements.
---------------------------------------------------------------------------

    \357\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 2.
    \358\ Id.
    \359\ Id. (emphasis added).
---------------------------------------------------------------------------

    320. Next, we discuss another key component of Order No. 1000's
requirement, namely, the term ``consideration'' in reference to the
requirement that public utility transmission providers amend their
OATTs to provide for the consideration of transmission needs driven by
Public Policy Requirements. By ``consideration,'' Order No. 1000
explained that this included: (1) The identification of transmission
needs driven by Public Policy Requirements; and (2) the evaluation of
potential solutions to meet those identified needs.\360\ Order No. 1000
further explained that, with respect to the identification of
transmission needs driven by Public Policy Requirements, the process
must permit stakeholders with an opportunity to provide input and offer
proposals regarding the transmission needs that they believe should be
so identified.\361\ Order No. 1000 also stated that not every suggested
need will be identified such that solutions for the need will be
evaluated.\362\ In response to AEP, we reiterate that Order No. 1000
provides only that public utility transmission providers must consider
transmission needs driven by Public Policy Requirements. Order No. 1000
does not require that every potential transmission need proposed by
stakeholders must be selected for further evaluation. We find that this
approach is a fair balance that allows interested stakeholders to
submit their views on what is driving their transmission needs while
allowing the process itself determine what transmission needs are
identified for which solutions must be evaluated.
---------------------------------------------------------------------------

    \360\ Id. P 205.
    \361\ Id. P 209.
    \362\ Id.
---------------------------------------------------------------------------

    321. Similarly, in response to AWEA, we are not requiring anything
more than what we directed in Order No. 1000, namely, the two-part
identification and evaluation process. As with other Order No. 1000
transmission planning reforms, our concern is that the process allows
for stakeholders to submit their views and proposals for transmission
needs driven by Public Policy Requirements in a process that is open
and transparent and satisfies all of the transmission planning
principles set out in Order Nos. 890 and 1000, and that there is a
record for the Commission and stakeholders to review to help ensure
that the identification and evaluation decisions are open and fair, and
not unduly discriminatory or preferential. However, we reiterate that
not every proposal by stakeholders during the identification stage will
necessarily be identified for further evaluation. The OATT revisions
that public utility transmission providers submit as part of their
Order No. 1000 compliance filings will set forth the process for
permitting stakeholders to provide input and for determining which
proposed transmission needs will be identified for evaluation.
    322. We are also not prescribing how active a public utility
transmission provider should itself be in identifying transmission
needs driven by Public Policy Requirements, although it certainly may
take a more proactive approach if it, in consultation with its
stakeholders, so chooses. Even if a public utility transmission
provider takes a less active approach on this issue, our expectation is
that interested stakeholders will participate and suggest transmission
needs driven by Public Policy Requirements.\363\ An open and
transparent transmission planning process will identify those
transmission needs that should be evaluated, regardless of whether they
are suggested by the public utility transmission provider or by an
interested stakeholder.
---------------------------------------------------------------------------

    \363\ We emphasize that, although a public utility transmission
provider is not obligated to proactively identify transmission needs
driven by Public Policy Requirements, it still must consider the
transmission needs driven by Public Policy Requirements raised by
other stakeholders in the transmission planning process.
---------------------------------------------------------------------------

    323. In response to Coalition for Fair Transmission Policy, we
recognize that consideration of transmission needs driven by Public
Policy Requirements could create challenges in defining beneficiaries,
but we fail to see how these challenges are appreciably different from
those involved in determining beneficiaries of reliability or economic
projects. In those cases as well, the determination of beneficiaries
will often turn on informed forecasts or predictions regarding future
needs and demands to be placed on the transmission system. In fact,
given that the Commission is only requiring the consideration of
transmission needs driven by Public Policy Requirements that are
established by state or federal laws or regulations,\364\ it may very
well be the case that the determination of beneficiaries of
transmission facilities to

address transmission needs driven by Public Policy Requirements is
easier to define than for other types of transmission facilities. In
any event, we want public utility transmission providers, in
consultation with stakeholders, to make those determinations in the
first instance. We also disagree with Coalition for Fair Transmission
Policy's argument that these reforms can only be implemented through
bottom-up transmission planning. Coalition for Fair Transmission Policy
has not persuaded us that these reforms cannot be implemented through
either a ``top-down'' or ``bottom up'' process, particularly given the
significant flexibility we are providing to public utility transmission
providers to comply with these requirements.
---------------------------------------------------------------------------

    \364\ As discussed above, the Commission clarifies that this
requirement was meant to include local laws or regulations as well.
---------------------------------------------------------------------------

    324. Regarding American Transmission's request for clarification,
we note that in Order No. 1000, footnote 185, we stated that ``[t]o the
extent public utility transmission providers within a region do not
engage in local transmission planning, such as in some ISO/RTO regions,
the requirements of this Final Rule with regard to Public Policy
Requirements apply only to the regional transmission planning
process.'' \365\ That statement only applies to public utility
transmission providers that do not engage in local transmission
planning. If a public utility transmission provider does engage in
local transmission planning, regardless of whether or not it is in an
ISO/RTO region, then the requirements of Order No. 1000 regarding
Public Policy Requirements apply to both the local and regional
transmission planning processes. Therefore, if American Transmission
engages in local and regional transmission planning, then it must
revise its local transmission planning process to reflect this aspect
of Order No. 1000.
---------------------------------------------------------------------------

    \365\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at n.185.
---------------------------------------------------------------------------

    325. Southern Companies find the requirement that public utility
transmission providers post on their Web sites an explanation of which
transmission needs have been identified for evaluation and an
explanation of why other suggested transmission needs will not be
evaluated to be vague and overbroad. We clarify as follows. Public
utility transmission providers are not required to research and post on
their Web sites what they perceive to be every transmission need that
is conceivably driven by a Public Policy Requirement and then explain
why it will not evaluate each one. Public utility transmission
providers are only obligated to (a) post an explanation of those
transmission needs driven by Public Policy Requirements that have been
identified for evaluation and (b) post an explanation of how other
transmission needs driven by Public Policy Requirements introduced by
stakeholders were considered during the identification stage and why
they were not selected for further evaluation. For example, if public
utility transmission providers or stakeholders in a transmission
planning region submit what they believe are ten transmission needs
driven by Public Policy Requirements, and five of those ten are
identified for evaluation, then the public utility transmission
providers must (a) post an explanation of why the five were evaluated
and (b) post an explanation of why the other five were not evaluated.
    326. Having provided additional clarifications and information as
to what Order No. 1000 does require, i.e., the consideration of
transmission needs driven by Public Policy Requirements, we now turn to
discussing what Order No. 1000 does not require, i.e., the
consideration of Public Policy Requirements themselves, as well as
otherwise allowing public utility transmission providers to become
policymakers, as some petitioners appear to believe. Order No. 1000
does not require public utility transmission providers to amend their
OATTs to provide for the consideration of Public Policy Requirements.
Nor do we believe that anything in Order No. 1000's reforms on this
issue will lead to that outcome.
    327. It is not the function of the transmission planning process to
reconcile state policies. If the utilities in one state are required,
for example, to procure wind resources and the utilities in another
state are required to shut down old fossil units and construct new
fossil units, it is not the transmission providers' function to decide
on the merits of these federal or state requirements or to decide
between wind and coal resources. It is their function to help both sets
of utilities comply with the laws they each face by considering in the
transmission planning process, but not necessarily including in the
regional transmission plan, the new transmission facilities needed by
both sets of utilities to meet their obligations, and also to determine
if these diverse objectives can be met more efficiently or cost-
effectively through regional transmission planning than through
individual utility planning.
    328. Additionally, in establishing this process, we are not
requiring public utility transmission providers to make any substantive
determinations as to what Public Policy Requirements may qualify under
these reforms or to identify them in their OATTs. If they choose to do
so, then such proposals must be vetted through the local and regional
transmission planning process, as discussed in Order No. 1000.
    329. For these reasons, we reject assertions that we are allowing
public utility transmission providers to assume the role of policymaker
in their transmission planning processes with respect to considering
transmission needs driven by Public Policy Requirements. We also
disagree with Ad Hoc Coalition of Southeastern Utilities that these
reforms may lead to skewed decision-making. Our intent is to help
develop a path to allow public utility transmission providers to
consider transmission needs driven by Public Policy Requirements, just
as they consider reliability-driven and economic-driven transmission
needs, but we are not mandating that any particular transmission
facility identified to address identified transmission solutions be
built.
    330. Further, we disagree with PSEG Companies' argument that, by
requiring the development of a process, we are somehow getting ahead of
the states' own public policy efforts. Nothing in the development of
this process preempts or conflicts with state-level public policy
efforts. Indeed, Order No. 1000 and state-level Public Policy
Requirements should be complementary--Order No. 1000's intent is to
establish a space in the transmission planning process to identify
transmission needs driven by Public Policy Requirements and to evaluate
potential solutions to identified needs.
    331. We also decline to require that regional transmission plans
support multiple likely power supply scenarios should a region's public
policy vision not come to fruition, as requested by Transmission Access
Policy Study Group. It may well be the case that evaluating different
power supply scenarios will be an effective way of identifying more
efficient or cost-effective transmission solutions; however, we will
not prescribe any such requirements here, consistent with our
preference for regional flexibility in designing regional transmission
planning processes. Stakeholders may advocate for such a requirement in
the development of Order No. 1000 compliance filings and, to the extent
such language is included in the

compliance filing, the Commission will consider that language.\366\
---------------------------------------------------------------------------

