# Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2011-19084 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** August 11, 2011 - **Citation:** 76 FR 49842 ## Text DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Part 35 [Docket No. RM10-23-000; Order No. 1000] Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities AGENCY: Federal Energy Regulatory Commission, Energy. ACTION: Final rule. SUMMARY: The Federal Energy Regulatory Commission is amending the transmission planning and cost allocation requirements established in Order No. 890 to ensure that Commission-jurisdictional services are provided at just and reasonable rates and on a basis that is just and reasonable and not unduly discriminatory or preferential. With respect to transmission planning, this Final Rule requires that each public utility transmission provider participate in a regional transmission planning process that produces a regional transmission plan; requires that each public utility transmission provider amend its OATT to describe procedures that provide for the consideration of transmission needs driven by public policy requirements in the local and regional transmission planning processes; removes from Commission-approved tariffs and agreements a federal right of first refusal for certain new transmission facilities; and improves coordination between neighboring transmission planning regions for new interregional transmission facilities. Also, this Final Rule requires that each public utility transmission provider must participate in a regional transmission planning process that has: A regional cost allocation method for the cost of new transmission facilities selected in a regional transmission plan for purposes of cost allocation; and an interregional cost allocation method for the cost of certain new transmission facilities that are located in two or more neighboring transmission planning regions and are jointly evaluated by the regions in the interregional transmission coordination procedures required by this Final Rule. Each cost allocation method must satisfy six cost allocation principles. DATES: Effective Date: This final rule will become effective on October 11, 2011. FOR FURTHER INFORMATION CONTACT: Kevin Kelly, Federal Energy Regulatory Commission, Office of Energy Policy and Innovation, 888 First Street, NE., Washington, DC 20426. (202) 502-8850. Maria Farinella, Federal Energy Regulatory Commission, Office of the General Counsel, 888 First Street, NE., Washington, DC 20426. (202) 502-6000. SUPPLEMENTARY INFORMATION: Before Commissioners: Jon Wellinghoff, Chairman; Marc Spitzer, Philip D. Moeller, John R. Norris, and Cheryl A. LaFleur. Order No. 1000 Table of Contents Paragraph No. I. Introduction 1 A. Order Nos. 888 and 890 15 B. Technical Conferences and Notice of Request for Comments on Transmission Planning and Cost Allocation 22 C. Additional Developments Since Issuance of Order No. 890 25 II. The Need for Reform 30 A. Proposed Rule 30 B. Comments 32 C. Commission Determination 42 D. Use of Terms 63 III. Proposed Reforms: Transmission Planning 67 A. Regional Transmission Planning Process 68 1. Need for Reform Concerning Regional Transmission Planning 70 a. Commission Proposal 70 b. Comments 72 c. Commission Determination 78 2. Legal Authority for Transmission Planning Reforms 85 a. Commission Proposal 85 b. Comments 86 c. Commission Determination 99 3. Regional Transmission Planning Principles 118 a. Commission Proposal 118 b. Comments 120 c. Commission Determination 146 4. Consideration of Transmission Needs Driven by Public Policy Requirements 166 a. Commission Proposal 166 b. Comments 169 c. Commission Determination 203 B. Nonincumbent Transmission Developers 225 1. Need for Reform Concerning Nonincumbent Transmission Developers 228 a. Commission Proposal 228 b. Comments 231 c. Commission Determination 253 2. Legal Authority To Remove a Federal Right of First Refusal 270 a. Commission Proposal 270 b. Comments Regarding the Commission's Authority To Implement the Proposal 271 c. Commission Determination 284 3. Removal of a Federal Right of First Refusal From Commission-Jurisdictional Tariffs and Agreements 293 a. Commission Proposal 293 b. Comments Regarding Developer Qualification and Project Identification 296 c. Comments Regarding Project Evaluation and Selection 302 d. Commission Determination 313 i. Qualification Criteria To Submit a Transmission Project for Selection in the Regional Transmission Plan for Purposes of Cost Allocation 323 ii. Submission of Proposals for Selection in the Regional Transmission Plan for Purposes of Cost Allocation 325 iii. Evaluation of Proposals for Selection in the Regional Transmission Plan for Purposes of Cost Allocation 328 iv. Cost Allocation for Projects Selected in the Regional Transmission Plan for Purposes of Cost Allocation 332 v. Rights To Construct and Ongoing Sponsorship 338 4. Reliability Compliance Obligations of Transmission Developers 341 a. Comments Regarding Reliability Obligations 341 b. Commission Determination 342 C. Interregional Transmission Coordination 345 1. Need for Interregional Transmission Coordination Reform 347 a. Commission Proposal 347 b. Comments 351 c. Commission Determination 368 2. Interregional Transmission Coordination Requirements 374 a. Interregional Transmission Coordination Procedures 374 i. Commission Proposal 374 ii. Comments 377 iii. Commission Determination 393 b. Geographic Scope of Interregional Transmission Coordination 405 i. Commission Proposal 405 ii. Comments 406 iii. Commission Determination 415 3. Implementation of the Interregional Transmission Coordination Requirements 422 a. Procedure for Joint Evaluation 422 i. Comments 422 ii. Commission Determination 435 b. Data Exchange 451 i. Comments 451 ii. Commission Determination 454 c. Transparency 456 i. Comments 456 ii. Commission Determination 458 d. Stakeholder Participation 459 i. Commission Proposal 459 ii. Comments 460 iii. Commission Determination 465 e. Tariff Provisions and Agreements for Interregional Transmission Coordination 468 i. Commission Proposal 468 ii. Comments 469 iii. Commission Determination 475 IV. Proposed Reforms: Cost Allocation 482 A. Need for Reform Concerning Cost Allocation 484 1. Commission Proposal 484 2. Comments on Need for Reform 488 3. Commission Determination 495 B. Legal Authority for Cost Allocation Reforms 504 1. Commission Proposal 504 2. Comments on Legal Authority 509 3. Commission Determination 530 C. Cost Allocation Method for Regional Transmission Facilities 550 1. Commission Proposal 550 2. Comments on Cost Allocation Method in Regional Transmission Planning 553 3. Commission Determination 558 D. Cost Allocation Method for Interregional Transmission Facilities 566 1. Commission Proposal 566 2. Comments on Interregional Cost Allocation Reforms 568 3. Commission Determination 578 E. Principles for Regional and Interregional Cost Allocation 585 1. Use of a Principles-Based Approach 585 a. Commission Proposal 585 b. Comments on Use of Principles-Based Approach 589 c. Commission Determination 603 2. Cost Allocation Principle 1—Costs Allocated in a Way That Is Roughly Commensurate With Benefits 612 a. Comments 612 b. Commission Determination 622 3. Cost Allocation Principle 2—No Involuntary Allocation of Costs to Non-Beneficiaries 630 a. Comments 630 b. Commission Determination 637 4. Cost Allocation Principle 3—Benefit to Cost Threshold Ratio 642 a. Comments 642 b. Commission Determination 646 5. Cost Allocation Principle 4—Allocation To Be Solely Within Transmission Planning Region(s) Unless Those Outside Voluntarily Assume Costs 651 a. Comments 651 b. Commission Determination 657 6. Cost Allocation Principle 5—Transparent Method for Determining Benefits and Identifying Beneficiaries 665 a. Comments 665 b. Commission Determination 668 7. Cost Allocation Principle 6—Different Methods for Different Types of Facilities 673 a. Comments 673 b. Commission Determination 685 8. Whether To Establish Other Cost Allocation Principles 694 a. Commission Proposal 694 b. Comments 695 c. Commission Determination 704 F. Application of the Cost Allocation Principles 706 1. Whether To Have Broad Regional Cost Allocation for Extra-High Voltage Facilities 707 a. Commission Proposal 707 b. Comments on Cost Allocation for Extra-High Voltage Facilities 708 c. Commission Determination 713 2. Whether To Limit the Use of Participant Funding 715 a. Commission Proposal 715 b. Comments on Limiting Participant Funding 716 c. Commission Determination 723 3. Whether Regional and Interregional Cost Allocation Methods May Differ 730 a. Commission Proposal 730 b. Comments 731 c. Commission Determination 733 4. Recommendations for Additional Commission Guidance on the Application of the Transmission Cost Allocation Principles 736 a. Comments 737 b. Commission Determination 745 G. Cost Allocation Matters Related to Other Commission Rules, Joint Ownership, and Non-Transmission Alternatives 751 1. Whether To Reform Cost Allocation for Generator Interconnections 752 a. Comments 753 b. Commission Determination 760 2. Pancaked Rates 761 a. Comments 761 b. Commission Determination 764 3. Transmission Rate Incentives 765 a. Comments 766 b. Commission Determination 771 4. Relationship of This Proceeding to the Proceeding on Variable Energy Resources 772 a. Comments 772 b. Commission Determination 774 5. Joint Ownership 775 a. Comments 775 b. Commission Determination 776 6. Cost Recovery for Non-Transmission Alternatives 777 a. Comment Summary 777 b. Commission Determination 779 V. Compliance and Reciprocity Requirements 780 A. Compliance 780 1. Commission Proposal 780 2. Comments 781 3. Commission Determination 792 B. Reciprocity 799 1. Commission Proposal 799 2. Comments 800 3. Commission Determination 815 VI. Information Collection Statement 823 VII. Environmental Analysis 831 VIII. Regulatory Flexibility Act Analysis 832 IX. Document Availability 833 X. Effective Date and Congressional Notification 836 Regulatory Text Appendix A: Summary of Compliance Requirements Appendix B: Abbreviated Names of Commenters Appendix C: Pro Forma Open Access Transmission Tariff Attachment K I. Introduction 1. In this Final Rule, the Commission acts under section 206 of the Federal Power Act (FPA) to adopt reforms to its electric transmission planning and cost allocation requirements for public utility transmission providers. 