During a Special Open Meeting on May 13, 2024, the Federal Energy Regulatory Commission (FERC) issued two significant rulemakings that promulgate reforms to support the expansion of transmission infrastructure needed to meet the country’s changing resource mix and growing energy demands while ensuring a reliable grid.

First, FERC’s new transmission and cost allocation rule, Order No. 1920, requires public utility transmission providers to conduct long-term transmission planning for regional transmission facilities and to determine how to pay for them.

Second, FERC’s new transmission siting rule, Order No. 1977, revises the Commission’s regulations governing applications for permits to site transmission facilities to conform to the rules set by the Infrastructure Investment and Jobs Act (IIJA) amendments to section 216 of the Federal Power Act (FPA) and to clarify and modernize certain regulatory requirements relating to FERC’s exercise of its backstop transmission siting authority under the Energy Policy Act of 2005.

The Order No. 1920 reforms can be broken down into three categories: (1) Long-Term Regional Transmission Planning over a 20-year planning horizon; (2) cost allocation in accordance with beneficiary pays principles; and (3) additional reforms aimed at enhanced transparency in local transmission planning, “right-sizing” of transmission projects, and interregional transmission coordination to support the development of cost-effective projects.

While Order No. 1920 adopts the majority of the proposals set forth in the underlying April 21, 2022 Notice of Proposed Rulemaking (NOPR), there are several key differences between the NOPR and the final rule. First, Order No. 1920 does not require transmission providers to seek the agreement of states regarding the cost allocation method to be applied to Long-Term Regional Transmission Facilities, although the new rule does provide for a six-month engagement period with states. Second, Order No. 1920 declines to limit eligibility for Construction Work in Progress rate recovery for transmission facilities selected during the Long-Term Regional Transmission Planning, as was proposed in the NOPR. Third, Order No. 1920 declines to adopt the NOPR proposal to permit the limited reinstatement of the federal right of first refusal (ROFR) for incumbent transmission providers who establish joint ownership of transmission facilities.

Order No. 1920 passed by a 2-1 vote. The final rule was lauded as a historic achievement by Chairman Willie L. Phillips and Commissioner Allison Clements, but denigrated as a “historic failure” by Commissioner Mark C. Christie, who wrote separately in a lengthy dissent. Chairman Phillips and Commissioner Clements wrote jointly in a separate concurrence.

Public utility transmission providers must submit compliance filings incorporating the majority of the reforms set forth in Order No. 1920 into their open access transmission tariffs within 10 months of the final rule’s effective date. However, transmission providers have up to 12 months to make compliance filings to incorporate the final rule’s new interregional coordination requirements.

Regarding FERC’s other rulemaking action, Order No. 1977 likewise adopts the majority of the proposals set forth in a separate underlying December 15, 2022 Notice of Proposed Rulemaking with one significant exception. While FERC affirms its authority, pursuant to section 216 of the FPA, to allow overlapping state and FERC siting processes, the final rule declines to revise FERC’s previous policy decision to delay FERC’s pre-filing process until one year after the state applications have been filed. Thus, under Order No. 1977, states continue to have a full year to process an application without any overlapping FERC processes. While Order No. 1977 passed by unanimous vote, Commissioner Christie noted that the retention of the one-year period was instrumental to his decision to support the rule.

Both Order Nos. 1920 and 1977 become effective 60 days after their respective publication in the Federal Register.

Read on for more details about the key provisions in Order Nos. 1920 and 1977.

Order No. 1920: Final Rule on Transmission Planning and Cost Allocation

Order No. 1920 places requirements on transmission providers to: (1) engage in Long-Term Regional Transmission Planning; (2) determine a cost allocation methodology for Long-Term Regional Transmission Facilities; and (3) make various additional reforms to improve transparency and support the selection of cost-effective transmission projects.

Long-Term Regional Transmission Planning

Pursuant to Order No. 1920, transmission providers must produce Long-Term Regional Transmission Plans that:

• identify long-term needs and the facilities to meet them based on a time horizon of at least 20 years;
• are conducted at least once every five years;
• use a plausible and diverse set of at least three scenarios;
• use best available data;
• incorporate at least the following seven specific categories of factors, namely:
  1. federal, state, and local laws and regulations that affect the future resource mix and demand;
  2. federal, state, and local laws and regulations on decarbonization and electrification;
  3. state-approved utility integrated resource plans and expected supply obligations for load-serving entities;
  4. trends in technology and fuel costs, including shifts toward electrification of buildings and transportation;
  5. resource retirements;
  6. generator interconnection requests and withdrawals; and
  7. utility and corporate commitments and federal, state, and local goals that affect the future resource mix and demand;

• apply at least the following seven specific benefits to determine whether any identified regional proposals will efficiently and cost-effectively address long-term transmission needs:
  1. avoided or deferred reliability transmission facilities and aging infrastructure replacement;
  2. either reduced loss of load probability or reduced planning reserve margin;
  3. production cost savings;
  4. reduced transmission energy losses;
  5. reduced congestion due to transmission outages;
  6. mitigation of extreme weather events and unexpected system conditions; and
  7. capacity cost benefits from reduced peak energy losses.