    \366\ Similarly, we will not require the adoption of a ``least
regrets'' process or processes that resulted in the development of
transmission projects such as the CapX2020 project; however, the
public utility transmission providers in each region are free to
develop such processes and submit them in their compliance filing
for Commission consideration.
---------------------------------------------------------------------------

    332. Just as Order No. 1000 did not intend for public utility
transmission providers to consider Public Policy Requirements, Order
No. 1000 also does not convert public utility transmission providers
into policymakers with respect to the consideration of public policy
objectives that are not codified in federal or state laws or
regulation. On this matter, Order No. 1000 stated: ``[T]he Final Rule
does not preclude any public utility transmission provider from
considering in its transmission planning process transmission needs
driven by additional public policy objectives not specifically required
by state or federal regulations.'' \367\ Some petitioners expressed
alarm that we are permitting public utility transmission providers to
become policymakers and substitute their policy judgments in place of
legislators and regulators. This was not our intent, and we take this
opportunity to provide some clarifications on this matter.
---------------------------------------------------------------------------

    \367\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 216.
---------------------------------------------------------------------------

    333. We reiterate the observations we made in Order No. 1000. A
public utility transmission provider ``has, and always had, the ability
to plan for any transmission system needs that it foresees. Our
recognition of this ability is not intended to limit or expand in any
way the option that a public utility transmission provider has always
had to plan for facilities that it believes are needed if it chooses to
do so.'' \368\ All this statement was intended to convey was that, even
absent the requirements in Order No. 1000, public utility transmission
providers take a number of different factors into account in developing
their transmission plans. While Order No. 1000 established a
requirement for certain factors that must be considered in transmission
planning, as the quoted sentence states, it does not expand what public
utility transmission providers have always been entitled to do. If, for
example, a state law that has been identified as a Public Policy
Requirement requires utilities to meet a 10 percent renewable portfolio
standard and that state's governor urges them to meet a 20 percent
standard, Order No. 1000 requires consideration of transmission needed
to meet the 10 percent but neither requires utilities to, nor prohibits
them from, considering a 20 percent standard, as some petitioners
apparently urge us to do.
---------------------------------------------------------------------------

    \368\ Id. (emphasis added).
---------------------------------------------------------------------------

    334. Order No. 1000 concluded that it is appropriate to require
public utility transmission providers, in consultation with
stakeholders, to design the appropriate procedures for identifying and
evaluating the transmission needs that are driven by Public Policy
Requirements in their area, subject to guidance the Commission provided
in Order No. 1000 and our review on compliance.\369\ Additionally, in
response to Long Island Power Authority, we anticipate that the process
for identifying transmission needs driven by Public Policy Requirements
can identify what parties are subject to the Public Policy Requirements
and whether such parties have a need for a transmission solution to
meet those requirements.
---------------------------------------------------------------------------

    \369\ Id. P 208.
---------------------------------------------------------------------------

    335. With respect to the contention raised by Sacramento Municipal
Utility District, Ad Hoc Coalition of Southeastern Utilities, and
others that existing transmission planning processes already account
for state renewable energy goals, we note that we are not endorsing,
nor does the Public Policy Requirement include, any particular state or
federal law or regulation as special or ``preferred.'' Further, as we
have noted elsewhere, we understand that some regions may already be in
compliance with many of the requirements of Order No. 1000 and thus may
need to make only modest changes to comply. Compliance filers must
explain how their process gives all stakeholders a meaningful
opportunity to submit what they believe are transmission needs driven
by Public Policy Requirements, and allow an open and transparent
transmission planning process to determine whether to move forward
regarding those needs.
    336. Further, we disagree that we have not justified this reform
generically, as suggested by Ad Hoc Coalition of Southeastern
Utilities, which argues that there is no need for this reform in the
Southeast. As discussed above and in Order No. 1000, we concluded that
there was a need for the Commission to act under FPA section 206 to
remedy a deficiency that we found in existing transmission planning
processes. There was no formal requirement for public utility
transmission providers to consider transmission needs driven by Public
Policy Requirements, despite the fact that the record indicates that in
recent years there has been significant activity at the federal and
state levels in enacting laws and regulations that will potentially
impact transmission needs.\370\ The lack of a formal requirement in
public utility transmission providers' OATTs to address this issue is,
in our view, unjust, unreasonable, and unduly discriminatory.\371\ We
affirm our conclusion that these reforms are necessary on a nationwide
basis.
---------------------------------------------------------------------------

    \370\ See, e.g., Order No. 1000, FERC Stats. & Regs. ] 31,323 at
PP 45-47.
    \371\ Id. PP 82-83. See also discussion supra at section II.C
(explaining need for Order No. 1000's reforms).
---------------------------------------------------------------------------

    337. Finally, some state regulators question their role in this
process. We agree with petitioners that state regulators play an
important and unique role in the transmission planning process, given
their oversight over transmission siting, permitting, and construction,
as well as integrated resource planning and similar processes.
Additionally, they may be in the best position of determining how
state-level public policy requirements are satisfied. Nonetheless, for
the reasons discussed fully above, the Commission will not require as
part of this generic rulemaking proceeding a particular status for
state regulators in the transmission planning process.\372\ To do so
would ignore the wide range of roles that state regulators themselves
tell us that they are permitted to take under their various state laws.
---------------------------------------------------------------------------

    \372\ See discussion supra at section III.A.2.
---------------------------------------------------------------------------

    338. However, as we also explained in Order No. 1000 and above, our
expectation is that state regulators should play a strong role and that
public utility transmission providers will consult closely with state
regulators to ensure that their respective transmission planning
processes are consistent with state requirements. We believe this will
be particularly true in the case of state-level Public Policy
Requirements, where state regulators are likely to have unique insights
as to how transmission needs driven by those state-level Public Policy
Requirements should be satisfied. Thus, we leave it to state regulators
and public utility transmission providers, in consultation with
stakeholders, in each transmission planning region to determine the
appropriate role of state regulators in the transmission planning
process generally and in the consideration of transmission needs driven
by Public Policy Requirements in particular.
    339. In response to Illinois Commerce Commission, we are not
prescribing how any committee of state regulators should be comprised.
We note that existing committees of state regulators have been
effective representatives of

state regulators, and any region that wants to form such a committee
may want to look to these and other similar organizations in other
regions of the country as possible models for organizing its own
similar committees for purposes of regional transmission planning under
Order No. 1000.

B. Nonincumbent Transmission Developers

    340. This section of Order No. 1000 addressed the removal from
Commission-jurisdictional tariffs and agreements of provisions that
contain a federal right of first refusal \373\ to construct
transmission facilities selected in a regional transmission plan for
purposes of cost allocation. The Commission also adopted a framework
that requires the development of qualification criteria and protocols
to govern the submission and evaluation of proposals for transmission
facilities to be evaluated by public utility transmission providers in
the regional transmission planning process. The Commission further
required that the developer of any transmission facility selected in
the regional transmission plan have a comparable opportunity to
allocate the cost of such transmission facility through a regional cost
allocation method or methods.\374\
---------------------------------------------------------------------------

    \373\ We continue to use the phrase ``federal right of first
refusal'' to refer only to rights of first refusal that are created
by provisions in Commission-jurisdictional tariffs or agreements.
Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 253 n.231.
    \374\ Id. P 225.
---------------------------------------------------------------------------

1. Legal Authority
a. Final Rule \375\
---------------------------------------------------------------------------

    \375\ We address legal arguments related to the need for our
nonincumbent transmission developer reforms in the ``Need for
Reform'' discussion. See discussion supra at section 0.
---------------------------------------------------------------------------

    341. In Order No. 1000, the Commission found that a federal right
of first refusal is, in the language of FPA section 206, a ``rule,
regulation, practice, or contract'' affecting the rates for
jurisdictional transmission service. The Commission further stated that
under section 206 when the Commission finds that such rules,
regulations, practices, or contracts are unjust, unreasonable, unduly
discriminatory, or preferential, it must determine by order the just
and reasonable rate, charge, classification, rule, regulation,
practice, or contract to be thereafter observed and in force. The
Commission concluded that because 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, these federal rights of first refusal affect the
rates for jurisdictional transmission service, and so the Commission
was compelled under FPA section 206(a) to take corrective action. The
Commission also stated that federal rights of first refusal create
opportunities for undue discrimination and preferential treatment
against nonincumbent transmission developers within existing regional
transmission planning processes, and noted that it has a responsibility
to consider anticompetitive practices and eliminate barriers to
competition.\376\
---------------------------------------------------------------------------