1 The reforms herein are intended to improve transmission planning processes and cost allocation mechanisms under the pro forma Open Access Transmission Tariff (OATT) to ensure that the rates, terms and conditions of service provided by public utility transmission providers are just and reasonable and not unduly discriminatory or preferential. This Final Rule builds on Order No. 890, 2 in which the Commission, among other things, reformed the pro forma OATT to require each public utility transmission provider to have a coordinated, open, and transparent regional transmission planning process. After careful review of the voluminous record in this proceeding, the Commission concludes that the additional reforms adopted herein are necessary at this time to ensure that rates for Commission-jurisdictional service are just and reasonable in light of changing conditions in the industry. In addition, the Commission believes that these reforms address opportunities for undue discrimination by public utility transmission providers. 1 16 U.S.C. 824e (2006). 2 Preventing Undue Discrimination and Preference in Transmission Service, Order No. 890, 72 FR 12266 (Mar. 15, 2007), FERC Stats. & Regs. ¶ 31,241, order on reh'g, Order No. 890-A, 73 FR 2984 (Jan. 16, 2008), FERC Stats. & Regs. ¶ 31,261 (2007), order on reh'g and clarification, Order No. 890-B, 73 FR 39092 (July 8, 2008), 123 FERC ¶ 61,299 (2008), order on reh'g, Order No. 890-C, 74 FR 12540 (Mar. 25, 2009), 126 FERC ¶ 61,228 (2009), order on clarification, Order No. 890-D, 74 FR 61511 (Nov. 25, 2009), 129 FERC ¶ 61,126 (2009). 2. The Commission acknowledges that significant work has been done in recent years to enhance regional transmission planning processes. The Commission appreciates the diversity of opinions expressed by commenters in response to the Notice of Proposed Rulemaking 3 as to whether, in light of the progress being made in many regions, further reforms to transmission planning processes and cost allocation mechanisms are necessary at this time. On balance, the Commission concludes that the reforms adopted herein are necessary for more efficient and cost-effective regional transmission planning. As discussed further below, the electric industry is currently facing the possibility of substantial investment in future transmission facilities to meet the challenge of maintaining reliable service at a reasonable cost. The Commission concludes that it is appropriate to act now to ensure that its transmission planning processes and cost allocation requirements are adequate to allow public utility transmission providers to address these challenges more efficiently and cost-effectively. In reaching this conclusion, the Commission has balanced competing interests of various segments of the industry and designed a package of reforms that, in our view, will support the development of those transmission facilities identified by each transmission planning region as necessary to satisfy reliability standards, reduce congestion, and allow for consideration of transmission needs driven by public policy requirements established by state or federal laws or regulations (Public Policy Requirements). By “state or federal laws or regulations,” we mean 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. 3 Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Notice of Proposed Rulemaking, FERC Stats. & Regs. ¶ 32,660 (2010) (Proposed Rule). 3. Through this Final Rule, we conclude that the existing requirements of Order No. 890 are inadequate. Public utility transmission providers are currently under no affirmative obligation to develop a regional transmission plan that reflects the evaluation of whether alternative regional solutions may be more efficient or cost-effective than solutions identified in local transmission planning processes. Similarly, there is no requirement that public utility transmission providers consider transmission needs at the local or regional level driven by Public Policy Requirements. Nonincumbent transmission developers seeking to invest in transmission can be discouraged from doing so as a result of federal rights of first refusal in tariffs and agreements subject to the Commission's jurisdiction. While neighboring transmission planning regions may coordinate evaluation of the reliability impacts of transmission within their respective regions, few procedures are in place for identifying and evaluating the benefits of alternative interregional transmission solutions. Finally, many cost allocation methods in place within transmission planning regions fail to account for the beneficiaries of new transmission facilities, while cost allocation methods for potential interregional facilities are largely nonexistent. 4. We correct these deficiencies by enhancing the obligations placed on public utility transmission providers in several specific ways. While focused on discrete aspects of the transmission planning and cost allocation processes, the specific reforms adopted in this Final Rule are intended to achieve two primary objectives: (1) Ensure that transmission planning processes at the regional level consider and evaluate, on a non-discriminatory basis, possible transmission alternatives and produce a transmission plan that can meet transmission needs more efficiently and cost-effectively; and (2) ensure that the costs of transmission solutions chosen to meet regional transmission needs are allocated fairly to those who receive benefits from them. In addition, this Final Rule addresses interregional coordination and cost allocation, to achieve the same objectives with respect to possible transmission solutions that may be located in a neighboring transmission planning region. 5. Certain requirements of this Final Rule distinguish between “a transmission facility in a regional transmission plan,” and “a transmission facility selected in a regional transmission plan for purposes of cost allocation.” 4 A “transmission facility selected in a regional transmission plan for purposes of cost allocation” is one that has been selected, pursuant to a Commission-approved regional transmission planning process, as a more efficient or cost-effective solution to regional transmission needs. As discussed in more detail below, this distinction is an essential component of this Final Rule. 4 See infra P 0. 6. Turning to the specific discrete reforms we adopt today, we first require public utility transmission providers to participate in a regional transmission planning process that evaluates transmission alternatives at the regional level that may resolve the transmission planning region's needs more efficiently and cost-effectively than alternatives identified by individual public utility transmission providers in their local transmission planning processes. This requirement builds on the transmission planning principles adopted by the Commission in Order No. 890, and the regional transmission planning processes developed in response to this Final Rule must satisfy those principles. These processes must result in the development of a regional transmission plan. As part of our reforms, we also require that the regional transmission planning process, as well as the underlying local transmission planning processes of public utility transmission providers, provide an opportunity to consider transmission needs driven by Public Policy Requirements. We conclude that requiring each local and regional transmission planning process to provide this opportunity is necessary to ensure that transmission planning processes identify and evaluate transmission needs driven by relevant Public Policy Requirements, and support more efficient and cost-effective achievement of those requirements. 7. Second, we direct public utility transmission providers to remove from their OATTs or other Commission-jurisdictional tariffs and agreements any provisions that grant a federal right of first refusal to transmission facilities that are selected in a regional transmission plan for purposes of cost allocation. 