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Reviews mixed for nearly 7-year-old FERC transmission rule

Beauty is in the eye of the beholder for the Federal Energy Regulatory Commission's Order 1000, with some utilities praising the rule for increasing competition to build new power lines. But others say it has spurred few new projects, and this and other concerns with the rule, including those expressed by some utilities and former FERC commissioners, have led to calls for the agency to revise the order or scrap it entirely.

Issued in August 2011, Order 1000 requires all FERC-jurisdictional utilities to participate in regional and inter-regional electric transmission planning processes. The rule established minimum criteria for those processes, including that they consider transmission needs driven by public policy requirements. The order also detailed certain cost allocation principles, the guiding one being that transmission costs must be allocated in a manner "roughly commensurate" with estimated benefits. It also mandated that any federal rights of first refusal to build new transmission facilities must be removed from FERC-approved tariffs and agreements.

Order 1000 proponents say the rule has helped foster competition in organized markets at a time of increased demand for renewable energy, which is often generated in remote rural areas and relies on transmission lines to reach populated load centers.

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"My overall assessment is that broad regional planning and cost allocation have succeeded dramatically," said Rob Gramlich, founder and president of Grid Strategies, a consulting and advocacy firm that promotes the integration of clean energy sources onto the electric grid. In particular, Gramlich said the Midcontinent ISO and Southwest Power Pool have built "a ton" of transmission using the approach outlined in Order 1000.

Since 2010, MISO has added 2,064 miles of new transmission lines with voltages at or above 230 kV, and the region is planning an additional 5,648 miles of new capacity by 2027, according to data from S&P Global Market Intelligence. SPP added 3,204 miles of transmission at or above 230 kV in that time frame, with another 3,618 miles planned by 2027.

Spending on U.S. transmission infrastructure has also climbed. According to data compiled by the U.S. Energy Information Administration, investment by major utilities in transmission infrastructure has grown from less than $12 billion in 2011, when FERC issued Order 1000, to more than $20 billion in 2016. The figures are based on reports filed with FERC from utilities that represent about 70% of total U.S. electric load, the EIA said.

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Critics say Order 1000 has bogged down prospective projects in bureaucracy, particularly in areas that already carried out coordinated infrastructure planning before the rule's release. More broadly, industry members point out that major new transmission lines are less necessary as demand stays relatively steady, utilities improve efficiency, and reliance grows on energy storage and distributed generation from sources including rooftop solar power.

"We believe broader regional planning focused on the right objectives can help drive lower energy cost for customers, but the Order 1000 rule itself comes with a higher compliance burden and some limitations on flexibility," said MISO's vice president of system planning, Jennifer Curran.

Former FERC Commissioner Tony Clark published a white paper in April that was highly critical of Order 1000 and suggested the rule's application should be scaled back sharply in regions where most states have vertically integrated utilities or regional planning processes that already accomplish much of the order's goals.

Even in regions that could more easily benefit from the order, the path for some projects has been bumpy.

In July 2015, the PJM Interconnection's board of directors approved LS Power Group's plan to build a 230-kV transmission line between Delaware and New Jersey known as the Artificial Island project. As part of the project, Public Service Electric and Gas Co., or PSE&G, and Pepco Holdings LLC were selected to build related interconnection facilities to support the new line.

Artificial Island was aimed at improving the performance of the bulk power system in southern New Jersey, including by addressing high-voltage reliability issues in the area. But Delaware and Maryland regulators have been unhappy with PJM's proposed cost allocation for the project, which they said would disproportionately burden ratepayers in those states. Those concerns caused PJM's board of directors to suspend the project in August 2016 before PJM staff proposed changes that allowed development to resume.

"To call the process chaotic would be generous," Ralph Izzo, president and CEO of PSE&G's parent company Public Service Enterprise Group Inc., said in reference to the Artificial Island project at a recent congressional hearing on transmission development. He recommended that FERC repeal Order 1000 or at least pause implementation until grid operators can demonstrate significant benefits from the rule.

"Order 1000 even at its best would not facilitate the type of robust transmission solutions that provide long-term value to customers," Izzo said. "Order 1000 drives investment to the band-aid, shorter-term solution, not the solution that is most cost-effective for customers in the long run."

Izzo added that only a handful of competitive transmission processes have occurred in organized markets operated by regional transmission organizations and independent system operators since the rule's inception. One of those projects — a proposed 22-mile, 115-kV transmission line in Kansas — was later withdrawn by SPP due to lack of need.

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Along with complications for regional transmission projects, Order 1000 detractors say the rule has not been effective at facilitating inter-regional transmission lines that span more than one RTO or ISO. Grid operators' compliance plans for Order 1000 required them to cooperate with neighboring regions on transmission development, but former FERC Chairman Jon Wellinghoff, who headed the commission when it crafted Order 1000, said, "I'm not sure they've been fully carried out."

According to data from S&P Global Market Intelligence, very little transmission built in organized markets since 2010 has spanned multiple regions, with most of that new capacity built between SPP and MISO.

Order 1000 is still providing benefits to grid operators on the inter-regional planning front. The California ISO said the rule's inter-regional requirements "have been instrumental in improving coordination" among the ISO and neighboring grids. The western U.S. planning regions now exchange data on an annual basis and conduct frequent phone calls to share information on individual areas, CAISO said. The grid operator also now collaborates with the Western Electricity Coordination Council, which promotes grid reliability in the western U.S., to develop a data set for regional planning purposes.

Potential changes

To improve Order 1000, market participants say the rule must do a better job of facilitating inter-regional projects and removing hurdles to competition from third-party, nonincumbent utilities.

Wellinghoff said transmission planning processes are often inconsistent across regions, which can be problematic for developers seeking to develop projects across RTOs or ISOs. "There needs to be more uniformity in how the planning process is undertaken," he said.

Limitations on barring rights of first refusal by incumbent utilities is another problem, stakeholders say. Transmission projects can be exempted from Order 1000's right-of-first-refusal elimination mandate if the project is below a certain voltage level or is deemed a reliability project. Some states, including Minnesota, also have laws favoring incumbent utilities on construction of new transmission.

"Some regions have used competitive processes — with measurable benefits to ratepayers — but too many projects are still shielded from competition," said Sam Walsh, a partner at Harris Wiltshire & Grannis and former deputy general counsel for energy policy at the U.S. Department of Energy.

FERC held a technical conference in June 2016 on Order 1000's effectiveness but has yet to propose changes to the rule, but at an April 17 hearing on Capitol Hill, FERC Chairman Kevin McIntyre said the commission's transmission planning processes were ripe for review.

"I hope they do look to review some of the aspects of Order 1000," Wellinghoff said, adding that the more competition FERC enables in building power lines, the "cheaper they are going to be."