    \376\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 286.
---------------------------------------------------------------------------

    342. The Commission noted that nothing in Order No. 1000 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. The Commission therefore determined that its
reforms regarding elimination of federal rights of first refusal from
Commission-jurisdictional tariffs and agreements are not prevented or
otherwise limited by the FPA. The Commission also explained that in
directing the removal of a federal right of first refusal from
Commission-jurisdictional tariffs and agreements, it 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 its authorities under section 215 or 216.
    343. The Commission also stated that, while a public utility
transmission provider may have accepted an obligation to build in
relation to its membership in an RTO/ISO, the Commission did not
believe that obligation is necessarily dependent on the incumbent
transmission provider having a corresponding federal right of first
refusal to prevent others from constructing and owning new transmission
facilities in that region.\377\ The Commission stated that, while
implementing these reforms may change the package of benefits and
burdens in place for transmission owning members of RTOs/ISOs, such
changes are necessary to correct practices that may be leading to
unjust and unreasonable rates.\378\
---------------------------------------------------------------------------

    \377\ Id. P 261.
    \378\ Id.
---------------------------------------------------------------------------

    344. Finally, the Commission declined to address the merits of
comments arguing 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 meets the Mobile-Sierra public
interest standard, explaining that it was more appropriate to address
this issue as part of the proceeding on ISO New England's compliance
filing.\379\
---------------------------------------------------------------------------

    \379\ Id. P 292.
---------------------------------------------------------------------------

b. Requests for Rehearing and Clarification
i. Arguments That the Commission Does Not Have the Authority To
Eliminate a Federal Right of First Refusal
    345. Several petitioners argue that the Commission acted outside of
its authority by requiring the removal of the federal right of first
refusal from Commission-jurisdictional tariffs and agreements.\380\
Some petitioners assert that section 206 only extends to behavior that
directly affects rates or the provision of jurisdictional service
rather than to any term in a jurisdictional tariff or agreement.\381\
They argue the federal right of first refusal is not a practice within
the meaning of section 206, and therefore is not a behavior that the
Commission can address under that section.\382\ Similarly, Oklahoma Gas
and Electric Company states that the Commission must show a direct and
significant effect on jurisdictional rates before it can regulate
actions indirectly affecting activity falling under state jurisdiction.
---------------------------------------------------------------------------

    \380\ See, e.g., FirstEnergy Service Company; Baltimore Gas &
Electric; Southern Companies; Ad Hoc Coalition of Southeastern
Utilities; and Sponsoring PJM Transmission Owners.
    \381\ See, e.g., FirstEnergy Service Company; Sponsoring PJM
Transmission Owners; Baltimore Gas & Electric; and Oklahoma Gas and
Electric Company.
    \382\ See, e.g., Southern Companies; Sponsoring PJM Transmission
Owners; Baltimore Gas & Electric; and Oklahoma Gas and Electric
Company.
---------------------------------------------------------------------------

    346. Petitioners also analogize the Commission's action in Order
No. 1000 with its failed attempt to regulate corporate governance and
structure, which was at issue in CAISO v. FERC.\383\ Petitioners argue
that the federal right of first refusal affects a transmission
provider's financial relationship with its customers no more than the
DC Circuit found governance to in CAISO v. FERC.\384\ According to
Baltimore Gas & Electric, the court in CAISO v. FERC explained that the

Commission cannot regulate ``practices'' using its section 206
ratemaking authority unless the practices ``affect rates and services
significantly * * * are realistically susceptible of specification, and
* * * are not so generally understood in any contractual arrangement as
to render recitations superfluous.'' \385\ Sponsoring PJM Transmission
Owners also note that the CAISO court 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 proper authority. Sponsoring PJM Transmission Owners add
that, while the costs the transmission provider incurs to construct or
procure an upgrade will be reflected in its rates, the same could be
said of a myriad of other decisions the transmission provider makes,
ranging from its hiring of staff to the procurement of outside services
and materials. Southern Companies also analogize Order No. 1000 to
CAISO v. FERC, arguing that the Commission, without evidence or a
record of systemic abuse or actual discrimination or unreasonable
decision making, is using sections 205 and 206 and a theoretical threat
of unjust and unreasonable rates or discrimination in the provision of
transmission service to replace the existing business investment
decision process with its own.\386\
---------------------------------------------------------------------------

    \383\ Sponsoring PJM Transmission Owners at 5-6 (citing
California Indep. Sys. Operator Corp. v. FERC, 372 F.3d 403 (D.C.
Cir. 2004) (CAISO v. FERC)); Southern Companies at 60-61 (citing
CAISO v. FERC, 372 F.3d 395); PSEG Companies; Baltimore Gas &
Electric (citing CAISO v. FERC, 372 F.3d at 403; City of Cleveland
v. FERC, 773 F.2d 1368 (DC Cir. 1985)); Oklahoma Gas and Electric
Company at 9-10 (CAISO v. FERC, 372 F.3d at 403).
    \384\ Southern Companies at 60-61 (citing CAISO v. FERC, 372
F.3d 395); Sponsoring PJM Transmission Owners at 7 (citing CAISO v.
FERC, 372 F.3d at 403 (quoting Mich. Wisc. Pipeline Co., 34 FPC ]
621,626 (1965))).
    \385\ Baltimore Gas & Electric at 12 (quoting CAISO v. FERC, 372
F.3d at 403).
    \386\ Southern Companies at 103-104 (citing CAISO v. FERC, 372
F.2d at 395).
---------------------------------------------------------------------------

    347. Sponsoring PJM Transmission Owners also point out that the
court in CAISO v. FERC found that section 305 of the FPA, giving the
Commission authority over interlocking directorates, would not have
been necessary if it intended that the Commission could regulate
corporate governance as a practice affecting rates under sections 205
and 206 of the FPA. They contend that this same reasoning leads to the
conclusion that section 206 does not encompass the assignment of
construction responsibility. Sponsoring PJM Transmission Owners argue
that this is clear in looking at the relationship of section 7 of the
NGA to sections 4 and 5 of the NGA, which parallel sections 205 and 206
of the FPA. They assert that section 7 of the NGA, giving the
Commission the authority to regulate pipeline construction, would not
have been necessary if sections 4 and 5 of the NGA (which parallel
sections 205 and 206 of the FPA) already allowed the Commission to
regulate such construction.\387\ In addition, Sponsoring PJM
Transmission Owners state that it is significant that, when
deliberating on the FPA, Congress rejected provisions that would have
given the Commission authority to order a utility to fix the services,
equipment, or facilities it is responsible for maintaining upon
determining they were improperly maintained.\388\
---------------------------------------------------------------------------

    \387\ Sponsoring PJM Transmission Owners. Similarly, Sponsoring
PJM Transmission Owners assert that section 402 of the
Transportation Act of 1920 (superseded by 49 U.S.C. 10901 (2010)),
which provided the Interstate Commerce Commission with approval
authority for railway extensions, would not have been necessary if
practices affecting rates included construction decisions.
    \388\ Sponsoring PJM Transmission Owners at 11 (citing Duke
Power Co. v. Fed. Power Comm'n, 401 F.2d 930, 943 n.106 (D.C. Cir.
1968)). They add that, although the statutory interpretations of
later Congresses is not determinative of the statutory intent of an
earlier Congress, it is informative that when Congress granted
backstop siting authority to the Commission in the Energy Policy Act
of 2005, it established clear limits that constrain the exercise of
that authority. Id. (citing 16 U.S.C. 824p (2010); Piedmont Envtl.
Council v. FERC, 558 F.3d 304 (4th Cir. 2009). They also state that
section 1211 of the EPAct 2005 expressly states that the new
electric reliability provisions do not authorize the Commission to
order the construction of additional transmission facilities. Id.
(referencing 16 U.S.C. 824o(i)(2)).
---------------------------------------------------------------------------

    348. Sponsoring PJM Transmission Owners also analogize the right of
first refusal to Interstate Commerce Commission v. Pennsylvania.\389\
They contend that the court in CAISO v. FERC looked to this case
because the court in Interstate Commerce Commission v. Pennsylvania
interpreted the Interstate Commerce Act upon which Part II of the FPA
is based and which likewise authorized the regulation of practices
affecting rates.\390\ Sponsoring PJM Transmission Owners assert the
court in Interstate Commerce Commission v. Pennsylvania made clear that
it was manifestly concerned about practices that directly related to
the jurisdictional service provided customers (which was rail service),
rather than the railroads' decisions regarding the means to provide
such service.\391\
---------------------------------------------------------------------------

    \389\ Sponsoring PJM Transmission Owners at 9-10 (citing
Interstate Commerce Commission v. Pennsylvania, 242 U.S. 208 (1916)
(ICC v. Pennsylvania)).
    \390\ Sponsoring PJM Transmission Owners at 9-10 (citing ICC v.
Pennsylvania, 242 U.S. 208)).
    \391\ Sponsoring PJM Transmission Owners at 9-10 & n.20 (citing
ICC v. Pennsylvania, 242 U.S. 208; Duncan v. Walker, 533 U.S. 167,
174 (2001)).
---------------------------------------------------------------------------