5 We conclude that leaving federal rights of first refusal in place for these facilities would allow practices that have the potential to undermine the identification and evaluation of a more efficient or cost-effective solution to regional transmission needs, which in turn can result in rates for Commission-jurisdictional services that are unjust and unreasonable or otherwise result in undue discrimination by public utility transmission providers. To implement the elimination of such federal rights of first refusal, we adopt below a framework that requires, among other things, the development of qualification criteria and protocols for the submission and evaluation of transmission proposals. In addition, as described in section III.B.3, we also require each public utility transmission provider to amend its OATT to describe the circumstances and procedures under which public utility transmission providers in the regional transmission planning process will reevaluate the regional transmission plan to determine if delays in the development of a transmission facility selected in a regional transmission plan for purposes of cost allocation require evaluation of alternative solutions, including those the incumbent transmission provider proposes, to ensure the incumbent can meet its reliability needs or service obligations. This requirement, however, applies only to transmission facilities that are selected in a regional transmission plan for purposes of cost allocation and not, for example, to transmission facilities in local transmission plans that are merely “rolled up” and listed in a regional transmission plan without going through an analysis at the regional level, and therefore, not eligible for regional cost allocation. 5 See infra P 0. 8. Third, we require public utility transmission providers to improve coordination across regional transmission planning processes by developing and implementing, through their respective regional transmission planning process, procedures for joint evaluation and sharing of information regarding the respective transmission needs of transmission planning regions and potential solutions to those needs. These procedures must provide for the identification and joint evaluation by neighboring transmission planning regions of interregional transmission facilities to determine if there are more efficient or cost-effective interregional transmission solutions than regional solutions identified by the neighboring transmission planning regions. To facilitate the joint evaluation of interregional transmission facilities, we require the exchange of planning data and information between neighboring transmission planning regions at least annually. 9. Finally, we require public utility transmission providers to have in place a method, or set of methods, for allocating the costs of new transmission facilities selected in a regional transmission plan for purposes of cost allocation. We also require public utility transmission providers in each transmission planning region to have, together with the public utility transmission providers in a neighboring transmission planning region, a common method, or set of methods, for allocating the costs of a new interregional transmission facility that is jointly evaluated by the two or more transmission planning regions in their interregional transmission coordination procedures. Given the fact that a determination by the transmission planning process to select a transmission facility in a plan for purposes of cost allocation will necessarily include an evaluation of the benefits of that facility, we require that transmission planning and cost allocation processes be aligned. Further, all regional and interregional cost allocation methods must be consistent with regional and interregional cost allocation principles, respectively, adopted in this Final Rule. Nothing in this Final Rule requires either interconnectionwide planning or interconnectionwide cost allocation. 10. The cost allocation reforms adopted today, and the cost allocation principles that each proposed regional and interregional cost allocation method or methods must satisfy, seek to address the potential opportunity for free ridership inherent in transmission services, given the nature of power flows over an interconnected transmission system. In particular, the principles-based approach requires that all regional and interregional cost allocation methods allocate costs for new transmission facilities in a manner that is at least roughly commensurate with the benefits received by those who will pay those costs. Costs may not be involuntarily allocated to entities that do not receive benefits. 6 In addition, the Commission finds that participant funding is permitted, but not as a regional or interregional cost allocation method. 6 However, it is possible that the developer of a facility selected in the regional transmission plan for purposes of cost allocation might decline to pursue regional cost allocation and, instead rely on participant funding. See infra P 723-729. 11. As noted above, the various specific reforms adopted in this Final Rule are designed to work together to ensure an opportunity for more transmission projects to be considered in the transmission planning process on an equitable basis and increase the likelihood that those transmission facilities selected in a regional transmission plan for purposes of cost allocation are the more efficient or cost-effective solutions available. At its core, the set of reforms adopted in this Final Rule require the public utility transmission providers in a transmission planning region, in consultation with their stakeholders, to create a regional transmission plan. This plan will identify transmission facilities that more efficiently or cost-effectively meet the region's reliability, economic and Public Policy Requirements. To meet such requirements more efficiently and cost-effectively, the regional transmission plan must reflect a fair consideration of transmission facilities proposed by nonincumbents, as well as interregional transmission facilities. The regional transmission plan must also include a clear cost allocation method or methods that identify beneficiaries for each of the transmission facilities selected in a regional transmission plan for purposes of cost allocation, in order to increase the likelihood that such transmission facilities will actually be constructed. 12. The transmission planning and cost allocation requirements in this Final Rule, like those of Order No. 890, are focused on the transmission planning process, and not on any substantive outcomes that may result from this process. Taken together, the requirements imposed in this Final Rule work together to remedy deficiencies in the existing requirements of Order No. 890 and enhance the ability of the transmission grid to support wholesale power markets. This, in turn, will fulfill our statutory obligation to ensure that Commission-jurisdictional services are provided at rates, terms, and conditions of service that are just and reasonable and not unduly discriminatory or preferential. 13. We acknowledge that public utility transmission providers in some transmission planning regions already may have in place transmission planning processes or cost allocation mechanisms that satisfy some or all of the requirements of this Final Rule. Our reforms are not intended to undermine progress being made in those regions, nor do we intend to undermine other planning activities that are being undertaken at the interconnection level. Rather, the Commission is acting here to identify a minimum set of requirements that must be met to ensure that all transmission planning processes and cost allocation mechanisms subject to its jurisdiction result in Commission-jurisdictional services being provided at rates, terms and conditions that are just and reasonable and not unduly discriminatory or preferential. 14. The Commission appreciates the significant work that will go into the preparation of compliance proposals in response to this Final Rule. To assist public utility transmission providers in their efforts to comply, the Commission directs its staff to hold informational conferences within 60 days of the effective date of this Final Rule to review and discuss the requirements imposed herein with interested parties. Moreover, as public utility transmission providers work with their stakeholders to prepare compliance proposals, the Commission encourages frequent dialogue with Commission staff to explore issues that are specific to each transmission planning region. The Commission will monitor progress being made. A. Order Nos. 888 and 890 15. In Order No. 888, 7 issued in 1996, the Commission found that it was in the economic interest of transmission providers to deny transmission service or to offer transmission service to others on a basis that is inferior to that which they provide to themselves. 8 Concluding that unduly discriminatory and anticompetitive practices existed in the electric industry and that, absent Commission action, such practices would increase as competitive pressures in the industry grew, the Commission in Order No. 888 and the accompanying pro forma OATT implemented open access to transmission facilities owned, operated, or controlled by a public utility. 7 Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. ¶ 31,036 (1996), order on reh'g, Order No. 888-A, 62 FR 12274 (Mar. 14, 1997), 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 (DC Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002). 8 Order No. 888, FERC Stats. & Regs. at 31,682. 16. As part of those reforms, Order No. 888 and the pro forma OATT set forth certain minimum requirements for transmission planning. For example, the pro forma OATT required a public utility transmission provider to account for the needs of its network customers in its transmission planning activities on the same basis as it provides for its own needs. 9 The pro forma OATT also required that new facilities be constructed to meet the transmission service requests of long-term firm point-to-point customers. 10 While Order No. 888-A went on to encourage utilities to engage in joint and regional transmission planning with other utilities and customers, it did not require those actions. 