FERC’s Landmark Transmission Order: Takeaways for Clean Energy and Energy Storage Companies

On May 13, 2024, the Federal Energy Regulatory Commission (FERC or Commission) issued Order No. 1920,[1] its long-awaited Final Rule relating to long-term regional planning and regional cost allocation. This article summarizes key provisions of Order No. 1920, and also discusses key takeaways from Order No. 1920 for those developing, owning, and investing in clean energy generation and electric storage resources.

Summary of Order No. 1920’s Key Provisions

Long-Term Regional Transmission Planning

Order No. 1920 adopted the Notice of Proposed Rulemaking (NOPR) to require transmission providers to produce a regional transmission plan for a minimum of at least 20 years to identify long-term needs.[2] Transmission providers (e.g., Regional Transmission Organizations) must conduct this long-term planning every five years using a plausible and diverse set of at least three long-term scenarios and use the “best available data” to evaluate long-term regional transmission needs.[3]

Benefits

Order No. 1920 requires transmission providers to incorporate seven of the twelve specific economic or reliability benefits identified in the NOPR to determine whether any identified regional transmission proposals will efficiently and cost-effectively address long-term transmission needs. These seven benefits are:

1. Avoided or deferred reliability transmission facilities and aging infrastructure replacement;
2. 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.[4]

Transmission Project Selection Criteria

Order No. 1920 adopted the NOPR proposal to require transmission providers to include selection criteria and an evaluation process to identify Long-Term Regional Transmission Facilities for potential selection in the regional plan.

Order No. 1920 adopted the NOPR proposal to require transmission providers in each transmission planning region to incorporate the seven specific categories of factors proposed in the NOPR, as modified by the Final Rule, in the development of Long-Term Regional Transmission Facilities. Specifically, transmission providers must incorporate in the development of Long-Term Scenarios: (1) federal, federally-recognized Tribal, state, and local laws and regulations affecting the resource mix and demand; (2) federal, federally-recognized Tribal, state, and local laws and regulations on decarbonization and electrification; (3) state-approved integrated resource plans and expected supply obligations for load-serving entities; (4) trends in fuel costs and in the cost, performance, and availability of generation, electric storage resources, and building and transportation electrification technologies; (5) resource retirements; (6) generator interconnection requests and withdrawals; and (7) utility and corporate commitments and federal, federally-recognized Tribal, state, and local policy goals that affect Long-Term Transmission Needs.[5]

With regard to the first three categories of factors, the Commission is requiring transmission providers to not discount such categories of factors once the transmission providers have determined that such a factor is likely to affect Long-Term Transmission Needs. The Commission stated: “[w]e believe it is necessary to prohibit discounting of factors in the first three categories of factors because they are more certain drivers of Long-Term Transmission Needs, relative to factors in other factor categories.”[6]

With regard to the last four categories of factors, the Commission provided transmission providers additional discretion in how they account for each factor compared to how they account for each of the factors in the first three categories.[7]

State Entity / Interconnection Customer Funding

Order No. 1920 requires transmission providers to provide relevant state entities and interconnection customers an opportunity to fund a portion of, or the entire cost of, Long-Term Regional Transmission Facilities, which otherwise do not meet the transmission provider’s selection criteria.[8]

Reevaluation of Long-Term Regional Transmission Facilities

Order No. 1920 requires transmission providers to reevaluate Long-Term Regional Transmission Facilities that previously were selected in a regional transmission plan when there is a significant change in circumstances. Specifically, reevaluation is triggered in the following three instances: (1) when delays in the development of a previously selected Long-Term Regional Transmission Facility would jeopardize a transmission provider’s ability to meet its reliability needs; (2) when the actual or projected costs of a previously selected Long-Term Regional Transmission Facility significantly exceed cost estimates used in the selection of a Long-Term Regional Transmission Facility; or (3) if significant changes in federal, federally-recognized Tribal, state, or local laws or regulations cause reasonable concern that a previously selected Long-Term Regional Transmission Facility may no longer meet the transmission providers’ selection criteria.[9]

These criteria give transmission providers the opportunity to reevaluate Long-Term Regional Transmission Facilities that were previously selected to maximize benefits and to allow more efficient and cost-effective transmission facilities to be developed over time without the risk of over-building transmission facilities.