    349. Instead of finding that any rate is unjust and unreasonable,
Baltimore Gas & Electric argues that the Commission states that there
may be a superior alternative practice to the present federal right of
first refusal regime. Baltimore Gas & Electric asserts that this is
contrary to well-settled law, which requires that if the existing
method is just and reasonable, then that is the end of the section 206
inquiry even if an alternative method may be better.\392\ Baltimore Gas
& Electric asserts that the Commission violated this ratemaking precept
by conflating its consideration of the federal right of first refusal
mechanism for designating new transmission construction and operation
responsibility with its consideration of an alternative selection
process that the Commission prefers.
---------------------------------------------------------------------------

    \392\ Baltimore Gas & Electric at 10-11 (citing Complex Consol.
Edison Co. of N.Y. v. FERC, 165 F.3d 992, 1003 (D.C. Cir. 1999);
Pub. Serv. Comm'n of N.Y. v. FERC, 642 F.2d 1335 (D.C. Cir. 1980)
cert. denied, 454 U.S. 879 (1981); Kern River Gas Transmission Co.,
Opinion No. 486-E, 136 FERC ] 61,045 (2011)).
---------------------------------------------------------------------------

    350. PSEG Companies assert that elimination of the federal right of
first refusal was arbitrary and capricious because the ``remedy'' far
exceeded the purported harm. Similarly, Baltimore Gas & Electric
asserts that proportionality between the identified problem and the
remedy ``is the key,'' and that if the Commission found isolated
problems, a market-wide remedy would be inappropriate.\393\ Similarly,
Baltimore Gas & Electric asserts that the Commission must adduce hard
facts, and that the remedy should be narrowly tailored to fit the
facts.
---------------------------------------------------------------------------

    \393\ PSEG Companies at 33 (quoting Public Utils. Comm'n of the
State of Cal. v. FERC, 462 F.3d 1027, 1054 (9th Cir. 2006)).
---------------------------------------------------------------------------

    351. With regard to the Commission's determination that the
existence of a federal right of first refusal creates an opportunity
for undue discrimination and preferential treatment against
nonincumbent transmission developers, several petitioners argue that
the Commission cannot rely on the FPA's undue discrimination provisions
in sections 205 and 206 because these provisions only protect customers
of public utilities, and not nonincumbent transmission developers.\394\
They argue

that had Congress intended to grant the Commission such authority, it
would have done so.\395\ Large Public Power Council and Ad Hoc
Coalition of Southeastern Utilities note that the court, in the City of
Frankfort, stated that section 205 provisions ``regarding unlawful
preference or advantage in setting of public utility rates requires
that utility customers be treated fairly.'' \396\ They also cite Public
Service Co. of Ind. where the court stated that ``the anti-
discrimination policy in section 205(b) is violated * * * where one
consumer has its rates raised significantly above what other similarly-
situated customers are paying.'' \397\ Oklahoma Gas & Electric Company
contends that neither of the cases the Commission cites support a
different conclusion, claiming that, in Gulf States, the Commission
addressed the narrow question of whether public utilities could
``employ tariff provisions to foreclose wholesale competition,'' \398\
and that in Otter Tail, the Supreme Court held that the FPA was not
intended ``to be a substitute for, or to immunize Otter Tail from,
antitrust regulation.'' \399\
---------------------------------------------------------------------------

    \394\ See, e.g., Southern Companies at 62 (citing Pub. Serv. Co.
of Ind., Inc. v. FERC, 575 F.2d 1204, 1213 (7th Cir. 1978); see St.
Michaels Util. Comm'n v. FPC, 377 f.2d 912, 915 (4th Cir. 1967));
Sponsoring PJM Transmission Owners at 12 (citing Maine Pub. Serv.
Co. v. FPC, 579 F.2d 659, 664 (1st Cir. 1978)); see also, e.g., FPC
v. Sierra Pacific Power Co., 350 U.S. 348, 355 (1956); Mun. Light
Bds. v. FPC, 450 F.2d 1341, 1348 (D.C. Cir. 1971); Baltimore Gas &
Electric; Large Public Power Council; Ad Hoc Coalition of
Southeastern Utilities at 59 (citing Pub. Serv. Co. of Ind. v. FERC,
575 F.2d 1203, 1213 (7th Cir. 1978); St. Michaels util. Comm'n v.
FPC, 377 F.2d 912, 915 (4th Cir. 1967); City of Frankfort, Ind. v.
FERC, 678 F.2d 699, 707 (7th Cir. 1982) (Frankfort v. FERC); Towns
of Alexandria, Minn. v. FPC, 555 F.2d 1020, 1028 (D.C. Cir. 1977));
Oklahoma Gas and Electric Company at 7-8 (citing St. Michaels Util.
Comm'n v. FPC, 377 F.2d at 915; Pub. Serv. Co. of Ind., Inc. v.
FERC, 575 F.2d at 1212 (stating that the intent of the statute's
undue discrimination protections ``is to protect consumers from
being placed at a competitive disadvantage with other [similar
customers]''); Frankfort v. FERC, 678 F.2d at 707 ; Towns of
Alexandria, Minn. v. FPC, 555 F.2d 1020, 1028 (D.C. Cir. 1977)).
    \395\ Oklahoma Gas & Electric at 6 (citing Dunk v. Penn. Pub.
Util. Comm'n, 252 A.2d 589, 591-92 (Pa. 1969)). It also contrasts
the absence of such language in the FPA with the Natural Gas Act and
Part I of the FPA (addressing hydroelectric facilities).
    \396\ Ad Hoc Coalition of Southeastern Utilities at 59 (quoting
Frankfort v. FERC, 678 F.2d at 704); Large Public Power Council at
32 (quoting Frankfort v. FERC, 678 F.2d at 707).
    \397\ See, e.g., Ad Hoc Coalition of Southeastern Utilities at
59-60 (quoting Pub. Serv. Co. of Ind. v. FERC, 575 F.2d at 1213);
Large Public Power Council at 32 (quoting Pub. Serv. Co. of Ind.,
Inc. v. FERC, 575 F.2d at 1213).
    \398\ Gulf States Utils. Co., 5 FERC ] 61,066 at 61,098 (1978).
    \399\  Otter Tail Power Co. v. United States, 410 U.S. 366, 374-
75 (1973) (Otter Tail v. U.S.).
---------------------------------------------------------------------------

    352. Petitioners also argue that the Commission lacks the authority
to remedy all instances of undue discrimination, and only is
responsible for promoting competition if anticompetitive behavior has a
direct effect on rates.\400\ In support, Sponsoring PJM Transmission
Owners argue that CAISO v. FERC demonstrates that the Commission could
not remedy a discriminatory governance structure of an independent
system operator, and that the Supreme Court has held that the
Commission does not have the authority to remedy racial discrimination
in a utility's hiring practices.\401\ Furthermore, Sponsoring PJM
Transmission Owners argue that the Commission cannot rely on the
court's affirmation of Order Nos. 436 \402\ and 888 \403\ as support
for its asserted authority to remedy any and all discrimination.
Furthermore, Sponsoring PJM Transmission Owners, similar to Oklahoma
Gas & Electric, assert that the court in Otter Tail Power Co. v. United
States concluded that the Commission lacked the authority to compel
interconnection based on antitrust considerations alone.\404\
Sponsoring PJM Transmission Owners also argue that Gulf States
Utilities Co.,\405\ cited by the Commission, did not assert
responsibility to promote competition in the abstract. Sponsoring PJM
Transmission Owners assert that this lack of authority to act solely on
antitrust considerations, in the absence of an impact on jurisdictional
services, contrasts with the Commission's authority to compel open
access as a remedy for undue discrimination in transmission access, a
jurisdictional service.\406\
---------------------------------------------------------------------------

    \400\ Sponsoring PJM Transmission Owners at 14; Ad Hoc Coalition
of Southeastern Utilities at n.176 (citing Entergy Services Inc., 64
FERC ] 61,001 at ] 61,013, n.66 (1993); Cargill, Inc. v. Montfort of
Colorado, Inc., 479 U.S. 104, 115-117 (1976)).
    \401\ Sponsoring PJM Transmission Owners at 12 (citing CAISO. v.
FERC, 372 F.3d 400; NAACP v. FPC, 425 U.S. 662 (1976)).
    \402\ Regulation of Natural Gas Pipelines After Partial Wellhead
Decontrol, Order No. 436, FERC Stats. & Regs. ] 30,665, at 31,502
(1985).
    \403\ Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Pub. Utils.; Recovery of
Stranded Costs by Pub. Utils. and Transmitting Utils., Order No.
888, FERC Stats. & Regs. ] 31,036 (1996), order on reh'g, Order No.
888-A, FERC Stats. & Regs. ] 31,048, order on reh'g, Order No. 888-
B, 81 FERC ] 61,248 (1997), order on reh'g, Order No. 888-C, 82 FERC
] 61,046 (1998), aff'd in relevant part sub nom. Transmission Access
Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff'd sub
nom. New York v. FERC, 535 U.S. 1 (2002)).
    \404\ Sponsoring PJM Transmission Owners at 14 (citing 410 U.S.
366 (1973)).
    \405\ Gulf States Util. Co., 5 FERC ] 61,066 at 61,098.
    \406\ Sponsoring PJM Transmission Owners at 15 (citing
Transmission Access Policy Study Group v. FERC, 225 F.3d 667, 686
(D.C. Cir. 2000)).
---------------------------------------------------------------------------