11 9 See Section 28.2 of the pro forma OATT. 10 See Sections 13.5, 15.4, and 27 of the pro forma OATT. 11 Order No. 888-A, FERC Stats. & Regs. at 30,311. 17. In early 2007, the Commission issued Order No. 890 to remedy flaws in the pro forma OATT that the Commission identified based on the decade of experience since the issuance of Order No. 888. Among other things, the Commission found that pro forma OATT obligations related to transmission planning were insufficient to eliminate opportunities for undue discrimination in the provision of transmission service. The Commission stated that particularly in an era of increasing transmission congestion and the need for significant new transmission investment, it could not rely on the self-interest of transmission providers to expand the grid in a not unduly discriminatory manner. Among other shortcomings in the pro forma OATT, the Commission pointed to the lack of clear criteria regarding the transmission provider's planning obligation; the absence of a requirement that the overall transmission planning process be open to customers, competitors, and state commissions; and the absence of a requirement that key assumptions and data underlying transmission plans be made available to customers. 18. In light of these findings, one of the primary goals of the reforms undertaken in Order No. 890 was to address the lack of specificity regarding how stakeholders should be treated in the transmission planning process. To remedy the potential for undue discrimination in transmission planning activities, the Commission required each public utility transmission provider to develop a transmission planning process that satisfies nine principles and to clearly describe that process in a new attachment to its OATT (Attachment K). The Order No. 890 transmission planning principles are: (1) Coordination; (2) openness; (3) transparency; (4) information exchange; (5) comparability; (6) dispute resolution; (7) regional participation; (8) economic planning studies; and (9) cost allocation for new projects. 12 12 Order No. 890, FERC Stats. & Regs. ¶ 31,241 at P 418-601. 19. The transmission planning reforms adopted in Order No. 890 apply to all public utility transmission providers, including Commission-approved RTOs and ISOs. The Commission stated that it expected all non-public utility transmission providers to participate in the local transmission planning processes required by Order No. 890, and that reciprocity dictates that non-public utility transmission providers that take advantage of open access due to improved planning should be subject to the same requirements as public utility transmission providers. 13 The Commission stated that a coordinated, open, and transparent regional planning process cannot succeed unless all transmission owners participate. However, the Commission did not invoke its authority under FPA section 211A, which allows the Commission to require an unregulated transmitting utility ( i.e., a non-public utility transmission provider) to provide transmission services on a comparable and not unduly discriminatory or preferential basis. 14 The Commission instead stated that if it found, on the appropriate record, that non-public utility transmission providers are not participating in the transmission planning processes required by Order No. 890, then the Commission may exercise its authority under FPA section 211A on a case-by-case basis. 13 Id. P 441. 14 FPA section 211A(b) provides, in pertinent part, that “the Commission may, by rule or order, require an unregulated transmitting utility to provide transmission services—(1) at rates that are comparable to those that the unregulated transmitting utility charges itself; and (2) on terms and conditions (not relating to rates) that are comparable to those under which the unregulated transmitting utility provides transmission services to itself and that are not unduly discriminatory or preferential.” 16 U.S.C. 824j. 20. On December 7, 2007, pursuant to Order No. 890, most public utility transmission providers and several non-public utility transmission providers submitted compliance filings that describe their proposed transmission planning processes. 15 The Commission addressed these filings in a series of orders that were issued throughout 2008. Generally, the Commission accepted the compliance filings to be effective on December 7, 2007, subject to further compliance filings as necessary for the proposed transmission planning processes to satisfy the nine Order No. 890 transmission planning principles. The Commission issued additional orders on Order No. 890 transmission planning compliance filings in the spring and summer of 2009. 15 A small number of public utility transmission providers were granted extensions. 21. As a result of these compliance filings, regional transmission organization (RTO) and independent system operators (ISO) have enhanced their regional transmission planning processes, making them more open, transparent, and inclusive. Regions of the country outside of RTO and ISO regions also have made significant strides with respect to transmission planning by working together to enhance existing, or create new, regional transmission planning processes. 16 These improvements to transmission planning processes have given stakeholders the ability to participate in the identification of regional transmission needs and corresponding solutions, thereby facilitating the development of more efficient and cost-effective transmission expansion plans. This Final Rule expands upon the reforms begun in Order No. 890 by addressing new concerns that have become apparent in the Commission's ongoing monitoring of these matters. 16 The regional transmission planning processes that public utility transmission providers in regions outside of RTOs and ISOs have relied on to comply with certain requirements of Order No. 890 are the North Carolina Transmission Planning Collaborative, Southeast Inter-Regional Participation Process, SERC Reliability Corporation, ReliabilityFirst Corporation, Mid-Continent Area Power Pool, Florida Reliability Coordination Council, WestConnect, ColumbiaGrid, and Northern Tier Transmission Group. B. Technical Conferences and Notice of Request for Comments on Transmission Planning and Cost Allocation 22. In several of the above-noted orders issued in 2008 and early 2009 on filings submitted to comply with the Order No. 890 transmission planning requirements, the Commission stated that it would continue to monitor implementation of these transmission planning processes. The Commission also announced its intention to convene regional technical conferences in 2009. 23. Consistent with the Commission's announcement, Commission staff in September 2009 convened three regional technical conferences in Philadelphia, Atlanta, and Phoenix, respectively. The focus of the technical conferences was to: (1) Determine the progress and benefits realized by each transmission provider's transmission planning process, obtain customer and other stakeholder input, and discuss any areas that may need improvement; (2) examine whether existing transmission planning processes adequately consider needs and solutions on a regional or interconnectionwide basis to ensure adequate and reliable supplies at just and reasonable rates; and (3) explore whether existing transmission planning processes are sufficient to meet emerging challenges to the transmission system, such as the development of interregional transmission facilities and the integration of large amounts of location-constrained generation. Issues discussed at the technical conferences included the effectiveness of the current transmission planning processes, the development of regional and interregional transmission plans, and the effectiveness of existing cost allocation methods used by transmission providers and alternatives to those methods. 24. Following these technical conferences, the Commission in October 2009 issued a Notice of Request for Comments. 17 The October 2009 Notice presented numerous questions with respect to enhancing regional transmission planning processes and allocating the cost of transmission. In response to the October 2009 Notice, the Commission received 107 initial comments and 45 reply comments. 17 Federal Energy Regulatory Commission, Notice of Request for Comments, Transmission Planning Processes under Order No. 890; Docket No. AD09-8-000, October 8, 2009 (October 2009 Notice). C. Additional Developments Since Issuance of Order No. 890 25. Other developments with important implications for transmission planning have occurred amid the above-noted Order No. 890 compliance efforts on transmission planning and as the Commission gathered information through the technical conferences and the October 2009 Notice discussed above. 26. For example, in February 2009, Congress enacted the American Recovery and Reinvestment Act (ARRA), which provided $80 million for the U.S. Department of Energy (DOE), in coordination with the Commission, to support the development of interconnection-based transmission plans for the Eastern, Western, and Texas interconnections. In seeking applications for use of those funds, DOE described the initiative as intended to: Improve coordination between electric industry participants and states on the regional, interregional, and interconnectionwide levels with regard to long-term electricity policy and planning; provide better quality information for industry planners and state and federal policymakers and regulators, including a portfolio of potential future supply scenarios and their corresponding transmission requirements; increase awareness of required long-term transmission investments under various scenarios, which may encourage parties to resolve cost allocation and siting issues; and facilitate and accelerate development of renewable energy or other low-carbon generation resources. 