Cost Allocation Provisions

Order No. 1920 adopted the NOPR proposal that applicants must file one or more ex ante methods to allocate the costs of Long-Term Regional Transmission Facilities that are selected.[10] Additionally, transmission providers may adopt a State Agreement Process for participants to determine, and transmission providers to file, a cost allocation method for the selected facilities.[11] The State Agreement Process would allow relevant state entities to volunteer to agree to a cost allocation method for selected Long-Term Regional Transmission Facilities before they are selected or for up to six months after selection.

Order No. 1920 also requires that regardless of whether there is a proposed State Agreement Process, transmission providers must still file an alternate Long-Term Regional Transmission Cost Allocation Method with the Commission, so that if the State Agreement Process on file fails to result in a Commission-accepted cost allocation method, there will still be a cost allocation method for Long-Term Regional Transmission Facilities.[12]

The Commission found that allowing state entities to be involved in the cost allocation process would minimize delays and additional costs in state or local proceedings.[13]

Order No. 1920 requires transmission providers to hold open a six-month engagement period with relevant state entities “‘to provide a forum’ for the states to negotiate an ex ante cost allocation method(s) and/or a State Agreement Process.”[14]

Transparency and “Right-Sizing”

Order No. 1920 adopted the NOPR proposal that requires transmission providers to be transparent with regard to local transmission planning processes and identify opportunities to “right-size" replacement transmission facilities. The Commission defines “right-sizing” as the process of modifying a transmission provider’s in-kind replacement of an existing transmission facility to increase that facility’s transfer capability.[15]

Order No. 1920 also requires transmission providers to give incumbent transmission owners a right of first refusal (ROFR) to develop these “right-sized” replacement facilities. Moreover, Order No. 1920 requires transmission providers to conduct stakeholder meetings during the regional planning process to enhance transparency and provide an opportunity for interested parties to engage.[16] It is important to note the Commission did not adopt the NOPR proposal to amend Order No. 1000’s nonincumbent transmission developer reforms.[17] Instead, the Commission stated it “will continue to consider the NOPR proposal and potential federal right of first refusal issues in other proceedings.”[18]

Evaluation of Network Upgrades Addressing Interconnection-Related Transmission Needs Under Order No. 1000 Regional Transmission Planning Processes

Order No. 1920 adopted the NOPR proposal to require transmission providers to evaluate, for selection in their existing Order No. 1000 regional transmission planning processes, network upgrades that address interconnection-related transmission needs identified at least twice in prior generator interconnection studies (i.e., in the five years preceding the transmission provider’s effective date of the Commission-accepted tariff provisions proposed to comply with Order No. 1920).[19]

Such transmission facilities must: (1) be at least 200 kV and have an estimated cost of at least $30 million, (2) must not have been developed (or currently planned to be developed) because the interconnection request(s) driving the need for the network upgrade(s) were withdrawn and (3) must not be identified in a generator interconnection agreement.[20]

Other Considerations

Moreover, Order No. 1920 requires transmission providers to consider the use of “Grid Enhancing Technologies,” such as dynamic line ratings, advanced power flow control devices, advanced conductors, and transmission switching in Long-Term Regional Transmission Planning and existing Order No. 1000 regional transmission planning processes to ensure they identify more efficient or cost-effective transmission facilities for selection.[21] The Commission does not state any consequence for failing to consider the use of these technologies. However, the Commission emphasized that transmission providers must consider the costs and benefits of incorporating the alternative transmission facilities.[22]

Effective Date and Compliance Filing

Order No. 1920 is not effective until 60 days from publication in the Federal Register. After this, transmission providers have 10 months to make their tariff compliance filings of Order No. 2023’s directives not relating to interregional transmission coordination and 12 months to make their compliance filings relating to Order No. 2023’s directives relating to interregional transmission coordination.