    353. Several petitioners contend that even if the Commission had
the authority to address discrimination against nonincumbents, no undue
discrimination against nonincumbents exists for the Commission to
remedy under section 206.\407\ Instead, some petitioners argue that
Order No. 1000 institutionalizes undue discrimination against incumbent
transmission owners in violation of the FPA and APA because it mandates
similar treatment for incumbent transmission owners and nonincumbent
transmission developers when they are not similarly situated.\408\ In
support, petitioners argue that the Commission failed to consider
evidence of the full scope of risks faced by incumbent utilities.\409\
For instance, several petitioners argue that incumbents have an
obligation to serve customers and must comply with state legal and
regulatory requirements, while nonincumbents are free to pick and
choose among transmission investment options.\410\ Others argue that
incumbents are obligated to build under RTO contracts.\411\
---------------------------------------------------------------------------

    \407\ See e.g., Ameren; PSEG Companies; and MISO Transmission
Owners Group.
    \408\ See, e.g., MISO Transmission Owners Group 2; and Ameren.
    \409\ See, e.g., Ameren; Southern Companies; and MISO
Transmission Owners Group 2.
    \410\ See, e.g., Ameren; PSEG Companies; MISO Transmission
Owners Group; and Southern Companies.
    \411\ See, e.g., MISO Transmission Owners Group 2; and PSEG
Companies.
---------------------------------------------------------------------------

    354. Some petitioners also argue that it is unclear whether
nonincumbent developers will have the same responsibilities as
incumbent developers when operating their facilities. For instance,
petitioners question whether there is a practical enforcement mechanism
to ensure that a nonincumbent developer will build its transmission
facility and then safeguard it from threats, such as cyber
attacks.\412\ Transmission Dependent Utility Systems argue that even if
the nonincumbent developer were to be assessed penalties for
reliability violations, NERC penalties may be insufficient for a
merchant transmission developer that, in the absence of a franchised
service territory obligation, may walk away from its contractual
commitments or become financially unable to meet them.
---------------------------------------------------------------------------

    \412\ See, e.g., Baltimore Gas & Electric; and Transmission
Dependent Utility Systems.
---------------------------------------------------------------------------

    355. In related arguments, some petitioners disagree with the
Commission's conclusion that the federal right of first refusal is not
dependent on an obligation to build.\413\ They argue that the
obligation to build under an RTO or ISO is not an ``option,'' but
rather imposes a duty of diligence in fulfilling construction
obligations. Baltimore Gas & Electric argues that the Commission has
misconstrued what a federal right of first refusal is, which it argues
is another way of saying that it has a right of notification from PJM
whenever PJM determines that transmission needs to be built in
Baltimore Gas & Electric's service area since Baltimore Gas & Electric
is required to build it. Baltimore Gas & Electric argues that the
Commission's ruling on this issue is invalid because

the Commission failed to appreciate what a federal right of first
refusal is. MISO states that since it does not own any transmission
facilities, it needs to rely on the transmission owners' obligation to
build under the Transmission Owners Agreement to ensure MISO's ability
to fulfill its transmission planning and expansion responsibilities as
an RTO. MISO states that its membership could be significantly eroded
and its existence could be jeopardized, as well as its rate
significantly affected, if the Commission were to modify this
fundamental element of MISO's structure as an RTO.
---------------------------------------------------------------------------

    \413\ See, e.g., Baltimore Gas & Electric; and MISO.
---------------------------------------------------------------------------

    356. PSEG Companies contend that the elimination of the federal
right of first refusal is a taking in violation of the Fifth Amendment
to the U.S. Constitution because it renders meaningless the
contractually-based consideration transmission owners received when
they transferred control of their transmission facilities to ISOs/RTOs.
They note that takings may not only be regulatory in nature but could
include contractual takings.\414\ According to PSEG Companies, language
in the PJM Transmission Owners Agreement created the reasonable
investment-backed expectation among incumbent transmission owners that
they could participate in an RTO arrangement and commit to build
everything needed for reliability purposes while still preserving
fundamental rights, such as the right to build in their respective
zones. PSEG Companies conclude that the Commission's impairment of this
contractual right of first refusal creates unspecified economic
injuries that, without just compensation, violate the U.S.
Constitution.
---------------------------------------------------------------------------

    \414\ PSEG Companies at 36 (citing Tahoe-Sierra Preservation
Council, Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302, 332
(2002); Armstrong v. United States, 364 U.S. 40, 49 (1960)).
---------------------------------------------------------------------------

(a) Commission Determination
    357. We affirm the decision in Order No. 1000 that the Commission
has the legal authority under section 206 of the FPA to require the
elimination of federal rights of first refusal as practices that have
the potential to lead to Commission-jurisdictional rates that are
unjust and unreasonable or unduly discriminatory or preferential.\415\
At the outset, it is important to emphasize the scope of the
Commission's requirement to eliminate federal rights of first refusal.
In Order No. 1000, the Commission required public utility transmission
providers to remove from Commission-jurisdictional tariffs and
agreements provisions that grant a federal right of first refusal to
construct transmission facilities selected in a regional transmission
plan for purposes of cost allocation.\416\ The Commission did not,
however, require public utility transmission providers to remove a
federal right of first refusal for local transmission facilities or
upgrades to an incumbent transmission provider's own transmission
facilities, and did not alter an incumbent transmission provider's use
and control of an existing right of way.\417\
---------------------------------------------------------------------------

    \415\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 284.
    \416\ Id. P 226.
    \417\ Id.
---------------------------------------------------------------------------

    358. We affirm the decision in Order No. 1000 that a federal right
of first refusal is a practice that falls squarely within the
interpretation of a practice affecting rates.\418\ To this end,
contrary to the argument of some petitioners, the Commission affirms
that the CAISO v. FERC decision supports the Commission's position. As
discussed in Order No. 1000, 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.'' \419\ As explained in
Order No. 1000, we meet this standard because here we are 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. For example, as the Commission
explained in Order No. 1000, the selection of transmission facilities
in a regional transmission plan for purposes of cost allocation is
directly related to costs that will be allocated to jurisdictional
ratepayers.\420\ The ability of an incumbent transmission provider to
discourage or preclude participation of new transmission developers
through discriminatory rules in a regional transmission planning
process, and in particular, the inclusion of a federal right of first
refusal, can have the effect of limiting the identification and
evaluation of potential solutions to regional transmission needs.\421\
This in turn can directly increase the cost of new transmission
development that is recovered from jurisdictional customers through
rates.\422\
---------------------------------------------------------------------------

    \418\ Id. P 285.
    \419\ CAISO v. FERC, 372 F.3d at 403.
    \420\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 289.
    \421\ Id. P 284.
    \422\ Id.
---------------------------------------------------------------------------

    359. Sponsoring PJM Transmission Owners argue that section 7 of the
NGA, which gives the Commission authority to regulate pipeline
construction, demonstrates that had Congress desired to give the
Commission authority over construction of transmission lines it would
have done so. However, Sponsoring PJM Transmission Owners misconstrue
the Commission's actions in Order No. 1000. As the Commission
explicitly stated in Order No. 1000, it is not regulating construction
of new transmission facilities because that is a matter reserved to the
states.\423\ Instead, the Commission acted under its legal authority in
section 206 to require the elimination of provisions in federally-
regulated tariffs establishing practices in the regional transmission
planning process that affect rates. The authority to authorize
construction and siting of new transmission facilities is distinct from
the authority to require public utility transmission providers to
engage in an open and transparent regional transmission planning
process designed to ensure that the more efficient or cost-effective
solutions to regional transmission needs are selected in the regional
transmission plan for purposes of cost allocation.
---------------------------------------------------------------------------

    \423\ Id. P 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.'' (emphasis added)).
---------------------------------------------------------------------------

    360. Contrary to Baltimore Gas & Electric's arguments, the
Commission made a finding in Order No. 1000 that granting an incumbent
transmission provider a federal right of first refusal with respect to
transmission facilities selected in a regional transmission plan for
purposes of cost allocation can lead to rates for Commission-
jurisdictional services that are unjust and unreasonable or otherwise
result in undue discrimination by public utility transmission
providers.\424\ Consistent with section 206, the Commission acted to
remedy an unjust and unreasonable or unduly discriminatory or
preferential practice by requiring public utility transmission
providers to eliminate such provisions from Commission-jurisdictional
tariffs or agreements and adopt the nonincumbent transmission developer
reforms. In addition, the Commission's decision to require public
utility transmission providers to adopt the nonincumbent transmission
developer reforms was an appropriate, and adequately tailored, remedy
in light of the Commission's conclusion that it is not in the economic
self-interest of public utility transmission providers to permit new
entrants to develop

transmission facilities.\425\ For instance, some commenters supported
eliminating all federal rights of first refusal. On balance, however,
the Commission determined that incumbent transmission providers should
be able to maintain an existing federal right of first refusal for
certain types of new transmission projects, including a local
transmission facility and upgrades to its existing transmission
facilities. The Commission clarified that its actions were not intended
to diminish the significance of an incumbent transmission provider's
reliability or service obligations.\426\
---------------------------------------------------------------------------