18 18 Department of Energy, Recovery Act—Resource Assessment and Interconnection-Level Transmission Analysis and Planning Funding Opportunity Announcement, at 5-6 (June 15, 2009). 27. In December 2009, DOE announced award selections for much of this ARRA funding. In each interconnection, applicants awarded funds under what DOE defined as Topic A are responsible for conducting interconnection-level analysis and transmission planning. Applicants awarded funds under Topic B are to facilitate greater cooperation among states within each interconnection to guide the analyses and planning performed under Topic A. 19 Broad participation in sessions to date related to this initiative suggest that the availability of federal funds to pursue these goals has increased awareness of the potential for greater coordination among regions in transmission planning. 19 Id. at 4-8. 28. In describing the activities undertaken under this transmission analysis and planning initiative, DOE staff leading the project has explained that its activities are based on the premise that the electricity industry faces a major long-term challenge in ensuring an adequate, affordable and environmentally sensitive energy supply and that an open, transparent, inclusive, and collaborative process for transmission planning is essential to securing this energy supply. 20 To that end, DOE staff has stressed that all stakeholders need to be involved in assessing options to meeting this future need and that ARRA funds are “seed money” to help establish capabilities to address transmission planning issues. 21 In DOE staff's view, the goal of this funding is to help planners develop a portfolio of long-term energy supply and demand for future needs and associated transmission requirements to assess the implications of these alternative future energy scenarios and identify facilities appropriate for consideration in the development of long-term infrastructure plans. Key deliverables of the DOE-funded planning activities are 10- and 20-year plans that analyze the transmission needs of each interconnection under a range of scenarios. 20 Department of Energy, “ DOE Initiative Regarding Interconnection-Level Transmission Analysis and Planning;” presented at the NGA Transmission Roundtable by David Meyer of DOE's Office of Electricity Delivery and Energy Reliability, January 25, 2011. 21 Id. 29. While the results of these planning efforts are not yet available, there is already a growing body of evidence that, in DOE's words, “[s]ignificant expansion of the transmission grid will be required under any future electric industry scenario.” 22 In its most recent Long-Term Reliability Assessment, North American Electric Reliability Corporation (NERC) identifies 39,000 circuit-miles of projected high-voltage transmission over the next 10 years. 23 NERC estimates that roughly a third of these transmission facilities will be needed to integrate variable and renewable generation. 24 Much of this investment in renewable generation is being driven by renewable portfolio standards adopted by states. Some 28 states and the District of Columbia have now adopted renewable portfolio standard measures. In addition, there are 9 states with non-binding goals. The key difference is that the states with requirements usually have financial penalties for non-compliance, known as alternative compliance payments. States with non-binding goals usually have no financial penalty, although some have instituted financial incentives for meeting the goal ( e.g., Virginia). These measures typically require that a certain percentage of energy sales (MWh) or installed capacity (MW) come from renewable energy resources, with the target level and qualifying resources varying among the renewable portfolio standard measures. Most of these portfolio standards are set to increase annually, further amplifying the potential need for transmission facilities. 22 Department of Energy, 20% Wind Energy by 2030, at 93 (July 2008). 23 NERC 2010 Assessment at 22. 24 Id. at 24. II. The Need for Reform A. Proposed Rule 30. In light of the changes occurring within the electric industry, and based on the Commission's experience in implementing Order No. 890 and comments submitted in response to the October 2009 Notice, the Commission issued the Proposed Rule on June 17, 2010 identifying further reforms to the pro forma OATT in the areas of transmission planning and cost allocation. These reforms, discussed in detail below, were aimed at ensuring that the transmission planning and cost allocation requirements established in Order No. 890 continue to result in the provision of Commission-jurisdictional service at rates, terms and conditions that are just and reasonable and not unduly discriminatory or preferential. The Commission received roughly 5,700 pages of initial and reply comments in response. Based on these comments, the Commission concludes that amendment of the transmission planning and cost allocation requirements established in Order No. 890 is necessary at this time to ensure that Commission-jurisdictional services are provided at rates, terms and conditions that are just and reasonable and not unduly discriminatory or preferential. 31. The Commission noted in the Proposed Rule that transmission planning processes, particularly at the regional level, have seen substantial improvement through compliance with Order No. 890. However, the Commission explained that changes in the nation's electric power industry since issuance of Order No. 890 required the Commission to consider additional reforms to transmission planning and cost allocation to reflect these new circumstances. The Commission stated its intention was not to disrupt the progress being made with respect to transmission planning and investment in transmission infrastructure, but rather to address remaining deficiencies in transmission planning and cost allocation processes so that the transmission grid can better support wholesale power markets and thereby ensure that Commission-jurisdictional services are provided at rates, terms and conditions that are just and reasonable and not unduly discriminatory or preferential. B. Comments 32. A number of commenters generally support the Commission's decision to initiate a rulemaking proceeding that proposes reforms to the transmission planning and cost allocation processes. 25 Several of these commenters state that inadequate transmission planning and cost allocation processes have impeded the development of transmission infrastructure. 26 25 E.g., 26 Public Interest Organizations; AEP; American Transmission; AWEA; Anbaric and PowerBridge; Atlantic Grid; Colorado Independent Energy Association; Conservation Law Foundation; Duke; East Texas Cooperatives; Energy Future Coalition; Exelon; Gaelectric; Green Energy Express and 21st Century; Iberdrola Renewables; Imperial Irrigation District; Integrys; ISO New England; ITC Companies; MidAmerican; Multiparty Commenters; National Audubon Society; National Grid; New York ISO; New York PSC; NextEra; Northwest & Intermountain Power Producers Coalition; Old Dominion Electric Cooperative; Pennsylvania PUC; Ignacio Perez-Arriaga; Senators Dorgan and Reid; SPP; Transmission Access Policy Study Group; Transmission Dependent Utility Systems; Western Grid Group; Wind Coalition; WIRES; and Wisconsin Electric. 26 E.g., AEP; AWEA; Exelon; Iberdrola Renewables; ITC Companies; MidAmerican; and NextEra. 33. For example, Transmission Dependent Utility Systems state that they support the primary objective of the Proposed Rule to correct deficiencies in transmission planning and cost allocation processes so that the transmission grid can better support wholesale markets and ensure that jurisdictional services are provided at rates, terms, and conditions that are just and reasonable and not unduly discriminatory or preferential. Exelon argues that the current system of disconnected priorities and mixed criteria is simply not working. Pennsylvania PUC encourages the Commission to eliminate the current uncertainty regarding planning and paying for future transmission expansion and upgrades. 34. MidAmerican adds that transmission has grown from an industry sector focused on rebuilds, reliability improvements on existing infrastructure, and construction of generation-dependent interconnection facilities, to one where new and upgraded transmission infrastructure is necessary to effectuate the expansion of regional power markets, promote a more reliable transmission system, accommodate increasing reliance on renewable generation sources, and address the uncertainty of the future role of existing conventional generation. AWEA contends that existing processes for planning and paying for transmission are not sufficient to meet the emerging challenges to the transmission system. AWEA argues that many cost allocation methodologies, as they are applied today, are flawed, which together with the fragmented and short-term transmission planning regimes prevalent today, have often stifled investment in, or otherwise led to the inefficient use and inadequate expansion of the nation's transmission network. Senators Dorgan and Reid state that better coordination of regional transmission planning and clarifying cost allocation are two important steps in overcoming hurdles to developing the nation's vast renewable energy resources and providing clean energy jobs. National Grid contends that the creation of a robust transmission system is imperative to achieving important policy goals, environmental objectives, market efficiencies, and the integration of renewable and distributed resources into electric power markets. 