Furthermore, transmission providers must:

• establish an evaluation process identifying Long-Term Regional Transmission Facilities for potential selection in the regional plan;
• include a voluntary funding mechanism that gives states and interconnection customers the opportunity to fund all, or a portion, of the cost of a Long-Term Regional Transmission Facilities that did not qualify for selection;
• in the event of delays or cost overruns, reevaluate previously selected Long-Term Regional Transmission Facilities;
• consider unbuilt transmission facilities that address interconnection-related needs identified multiple times in existing generator interconnection processes; and
• consider technologies such as dynamic line ratings, advanced power flow control devices, advanced conductors, and transmission switching.

Cost Allocation

With respect to cost allocation, the final rule places two requirements on transmission providers and permits transmission providers to propose a state agreement process.

Transmission providers must:

• propose at least one ex ante, default method of cost allocation to pay for selected Long-Term Regional Transmission Facilities; and
• engage with relevant state entities during a six-month engagement period to provide a forum for negotiating Long-Term Regional Transmission cost allocation method(s) and/or a state agreement process.

Under the final rule, transmission providers may:

• propose a state agreement process that lasts for up to six months after a project is selected for participants to determine, and transmission providers to file, a cost allocation method for the selected facilities. However, a state agreement process may not be the sole method filed for cost allocation of Long-Term Regional Transmission Facilities.

Enhanced Transparency, “Right-Sizing,” and Interregional Transmission Coordination

Transmission providers, pursuant to Order No. 1920 must:

• revise their local transmission planning processes to reflect enhanced transparency with respect to:
  1. the criteria, models, and assumptions used in their local transmission planning process;
  2. local transmission needs; and
  3. the potential local or regional transmission facilities that will be evaluated to address those local needs; and conduct stakeholder meetings during the regional transmission planning cycle about the local process;

• identify opportunities to “right-size” or modify in-kind replacement of certain existing transmission facilities to increase their transfer capability and give incumbent transmission owners a right of first refusal to develop these “right-sized” replacement facilities; and
• revise existing interregional transmission coordination processes to reflect the new Long-Term Regional Transmission Planning reforms, although the final rule makes no changes to the existing transmission coordination and cost allocation requirements adopted in Order No. 1000.

Order No. 1977: Final Rule on Transmission Siting

Order No. 1977 adds Part 50 and modifies existing Part 380 of FERC’s regulations to align with the IIJA, which amended section 216(b) of the FPA to clarify the circumstances giving rise to FERC’s authority to issue permits to build or modify electric transmission facilities in Department of Energy-designated national interest electric transmission corridors if a state has denied a siting application. The IIJA also amended section 216(e) of the FPA to require FERC to determine, as a precondition to a permit holder exercising eminent domain authority, that the permit holder has made “good faith efforts to engage with landowners and other stakeholders early in the applicable permitting process.”

First, with respect to siting and permitting of transmission facilities, the draft final rule:

• updates and clarifies the definitions and project notification requirements set forth in Part 50;
• codifies the Applicant Code of Conduct, which is one way an applicant may demonstrate that it has made good faith efforts to engage with landowners early in the applicable permitting process as required by section 216(e)(1); and
• requires applicants to develop engagement plans that describe completed and planned outreach to environmental justice communities and Indian Tribes.

Second, the final rule updates and clarifies the environmental information required for existing applicant-prepared resource reports. The final rule also adds three new resource reports which must provide information regarding a proposed project’s impacts on air quality and environmental noise, on environmental justice communities, and on Tribal resources.

For more information, please contact: Wendy N. Reed (reed@wrightlaw.com), Wendy B. Warren (warren@wrightlaw.com), Matthew J. Binette (binette@wrightlaw.com), Elizabeth Trinkle (trinkle@wrightlaw.com), Vivian W. Chum (chum@wrightlaw.com), or Abraham F. Johns (johns@wrightlaw.com).