    \424\ Id. PP 253, 284.
    \425\ Id. P 256.
    \426\ Id. P 262.
---------------------------------------------------------------------------

    361. In addition to affirming our decision to act to remedy unjust
and unreasonable rates, we affirm, on an independent and alternative
basis, the decision in Order No. 1000 that the elimination of any
federal rights of first refusal from Commission-jurisdictional tariffs
and agreements is necessary to address opportunities for undue
discrimination and preferential treatment against nonincumbent
transmission developers within regional transmission planning
processes.\427\ In Order No. 1000, the Commission explained that ``it
has a responsibility to consider anticompetitive practices and to
eliminate barriers to competition.'' \428\ We continue to believe, as
the Commission found in Order No. 1000, that we have a duty to consider
anticompetitive practices and to eliminate barriers to competition
consistent with the FPA.\429\
---------------------------------------------------------------------------

    \427\ Id. P 286.
    \428\ Id.
    \429\ See Gulf States Utils. Co., 5 FERC ] 61,066 at 61,098;
Otter Tail v. U.S., 410 U.S. at 374 (``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.'').
---------------------------------------------------------------------------

    362. Petitioners rely on City of Frankfort and Public Service Co.
of Ind. in support of their contention that section 206's prohibition
on undue discrimination only protects customers of public utilities.
However, the court did not, as petitioners would imply, set forth
limits on who the Commission may, acting under its section 206
authority, protect from unduly discriminatory practices. Instead, the
cases cited by petitioners address the applicability of section 206 in
the context of a regulated utility appearing to provide favorable rates
or terms to one customer, and the courts in those cases do not address
whether section 206 may be used as a basis for eliminating unduly
discriminatory or preferential practices between competitors. In
addition, we continue to conclude that the Commission's action is in
accordance with its responsibility to eliminate unduly discriminatory
or preferential practices in regional transmission planning processes.
    363. While we agree with petitioners that argue that the Commission
does not have the authority to remedy every instance of undue
discrimination, given the FPA's emphasis on promoting competition, the
Commission has a responsibility to eliminate unduly discriminatory
practices that come within the Commission's subject matter jurisdiction
under section 201 of the FPA, which includes the transmission of
electric energy in interstate commerce.\430\ In Order No. 1000, the
Commission found that ``federal rights of first refusal create
opportunities for undue discrimination and preferential treatment
against nonincumbent transmission developers within existing regional
transmission planning processes.'' \431\ Accordingly, the Commission
has acted consistent within its authority to eliminate and remedy
practices that it found to be unduly discriminatory and
anticompetitive. In any event, the Commission has not based its
decision solely on competition concerns because, in the alternative,
the Commission acted to remedy the potential for unjust and
unreasonable rates for Commission-jurisdictional services in addition
to promoting competition among potential transmission developers.
---------------------------------------------------------------------------

    \430\ 16 U.S.C. 824.
    \431\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 286.
---------------------------------------------------------------------------

    364. We disagree with petitioners' argument that Order No. 1000
institutionalizes undue discrimination against incumbent transmission
providers. Petitioners argue that the Commission failed to consider the
full scope of risks faced by incumbent transmission providers, and thus
erroneously concluded that incumbent transmission providers and
nonincumbent transmission developers are similarly situated. For
example, some petitioners argue that many incumbent transmission
providers have obligations to build placed on them under RTO and ISO
member agreements. However, as explained in Order No. 1000,
nonincumbent transmission developers that build a transmission facility
in an RTO or ISO and become members of that RTO or ISO will be subject
to the same relevant obligations that apply to incumbent transmission
providers that are members of an RTO or ISO.\432\ For instance,
nonincumbent transmission developers also will have an obligation to
expand their transmission facilities if directed to by the RTO or ISO
consistent with the RTO's or ISO's tariff or governing agreement.
---------------------------------------------------------------------------

    \432\ Id. P 265.
---------------------------------------------------------------------------

    365. Other petitioners argue that incumbent transmission providers
are not similarly situated to nonincumbent transmission developers
because incumbent transmission providers, unlike nonincumbent
transmission developers, must comply with reliability standards and
have an obligation to serve customers. They further argue that having a
federal right of first refusal is necessary to comply with these
standards and obligations. While public utility transmission providers
must comply with reliability standards and some public utility
transmission providers have an obligation to serve,\433\ we disagree
that eliminating federal rights of first refusal amounts to
discrimination in favor of nonincumbent transmission developers.
Instead, as we stated in Order No. 1000, we are merely removing
barriers to participation by all potential transmission providers in
the regional transmission planning process subject to our jurisdiction.
Moreover, as explained in Order No. 1000, all owners and operators of
bulk-power system transmission facilities, including nonincumbent
transmission developers, that successfully develop a transmission
project, are required to be registered as Functional Entities \434\ and
must comply with all applicable reliability standards.\435\ Similarly,
transmission facilities selected in a regional transmission plan for
purposes of cost allocation owned by a nonincumbent transmission
developer would be subject to any applicable open access requirements.
Accordingly, we continue to believe that the nonincumbent transmission
developer reforms will not result in undue discrimination against
incumbent transmission developers.
---------------------------------------------------------------------------

    \433\ Id.
    \434\ We use the term Functional Entity to refer to any user,
owner or operator of the bulk power system that is responsible for
complying with a NERC reliability standard as that term is defined
in section 215(a)(3) of the FPA.
    \435\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 266
(citing 18 CFR part 39.2(a) (2011)).
---------------------------------------------------------------------------

    366. Similarly, we disagree with Oklahoma Gas and Electric Company
that the nonincumbent transmission developer reforms materially alter
the business of a public utility that has been responsible for, and
entitled to earn a return from, construction of its own transmission
system. As we explained in Order No. 1000, while public utilities are
entitled to receive a reasonable

return on their investment, they will no longer be entitled to receive
from the Commission a preferential right to make those investments in
new transmission facilities that are selected in a regional
transmission plan for purposes of cost allocation under the provisions
of Order No. 1000.\436\ Inherent in Oklahoma Gas and Electric Company's
argument is that incumbent transmission providers have traditionally
had the opportunity to build transmission facilities for their own
transmission systems. Nothing in Order No. 1000 prohibits an incumbent
transmission provider from choosing to build new transmission
facilities that are located solely within its retail distribution
service territory or footprint and that are not selected for selection
in a regional transmission plan for purposes of cost allocation.\437\
---------------------------------------------------------------------------

    \436\ Id. P 269.
    \437\ Id. P 262.
---------------------------------------------------------------------------

    367. We are not persuaded by Baltimore Gas & Electric's argument
that a federal right of first refusal is simply the recognition of an
obligation to build. In Order No. 1000, we acknowledged that a public
utility transmission provider may have accepted an obligation to build
in relation to its membership in an RTO or ISO, but the Commission did
not agree that that obligation is necessarily dependent on the
incumbent transmission provider having a corresponding federal right of
first refusal to prevent other entities from constructing and owning
new transmission facilities located in that region.\438\ We continue to
believe that an obligation to build in relation to membership in an RTO
or ISO is not necessarily dependent on an incumbent transmission
provider having a corresponding federal right of first refusal to
prevent other entities from constructing and owning new transmission
facilities located in that region,\439\ and Baltimore Gas & Electric
has provided no evidence to the contrary. Moreover, while eliminating a
federal right of first refusal may change the benefits and obligations
associated with membership in an RTO or ISO, we affirm our finding in
Order No. 1000 that changing the benefits and obligations is necessary
to correct practices that have the potential to lead to unjust and
unreasonable rates for Commission-jurisdictional transmission
service.\440\ Similarly, we disagree with MISO that the nonincumbent
transmission developer reforms will discourage entities from
maintaining membership in an RTO or ISO, because, as explained in Order
No. 1000, there are a variety of factors that public utility
transmission providers must weight when evaluating the benefits and
burdens of RTO/ISO membership.\441\
---------------------------------------------------------------------------

    \438\ Id. P 261.
    \439\ Id.
    \440\ Id.
    \441\ Id. P 265.
---------------------------------------------------------------------------

    368. We also are not convinced by PSEG Companies' argument that
requiring public utility transmission providers to eliminate a federal
right of first refusal for transmission projects that are selected in
the regional plan for purposes of cost allocation violates the Takings
Clause of the Fifth Amendment. Nor do we agree that Order No. 1000
destroys or materially impairs PSEG Companies' purported contractual
right to build in their respective service areas or zones. Although
some contractual rights are ``property'' within the meaning of the
Taking Clause,\442\ the Commission has not impaired this alleged
contractual right of first refusal. Order No. 1000 continues to permit
an incumbent transmission provider, such as PSEG Companies, to meet its
reliability needs or service obligations by choosing to build new
transmission facilities that are located solely within its retail
distribution service territory or footprint as long as the transmission
provider does not receive regional cost allocation for the
facilities.\443\
---------------------------------------------------------------------------