35. NextEra agrees on reply that there is a need for generic reform at this time, stating that there is a sufficient basis for the Commission to proceed with a rulemaking proceeding and that there is ample evidence of the pressing need to enhance the transmission grid. NextEra states that the Proposed Rule demonstrates how and why existing transmission planning and cost allocation rules are inadequate. 36. A number of commenters provide specific examples of developments that further demonstrate the need for reform. Colorado Independent Energy Association states that, in WestConnect, regional transmission providers are not ignoring the problem of transmission constraints, but that development of transmission facilities is not being undertaken and, second, transmission facilities are not being properly sized. In its view, the problems can be traced to the absence of cost allocation methods or the lack of means for identifying the most needed projects and pursuing them to completion. 37. Iberdrola Renewables contends that the lack of transmission expansion in the MISO has led to significant congestion in areas with extensive operating wind generation. It states that the MISO has reported that wind curtailments primarily caused by congestion averaged five percent for the first six months of 2010 compared with 2 percent on average in 2009. Exelon adds that the lack of coordination between the MISO and PJM transmission planning regions has resulted in a significant increase in the out-of-merit dispatch of generation on the Commonwealth Edison system to maintain NERC reliability requirements. Exelon states that these events have increased from 31 in 2006 to 280 in 2009, and they result in higher costs on the system and excessive wear and tear on equipment. 38. Brattle Group states that it has identified approximately 130 mostly conceptual and often overlapping planned transmission projects throughout the country with a total cost of over $180 billion. 27 It contends that a large portion of these projects will not be built due to overlaps and deficiencies in transmission planning and cost allocation processes. Brattle Group states that many of the benefits associated with economic and public policy projects are difficult to quantify and, without changes to transmission planning and cost allocation processes, many of these projects may fail to gain the needed support for approval, permitting, and cost recovery. 27 Brattle Group, Attachment at 5. 39. Other commenters question the need for Commission action at this time, urging the Commission to be more rigorous in its proposed findings and holdings and arguing that the Proposed Rule is not supported by substantial evidence. 28 Large Public Power Council disagrees with the Commission's assertions in the Proposed Rule that state that renewable portfolio standards have contributed to the need for new transmission. Large Public Power Council states that the Commission offers no factual evidence to support its assertions 29 and that the evidence available actually weighs against the Commission. Large Public Power Council states that renewable portfolio standards have not increased meaningfully since the Commission issued Order No. 890. Furthermore, Large Public Power Council cites a report produced by Edison Electric Institute that states that the members of Edison Electric Institute are making significant and growing investments in transmission infrastructure, including interstate projects and projects that will facilitate the integration of renewable resources. Moreover, Large Public Power Council contends that the Commission offers no evidence that the reforms of the type proposed are a necessary or satisfactory solution to the perceived problem. 28 E.g., Ad Hoc Coalition of Southeastern Utilities; Salt River Project; Large Public Power Council (each commenter cites National Fuel Gas Supply Corp. v. FERC, 468 F.3d 831 (DC Cir. 2006) ( National Fuel )); Large Public Power Council (citing Associated Gas Distrib. v. FERC, 824 F.2d 981 (DC Cir. 1985) ( Associated Gas Distributors )); PSEG Companies; Salt River Project; and San Diego Gas & Electric. 29 Citing Proposed Rule, FERC Stats. & Regs. ¶ 32,660 at P 148-154 (Large Public Power Council cites to the following two assertions in the Proposed Rule: “Further expansion of regional power markets has led to a growing need for new transmission facilities that cross several utility, RTO, ISO or other regions.” (Proposed Rule, FERC Stats. & Regs. ¶ 32,660 at P 150); and “* * * the increasing adoption of state resource policies, such as renewable portfolio standard measures, has contributed to rapid growth of location-constrained renewable energy resources that are frequently remote from load centers, as well as a growing need for new transmission facilities across several utility and/or RTO or ISO regions.” (Proposed Rule, FERC Stats. & Regs. ¶ 32,660 at P 151)). 40. Replying to commenters that stress the need for reform, discussed above, several commenters argue that none provides evidence supporting the need for a nationwide rule at this time. 30 Ad Hoc Coalition of Southeastern Utilities states that commenters such as Exelon and Multiparty Commenters provide only anecdotes supporting their contention that there is a need to reform transmission planning and cost allocation processes, and argues that these individual issues can be addressed on a case-specific basis rather than through generic rules. Joined by Southern Companies, Ad Hoc Coalition of Southeastern Utilities argues that factual allegations of transmission expansion deficiencies are not applicable to the Southeast, pointing to their robust transmission grid. They state that, to the extent these allegations raise issues for other regions, then they should be addressed within those regions and that these issues do not merit nationwide treatment. 31 Additionally, Ad Hoc Coalition of Southeastern Utilities asserts that existing planning processes under Order No. 890 have not been in place long enough to determine whether reforms are needed, and other commenters assert that existing planning processes are working well. 32 PSEG Companies assert that the real issue is the siting process, which makes it difficult to actually build projects even if they are truly needed to maintain system reliability. 30 E.g., Ad Hoc Coalition of Southeastern Utilities; Large Public Power Council; San Diego Gas & Electric; and Southern Companies. 31 Ad Hoc Coalition of Southeastern Utilities, Large Public Power Council and Southern Companies cite to Associated Gas Distributors, 824 F.2d 981 at 1019. 32 E.g., PSEG Companies and Salt River Project. 41. Indianapolis Power & Light states that the Commission has not undertaken any type of analysis to find out what needs to be built, where it needs to be built, and who needs to build it. Indianapolis Power & Light asserts that the Commission has not looked closely at the different regions of the country to determine which areas could benefit from the new proposed reforms. Indianapolis Power & Light states that the Commission has not sufficiently demonstrated a need for this rulemaking and should consider whether its broad-based application is necessary in the first place. San Diego Gas & Electric recommends that the Commission not issue a Final Rule at this time, arguing that doing so based on the current proposals would disrupt and delay the build-out of the transmission grid and cause transmission providers to redirect resources away from that primary objective to the inevitable legal and compliance challenges to this Final Rule. C. Commission Determination 42. The Commission concludes that it is appropriate to act at this time to adopt the package of reforms contained in this Final Rule. Our review of the record, as well as the recent studies discussed above, indicates that the transmission planning and cost allocation requirements established in Order No. 890 provide an inadequate foundation for public utility transmission providers to address the challenges they are currently facing or will face in the near future. Although focused on discrete aspects of transmission planning and cost allocation processes, the reforms adopted in this Final Rule are designed to work together to ensure an opportunity for more transmission projects to be considered in the transmission planning process on an equitable basis and increase the likelihood that transmission facilities in the transmission plan will move forward to construction. The Commission's actions today therefore will enhance the ability of the transmission grid to support wholesale power markets and, in turn, ensure that Commission-jurisdictional transmission services are provided at rates, terms, and conditions that are just and reasonable and not unduly discriminatory or preferential. 