Key Takeaways

Assuming that Order No. 1920 is upheld on appeal and/or is not fundamentally altered by FERC on rehearing, it is poised to be transformative for the entire US power industry, including for developers, owners, and investors in clean energy and energy storage projects.

Indeed, ineffective transmission planning and ineffective regional cost allocation have been root causes of generator interconnection queue delays and drastically increased interconnection costs that have plagued all types of generator interconnection customers. If transmission can be effectively planned and transmission costs can be allocated in a manner that does not unjustly and unreasonably overburden generator interconnection customers, this, in turn, can help to unclog interconnection queues across the United States and make interconnecting projects more efficient and economical (especially when coupled with the implementation of FERC Order No. 2023, promulgated last year, which focuses on generator interconnection queue reforms).

Key takeaways from the Final Rule include:

• Order No. 1920 could broaden areas where generator interconnections are feasible. If transmission becomes more efficiently and cost-effectively developed, this in turn will reduce congestion, and may increase the number of areas and points of interconnection where new generation projects can be studied and located.
• Better visibility in transmission project selection and long-term transmission planning. Because Order No. 1920 standardizes benefits to consider as part of long-term planning, it is likely to have the effect of facilitating a more transparent transmission planning process, as developers will now have a higher baseline knowledge of any single transmission provider’s transmission planning process, regardless of where the project is to be located. Improved knowledge and visibility, in turn, can better guide project planning and investment decisions.
• Requirement to take into account “trends in fuel costs and in the cost, performance, and availability of generation, electric storage resources, and building and transportation electrification technologies.” While Order No. 1920 provides that transmission providers can weight this factor less than others, the fact that this selection criteria was included in the Final Rule provides a basis for transmission providers to consider trends and availability of generation and electric storage resources when making long-term transmission plans. This, in turn, underscores the requirement for transmission planners to be mindful of ongoing and changing trends in resource development, which will be key for well-guided planning going forward.
• Requirement to take into account “corporate commitments . . . that affect Long-Term Transmission Needs.” Because transmission providers may discount this factor relative to other factors, this may present some concerns when considering existing corporate clean energy goals. If corporate clean energy goals are discounted too much by transmission providers in their selection criteria, transmission may not be developed in areas of the country in a manner that optimally ensures that clean energy resources can effectively be delivered to end-use customers that have clean energy procurement goals.
• Generator self-funding. Because Order No. 1920 requires transmission providers to provide interconnection customers an opportunity to fund a portion of or the entire cost of Long-Term Regional Transmission Facilities (to the extent the facilities are not otherwise approved under the transmission provider’s criteria), this will likely open opportunities for the placement of generation facilities in areas where transmission providers may presently not be willing to extend such infrastructure.
• Cost allocation for interconnection-related transmission upgrades. Order No. 1920’s requirement for transmission providers to evaluate certain network upgrades for selection in their existing Order No. 1000 regional transmission planning processes that address interconnection-related transmission needs will enable costs for these types of network upgrades (which to date have been funded by interconnection customers despite having regional benefits) to be allocated across multiple customers who benefit from such facilities.
• There is a long way to go. Order No. 1920 is essentially certain to be appealed by a wide array of interests, including states that oppose the Final Rule’s prescribed role for states in cost allocation decisions. Further, FERC itself will consider requests for rehearing, and transmission providers will likely not submit compliance filings implementing Order No. 2023 until close to a year from now. It is imperative that clean energy interests be involved in transmission providers’ development of their compliance filings, as the Final Rule leaves many key details to be worked out by transmission providers and their stakeholders over the next year. How transmission providers’ compliance filings are developed, and what transmission providers will eventually propose in their compliance filings, will go a long way in determining how effective Order No. 1920 ultimately is.

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