    \442\ Connolly v. Pension Guaranty Corp., 475 U.S. 211, 224
(1986) (holding that congressional action that impinged upon
employers' contractual rights did not constitute an unconstitutional
taking).
    \443\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 262.
---------------------------------------------------------------------------

    369. Even assuming that Order No. 1000 impinges upon this alleged
contractual right, PSEG Companies have not met their ``substantial
burden'' to show ``whether a regulation `reaches a certain magnitude'
in depriving an owner of the use of property.'' \444\ Just as
``legislation [that] readjust[s] rights and burdens is not unlawful
solely because it upsets otherwise settled expectations,'' \445\ the
Order No. 1000 regulations regarding the federal right of first refusal
are not unconstitutional takings solely because the regulations impact
the benefits and burdens of transmission owner agreements. Furthermore,
in arguing that Order No. 1000 operates to take their property, PSEG
Companies have a burden to demonstrate the economic injury they expect
to incur if they are denied the future exclusive opportunity to build
transmission facilities in their service territory.\446\ They have not
met this burden in their rehearing request.
---------------------------------------------------------------------------

    \444\ District Intown Props. Ltd. Pshp. v. District of Columbia,
198 F.3d 874, 878 (D.C. Cir. 1999) (citing Pennsylvania Coal Co. v.
Mahon, 260 U.S. 393, 413 (1922)).
    \445\ Connolly, 475 U.S. at 223.
    \446\ See Connolly, 475 U.S. at 225 (to determine whether there
is a ``taking,'' the Court evaluates three factors: ``(1) The
economic impact of the regulation on the claimant; (2) the extent to
which the regulation has interfered with investment-backed
expectations; and (3) the character of the governmental action).
---------------------------------------------------------------------------

    370. Finally, PSEG Companies also have not argued that Order No.
1000 appropriates their alleged contractual right of first refusal for
public use. Nor could the Commission be said to be taking the federal
right of first refusal so that another entity could use it for public
purposes.\447\ Rather, we require the elimination of such provisions so
that incumbent transmission providers and nonincumbent transmission
developers will have an opportunity on a comparable basis to propose
new transmission facilities for selection in the regional transmission
plan for purposes of cost allocation.\448\ For these reasons, we find
that the elimination of federal rights of first refusal does not
constitute a taking under the Fifth Amendment's Taking Clause.
---------------------------------------------------------------------------

    \447\ See Omnia, 261 U.S. at 508-13 (holding that, while
government requisition of steel frustrated a contract for delivery
of steel, the government action was not an appropriation for public
purposes that required just compensation).
    \448\ Accord Nat'l Ass'n of Regulatory Util. Comm'rs v. FERC,
475 F.3d 1277, 1284 (D.C. Cir. 2007) (finding that anti-
discrimination rules commonly burden the obligated parties and that
the burden imposed did not create an unconstitutional taking of
private property).
---------------------------------------------------------------------------

ii. Arguments That the Commission Is Inappropriately Regulating the
Construction of Transmission
    371. Several petitioners argue that the Commission's reforms
impermissibly infringe on state jurisdiction to authorize construction
and operation of transmission lines.\449\ Ameren states that section
201(a) expressly provides that the Commission does not have authority
over matters that are subject to regulation by the states, and that
states have historically exercised jurisdiction over siting and
construction of transmission facilities. Ameren asserts that had
Congress wished to expand the Commission's jurisdiction, it would have
done so by adding new sections to the FPA, such as sections 215 and
216, which gave the Commission expanded authority over reliability.
Wisconsin PSC also argues that FPA sections 201 and 206 do not create a
federal right to authorize transmission line construction.\450\
According to PSEG

Companies, the removal of the federal right of first refusal
``immediately, directly and irreparably impacts'' the decision of who
gets to site, construct, and own transmission facilities in a
transmission owner's zone, and incumbent transmission owners will no
longer have the threshold right to build in their respective state
service territories to satisfy their obligations under state law. In
addition, Baltimore Gas & Electric argues that the federal right of
first refusal has nothing to do with the Commission's limited backstop
authority over transmission construction.\451\
---------------------------------------------------------------------------

    \449\ See, e.g., Wisconsin PSC; Baltimore Gas & Electric;
Ameren; and PSEG Companies.
    \450\ Wisconsin PSC at 14-15 (citing Dunk v. Pennsylvania Pub.
Util. Comm'n, 434 Pa. 41, 44-45, 252 A.2d 589, 591-92, cert. denied,
396 U.S. 839 (1969)).
    \451\ Baltimore Gas & Electric at 5 (citing 16 U.S.C. 824p).
---------------------------------------------------------------------------

    372. Ameren requests clarification that, in implementing the
requirement to remove any federal right of first refusal from
Commission-jurisdictional tariffs and agreements, incumbent
transmission owners that have a state certified service area or local
franchise service area retain the sole right to build infrastructure
and serve customers in that service territory. Ameren asserts the
Commission also should clarify that it does not have the authority to
preempt a state law or regulation of this type. However, Southern
Companies assert that the Commission should explicitly state that Order
No. 1000 preempts the state-mandated duty to serve native load to the
extent that a nonincumbent sponsors a transmission project needed to
fulfill that duty to serve. They argue that Order No. 1000's
requirements will impair the ability of incumbents to comply with their
state-mandated duty to serve native load, and that these provisions
might be used to argue that incumbents should be subject to
ramifications under state law for a nonincumbent's delay, abandonment,
or other possible wrong doing.
    373. Other petitioners point out that, unlike the NGA, the FPA does
not grant the Commission any authority over construction or ownership
of transmission facilities.\452\ Wisconsin PSC states that Order No.
1000 confusingly implies the existence in the FPA of a federal ability
to confer a right to construct, which is not in the FPA, whereas the
FPA reserved such authority to state jurisdiction.\453\ Wisconsin PSC
argues that in Connecticut Light & Power Co. v. FERC, the Supreme Court
engages in an extensive discussion that suggests that even though the
particular facilities and activities of a person determine whether the
person is a public utility subject to the FPA, there is a limit to the
agency's jurisdiction.\454\ Southern Companies also state that the
decision to construct or invest in a transmission facility does not
belong to the Commission, except as required to grant or maintain
service for transmission service customers.\455\ They argue there is no
authority for the proposition that the Commission may require a public
utility transmission provider to plan for, construct, or fund any new
transmission facility involuntarily.
---------------------------------------------------------------------------

    \452\ See, e.g., Southern Companies; and Wisconsin PSC.
    \453\ Wisconsin PSC at 13-14 (citing Order No. 1000, FERC Stats.
& Regs. ] 31,323 at P 334, 340).
    \454\ Wisconsin PSC at 14 (citing 324 U.S. 515, 525-27 (1945)).
    \455\ Southern Companies at 102 (citing Alabama Power Co. v.
FERC, 993 F.2d 1557 (D.C. Cir. 1993)).
---------------------------------------------------------------------------

    374. Some petitioners argue that existing rights of first refusal
in Commission-approved RTO/ISO tariffs and agreements were crafted and
negotiated expressly to ensure that each incumbent load-serving
transmission owner could continue to fulfill its state-imposed service
obligations.\456\ Baltimore Gas & Electric states that the federal
right of first refusal stems from the natural monopoly franchise
service obligations that retail public utilities must abide by, in part
through their Commission-jurisdictional wholesale transmission lines.
According to Baltimore Gas & Electric, Commission-jurisdictional
tariffs and agreements merely acknowledge the right of first refusal
that Baltimore Gas & Electric had before joining PJM and others had
before joining other RTOs and ISOs. Thus, Baltimore Gas & Electric
argues that there is no such thing as a federal right of first refusal
derived from a Commission tariff, but rather a right of first refusal
in a Commission tariff connotes that the transmission owner retained
its existing state-granted right of first refusal when it voluntarily
submitted itself to the regional planning process of whatever RTO or
ISO it opted to join, if any.
---------------------------------------------------------------------------

    \456\ Ameren; MISO Transmission Owners Group 2; and PSEG
Companies. PSEG Companies state that their points in this regard are
buttressed by comments from Pennsylvania PUC, ITC, and SPP.
---------------------------------------------------------------------------