43. The Commission acknowledges that transmission planning processes have seen substantial improvements, particularly at the regional level, in the relatively short time since the issuance of Order No. 890. Moreover, as some commenters note, transmission planning processes in many regions continue to evolve as public utility transmission providers and stakeholders explore new ways of addressing mutual needs. However, the Commission is concerned that the existing requirements of Order No. 890 regarding transmission planning and cost allocation are insufficient to ensure that this evolution will occur in a manner that ensures that the rates, terms and conditions of service by public utility transmission providers are just and reasonable and not unduly discriminatory. As a number of commenters contend, inadequate transmission planning and cost allocation requirements may be impeding the development of beneficial transmission lines or resulting in inefficient and overlapping transmission development due to a lack of coordination, all of which contributes to unnecessary congestion and difficulties in obtaining more efficient or cost-effective transmission service. 44. The increase in transmission investment in recent years, as noted in the report produced by Edison Electric Institute and cited by Large Public Power Council, 33 does not mitigate our need to act at this time. To the contrary, as discussed below, the recent increase in transmission investment supports issuance of this Final Rule to ensure that the Commission's transmission planning and cost allocation requirements are adequate to support more efficient and cost-effective investment decisions moving forward. In its report, Edison Electric Institute states that its members have steadily increased investment in transmission over the period from 2001 to 2009, resulting in approximately $55.3 billion in new transmission facilities. 34 NERC confirms the recent increase in investment in its 2010 Long-Term Reliability Assessment. 35 This trend appears to be only the beginning of a longer-term period of investment in new transmission facilities. In another report commissioned by Edison Electric Institute, Brattle Group suggests that approximately $298 billion of new transmission facilities will be required over the period from 2010 to 2030. 36 NERC's analysis of the past 15 years of transmission development confirms the significant increase in future transmission investment, showing that additional transmission planned for construction during the next five years nearly triples the average miles that have historically been constructed. 37 33 Large Public Power Council (citing Edison Electric Institute report, available at http://www.eei.org/ourissues/ElectricityTransmission/Documents/Trans_Project_lowres.pdf ). 34 Edison Electric Institute at v. 35 NERC 2010 Assessment at 25; see also Brattle Group, Attachment at 4 (noting rapid increase in transmission development, from $2 billion annually in the 1990s to $8 billion annual in 2008 and 2009). 36 Transforming America's Power Industry at 37, http://www.eei.org/ourissues/finance/Documents/Transforming_Americas_Power_Industry.pdf. 37 NERC 2010 Long-Term Reliability Assessment at 25. 45. The need for additional transmission facilities is being driven, in large part, by changes in the generation mix. As NERC notes in its 2009 Assessment, existing and potential environmental regulation and state renewable portfolio standards are driving significant changes in the mix of generation resources, resulting in early retirements of coal-fired generation, an increasing reliance on natural gas, and large-scale integration of renewable generation. 38 NERC has identified approximately 131,000 megawatts of new generation planned for construction over the next ten years, with the largest fuel-type growth in gas-fired and wind generation resources. 39 These shifts in the generation fleet increase the need for new transmission. Additionally, the existing transmission system was not built to accommodate this shifting generation fleet. Of the total miles of bulk power transmission under construction, planned, and in a conceptual stage, NERC estimates that 50 percent will be needed strictly for reliability and an additional 27 percent will be needed to integrate variable and renewable generation across North America. 40 38 NERC 2009 Long-Term Reliability Assessment at 8; see also supra P 29 (summarizing current state renewable portfolio standards). 39 NERC 2010 Long-Term Reliability Assessment at 12. 40 Id. at 24. 46. Rather than demonstrating a lack of need for action, as claimed by some commenters, the recent increases in constructed and planned transmission facilities supports issuance of this Final Rule at this time to ensure that the Commission's transmission planning and cost allocation requirements are adequate to support more efficient and cost-effective investment decisions. The increased focus on investment in new transmission projects makes it even more critical to implement these reforms to ensure that the more efficient or cost-effective projects come to fruition. The record in this proceeding and the reports cited above confirm that additional, and potentially significant, investment in new transmission facilities will be required in the future to meet reliability needs and integrate new sources of generation. It is therefore critical that the Commission act now to address deficiencies to ensure that more efficient or cost-effective investments are made as the industry addresses its challenges. 47. As explained below, each of the individual reforms adopted by the Commission is intended to address specific deficiencies in the Commission's existing transmission planning and cost allocation requirements. Through this package of reforms, the Commission seeks to ensure that each public utility transmission provider will work within its transmission planning region to create a regional transmission plan that identifies transmission facilities needed to meet reliability, economic and Public Policy Requirements, including fair consideration of lines proposed by nonincumbents, with cost allocation mechanisms in place to facilitate lines moving from planning to development. Although focused on particular aspects of the Commission's transmission planning and cost allocation requirements, these reforms are integrally related and should be understood as a package that is designed to reform processes and procedures that, if left in place, could result in Commission-jurisdictional services being provided at rates that are unjust and unreasonable and unduly discriminatory or preferential. 48. A number of commenters maintain that the Commission in the Proposed Rule failed to provide adequate evidence to support a finding under section 206 of the FPA that the reforms adopted in this Final Rule are necessary to ensure that Commission-jurisdictional services are provided at rates, terms and conditions that are just and reasonable and not unduly discriminatory or preferential. Section 313(b) of the FPA makes Commission findings of fact conclusive if they are supported by substantial evidence. 41 When applied in a rulemaking context, “the substantial evidence test is identical to the familiar arbitrary and capricious standard.” 42 The Commission thus must show that a “reasonable mind might accept” that the evidentiary record here is “adequate to support a conclusion,” 43 in this case that this Final Rule is needed “to correct deficiencies in transmission planning and cost allocation processes,” as described. 44 In the legal authority sections throughout this Final Rule, the Commission discusses how the cases cited by commenters demonstrate that the Commission has met its burden. 41 16 U.S.C. 825l(b). 42 Wisconsin Gas Co. v. FERC, 770 F.2d 1144, 1156 (1985); see also Associated Gas Distributors v. FERC, 824 F.2d 981 at 1018. 43 Dickenson v. Zurko, 527 U.S. 150, 155 (1999). 44 Proposed Rule, FERC Stats & Regs. ¶ 32,660 at P 1. 49. Commenters that maintain that the Commission's proposal is not supported by substantial evidence demand that the Commission identify evidence that is far in excess of what a reasonable person would require. We thus disagree with such comments, including Indianapolis Power & Light's, that it is necessary for the Commission to determine what needs to be built, where it needs to be built, and who needs to build it. That is not, and is not required to be, the intent of this rulemaking. This rulemaking reforms processes and is not intended to address such questions. No commenter has contested the need for additional transmission facilities, and numerous examples have been provided here of transmission planning and cost allocation impediments to the development of such facilities. Our intent here is to continue to ensure that public utility transmission providers use just and reasonable transmission planning processes and procedures, as required by Order Nos. 888 and 890, to provide for the needs of their transmission customers. Such planning may require public utility transmission providers—in consultation with stakeholders—to determine what needs to be built, where it needs to be built, and who needs to build it, but the Commission is not making such determinations here. 50. We also reject the characterization of factual examples presented to demonstrate the need for reform as anecdotal evidence. A wide range of concerns have been raised by commenters, and the Commission need not, and should not, wait for systemic problems to undermine transmission planning before it acts. The Commission must act promptly to establish the rules and processes necessary to allow public utility transmission providers to ensure planning of and investment in the right transmission facilities as the industry moves forward to address the many challenges it faces. Transmission planning is a complex process that requires consideration of a broad range of factors and an assessment of their significance over a period that can extend from present out to 20, 30 years or more in the future. In addition, the development of transmission facilities can involve long lead times and complex problems related to design, siting, permitting, and financing. Given the need to deal with these matters over a long time horizon, it is appropriate and prudent that we act at this time rather than allowing the types of problems described above to continue or to increase. In light of these conditions and as explained below, we find that it is reasonable to take generic action through this rulemaking proceeding. 