    375. Moreover, MISO contends that the removal of such provisions
would place MISO in the role of deciding who should construct planned
transmission facilities. It states that state law, not federal, governs
the preconditions associated with the siting and construction of
transmission and the appurtenant rights associated with such
construction including, but not limited to, the right of eminent
domain. As such, MISO argues that its role under Order No. 1000 should
not be to determine who should build specific transmission projects
identified through its transmission planning process because it has not
been vested with any rights by any state legislature or state
commission regarding the construction of the facilities that may be
deemed necessary as a result of the MISO Transmission Expansion Plan
process or any other plan developed by MISO and its stakeholders.
Therefore, MISO requests that the Commission reconsider Order No.
1000's generic requirement regarding the elimination of rights of first
refusal from jurisdictional tariffs and agreements, insofar as that
requirement would entail modification of the Transmission Owners
Agreement provisions on the transmission owners' right to build, and
related tariff provisions.
    376. Southern Companies argue that the Commission seeks to regulate
who has the right to construct and own transmission facilities by
regulating who is entitled to the benefits of the regional and
interregional cost allocation processes. Southern Companies argue that
nothing in section 206 confers upon the Commission authority to
require, authorize, or regulate who will construct or own transmission
facilities or sponsor a transmission project in a transmission planning
process.\457\ Similarly, Ad Hoc Coalition of Southeastern Utilities
argues that although the Commission does not directly mandate
construction according to regional plans, this distinction may prove to
be immaterial as the financially punitive effect of constructing
redundant transmission facilities makes deference to nonincumbent
transmission developers effectively mandatory.\458\ Large Public Power
Council makes a similar argument. Ad Hoc Coalition of Southeastern
Utilities and Large Public Power Council assert that this creates a
dilemma for incumbent transmission developers that must effectively
defer to the plans of nonincumbent developers but also must continue to
satisfy their service obligations while complying with potentially
costly mandatory and enforceable reliability standards.
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    \457\ Southern Companies at 60 (citing Northern Gas Co. v.
Kansas Comm'n, 372 U.S. 84, 91-93 (1963)).
    \458\ Ad Hoc Coalition of Southeastern Utilities at 57 (citing
Associated Gas, 824 F.2d at 1000-01).
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(a) Commission Determination
    377. We affirm the Commission's finding in Order No. 1000 that the
nonincumbent transmission developer reforms do not result in the
regulation of matters reserved to the states, such as transmission
construction, ownership or

siting.\459\ As the Commission explained in Order No. 1000, the
nonincumbent transmission developer reforms are focused solely on
public utility transmission provider tariffs and agreements subject to
the Commission's jurisdiction and are not 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.\460\
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    \459\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 287.
    \460\ Id.
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    378. We disagree with petitioners that argue that the Commission
needs new authority in the FPA to adopt the nonincumbent transmission
developer reforms, as these arguments rest on the faulty premise that
the Commission is somehow regulating the construction of transmission
facilities. Order No. 1000 does not address transmission construction.
Instead, the nonincumbent transmission developer reforms in Order No.
1000 ensure that nonincumbent transmission developers have a comparable
opportunity to incumbent transmission developers/providers to submit
transmission projects for evaluation and potential selection in the
regional transmission plan for purposes of cost allocation. These
reforms further provide that a nonincumbent transmission developer's
project that is selected in the regional transmission plan for purposes
of cost allocation will not be subject to any federal right of first
refusal, which must be eliminated, except in certain limited
circumstances. The reforms do not, however, speak to which entity may
ultimately construct any transmission facilities. Moreover, we note
that we agree with Baltimore Gas & Electric that eliminating a federal
right of first refusal is unrelated to the Commission's authority under
section 216 of the FPA.\461\
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    \461\ 16 U.S.C. 824p (2006). Section 216 addresses the
designation and siting of transmission facilities within National
Interest Electric Transmission Corridors.
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    379. We disagree with petitioners that argue that eliminating a
federal right of first refusal preempts state law, or is otherwise
prohibited by state law. As noted above, the Commission made clear that
its reforms are focused on Commission-jurisdictional tariffs and
agreements, and are not intended to preempt state or local laws or
regulations. Moreover, as explained in greater detail below, an
incumbent transmission provider has several choices for meeting its
reliability needs and service obligations. In particular, Order No.
1000 permits an incumbent transmission provider to meet its reliability
needs or service obligations by choosing to build new transmission
facilities that are located solely within its retail distribution
service territory or footprint and that are not selected for regional
cost allocation.\462\
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    \462\ Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 262.
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    380. In response to Wisconsin PSC, we note that the Commission
specifically declined in Order No. 1000 to adopt the proposal in the
rulemaking that would have required public utility transmission
providers in the regional transmission planning process to provide
transmission developers a right to construct and own a transmission
facility selected in a regional transmission plan for purposes of cost
allocation.\463\ The Commission also declined to a provide transmission
developer with an ongoing right to build and own a transmission project
that it proposed but that was not selected.\464\ Because the Commission
did not adopt these proposals, we do not need to address whether the
Commission has the authority to grant them.
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    \463\ Id. P 338.
    \464\ Id. P 340.
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    381. In response to Baltimore Gas & Electric's argument that
Commission-jurisdictional tariffs and agreements merely acknowledge a
right of first refusal that it had before joining PJM, we affirm the
statement in Order No. 1000 that ``[t]his Final Rule does not require
removal of references to such state or local laws or regulations from
Commission-approved tariffs or agreements.'' \465\ Accordingly, such a
right based on a state or local law or regulation would still exist
under state or local law even if removed from the Commission-
jurisdictional tariff or agreement, and nothing in Order No. 1000
changes that law or regulation, for Order No. 1000 is clear that
nothing therein is ``intended to limit, preempt, or otherwise affect
state or local laws or regulations with respect to construction of
transmission facilities.'' \466\
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    \465\ Id. P 253 n.231.
    \466\ Id. P 287.
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    382. We disagree with MISO that eliminating a federal right of
first refusal would put it in the position of deciding who should
construct planned transmission facilities. Rather, the transmission
planning and cost allocation reforms in Order No. 1000 are designed to
allow the public utility transmission providers in a transmission
planning region to evaluate whether new transmission facilities would
efficiently and cost-effectively meet their transmission needs, as well
as to provide a cost allocation method for those facilities selected in
the regional transmission plan for purposes of cost allocation. We
acknowledge that a decision made to select a new transmission facility
in the regional transmission plan for purposes of cost allocation may
affect which entity ultimately constructs and owns transmission
facilities. However, we reiterate that nothing in Order No. 1000
creates any new authority for the Commission nor public utility
transmission providers acting through a regional transmission planning
process to site or authorize the construction of transmission projects.
Furthermore, Order No. 1000 does not prohibit an incumbent transmission
provider from having a federal right of first refusal for a new local
transmission facility that is not selected in a regional transmission
plan for purposes of cost allocation.
iii. Arguments That the Commission Must Meet the Mobile-Sierra Public
Interest Standard Before Requiring Federal Rights of First Refusal To
Be Removed From Agreements
    383. Several petitioners argue that the Commission cannot modify a
contractual federal right of first refusal without first making a
determination that the federal right of first refusal seriously harms
the public, which they argue the Commission failed to do.\467\ MISO
Transmission Owners Group 2 argues that in Mobile-Sierra, the U.S.
Supreme Court found that the Commission must presume that the rate set
out in a freely-negotiated wholesale energy contract meets the just and
reasonable requirement, and that this presumption can be overcome only
if the Commission concludes that the contract seriously harms the
public interest. MISO Transmission Owners Group 2 also argues that
other Supreme Court precedent found that the Commission cannot base its
demand that public utility transmission providers modify existing
contracts on a finding that the existing contract provisions may lead
to rates that are unjust and unreasonable.\468\
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    \467\ See, e.g., Ameren; Sponsoring PJM Transmission Owners at
21 (citing Morgan Stanley Capital Group v. Pub. Util. Dist. No. 1 of
Snohomish City., 554 U.S. 527, 545-46 (2008)); Baltimore Gas &
Electric; PSEG Companies at 9-11, 14-15 (citing comments from
Oklahoma Gas & Electric Co., Ad Hoc Coalition of Southeastern
Utilities, North Dakota & South Dakota Commissions, Alabama PSC,
Southern Companies, Baltimore Gas & Electric Co., MidAmerican,
Pacific Gas & Electric, PJM, PSEG Companies, and Southern California
Edison); MISO; MISO Transmission Owners Group 2; Northern Tier
Transmission Group.
    \468\ MISO Transmission Owners Group 2 at 32 (citing Morgan
Stanley Capital Group, Inc. v. Public Utility Dist. No. 1, 554 U.S.
527 (2008) and NRG Power Marketing, LLC v. Maine PUC, 130 S.Ct. 693
(2010)).

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    384. Some petitioners state that the federal right of first refusal
is embodied in the PJM Transmission Owner's Agreement, and thus assert
that the Commission must make a Mobile-Sierra finding before it can
modify the agreement.\469\ PSEG Companies argue that the Commission
cannot make such a finding because nothing in Order No. 1000 or in the
rulemaking record would support such a conclusion.
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    \469\ See, e.g., Sponsoring PJM Transmission Owners; Baltimore
Gas & Electric; and PSEG Companies.
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    385. Other petitioners also argue that Order No. 1000 does not
discuss how existing contractual rights of first refusal, such as that
in the Midwest ISO Transmission Owners Agreement, seriously harm the
public interest.\470\ MISO states that while Order No. 1000 purports to