51. A brief consideration of the two cases that commenters rely on to argue that the Commission has not satisfied the substantial evidence standard helps to demonstrate that the standard has been fully met. In National Fuel, the court found that the Commission had not met the substantial evidence standard when it sought to extend its standards of conduct that regulate natural gas pipelines' interactions with their marketing affiliates to their interactions with their non-marketing affiliates. The court noted that it had upheld the standards of conduct as applied to pipelines and their marketing affiliates because the Commission had shown both a theoretical threat that pipelines could grant undue preferences to their marketing affiliates and evidence that such abuse had occurred. 45 In finding that the Commission had not met the substantial evidence standard when seeking to extend the standards of conduct, the court noted that the Commission had not cited a single example of abuse by non-marketing affiliates. It concluded that the Commission relied either on examples of abuse or comments from the rulemaking that simply reiterated a theoretical potential for abuse. 46 The court remanded the matter and noted that if the Commission chose to proceed it could even rely solely on a theoretical threat if it could show how the threat justified the costs that the rules would create. 47 45 National Fuel, 468 F.3d 831 at 839. 46 Id. at 841. 47 Id. at 844. 52. Our action in this Final Rule is entirely consistent with the standards that the court set forth in National Fuel. We conclude that the narrow focus of current planning requirements and shortcomings of current cost allocation practices create an environment that fails to promote the more efficient and cost-effective development of new transmission facilities, and that addressing these issues is necessary to ensure just and reasonable rates. In other words, the problem that the Commission seeks to resolve represents a “theoretical threat,” in the words of the National Fuel decision, the features of which are discussed throughout the body of this Final Rule in the context of each of the reforms adopted here. This threat is significant enough to justify the requirement imposed by this Final Rule. It is not one that can be addressed adequately or efficiently through the adjudication of individual complaints. The problems that we seek to resolve here stem from the absence of planning processes that take a sufficiently broad view of both the tasks involved and the means of addressing them. Individual adjudications by their nature focus on discrete questions of a specific case. Rules setting forth general principles are necessary to ensure that adequate planning processes are in place. 53. Stated in another way, in the terminology of National Fuel, the remedy we adopt is justified sufficiently by the “theoretical threat” identified herein, even without “record evidence of abuse.” The actual experiences of problems cited in the record herein provide additional support for our action, but are not necessary to justify the remedy. 54. Associated Gas Distributors likewise is distinguishable from this proceeding. In that case, the court reviewed the Commission's rationale in Order No. 436 for industry-wide contract demand adjustment conditions, which permitted pipeline customers to reduce their contract demand by up to 100 percent over a period of five years. 48 The court held that the Commission failed to develop an adequate rationale for authorizing what it characterized as the “drastic action” of 100 percent contract demand reduction, and that the reasons the Commission provided “seem[ed] peripheral to the problem the Commission set out to solve.” 49 The court also found that one of the Commission's arguments while “highly relevant” to contract demand reduction, failed to support the broad remedy the Commission adopted. 50 The court explained that it was unclear why an industry-wide solution was necessary to solve a problem that the Commission suggested applied only “to a limited portion of the industry.” 51 48 Associated Gas Distributors, 824 F.2d 981 at 1013. 49 Id. at 1018-19. 50 Id. at 1019. 51 Id. at 1018-19. 55. We find that the facts and findings of Associated Gas Distributors are in no way comparable to the matters involved in this Final Rule. We disagree with commenters that characterize our reasoning as inadequate or peripheral to the problems that the Commission has identified in this proceeding. To the contrary, the reforms adopted herein are necessary to address those problems and are supported by the reasons set forth in this Final Rule. As discussed herein, the Commission finds that the narrow focus of current planning requirements and shortcomings of current cost allocation practices create an environment that fails to promote the more efficient and cost-effective development of new transmission facilities. There is a close relationship between those problems and the Commission's actions here to identify a minimum set of requirements that must be met to ensure that transmission planning processes and cost allocation methods subject to its jurisdiction result in Commission-jurisdictional services being provided at rates, terms and conditions that are just and reasonable and not unduly discriminatory or preferential. 56. We also disagree with commenters that argue that the reforms adopted in this Final Rule will have an impact on industry that is comparable to the impact at issue in Associated Gas Distributors. The impact in that case involved the potential losses a gas pipeline could face from 100 percent contract demand reduction by a customer over a period of five years. Such reduction represents the complete elimination of expected revenues from gas sales under a contract. By contrast, compliance with this Final Rule will involve the adoption and implementation of additional processes and procedures. Many public utility transmission providers that are subject to this Final Rule already engage in processes and procedures of this type. 57. We acknowledge that some public utility transmission providers may need to do more than others to achieve compliance with the requirements of this Final Rule. Such differences, however, do not mean that the problems identified herein are “limited to a portion of the industry,” in the terms used in Associated Gas Distributors. Indeed, acting on a generic basis is necessary for the Commission to identify and implement a minimum set of requirements for transmission planning processes and cost allocation methods, as discussed above. 58. We also disagree with commenters who assert that the Commission is relying on unsubstantiated allegations of discriminatory conduct or that the current Order No. 890 processes have not been in place long enough to justify the reforms proposed herein. The courts have made clear that the Commission need not make specific factual findings of discrimination to promulgate a generic rule to ensure just and reasonable rates or eliminate undue discrimination. 52 In Associated Gas Distributors, the court explained that the promulgation of generic rate criteria involves the determination of policy goals and the selection of the means to achieve them and that courts do not insist on empirical data for every proposition upon which the selection depends: “[a]gencies do not need to conduct experiments in order to rely on the prediction that an unsupported stone will fall.” 53 As discussed in this Final Rule, the Commission has received many comments arguing that commenters have experienced unjust and unreasonable, or unduly discriminatory or preferential practices in the transmission planning aspects of the transmission service provided by public utility transmission providers and that the lack of guidance from the Commission has delayed, as well as hindered, transmission projects. We have an obligation under section 206 to remedy these unjust and unreasonable, or unduly discriminatory or preferential rates, terms, and conditions and practices affecting rates. 52 TAPS v. FERC, 225 F.3d 667 at 688; National Fuel, 468 F.3d 831. 53 824 F.2d 981 at 1008. 59. It is thus clear to us that, notwithstanding the Commission's efforts in Order No. 890, deficiencies in the requirements of the existing pro forma OATT must be remedied to support the more efficient and cost-effective development of transmission facilities used to provide Commission-jurisdictional services. Moreover, action is needed to address the opportunities to engage in undue discrimination by public utility transmission providers. Our actions in this Final Rule are necessary to produce rates, terms and conditions that are just and reasonable. We therefore exercise our broad remedial authority 54 today to ensure that rates are not unjust and unreasonable and to limit the remaining opportunities for undue discrimination. 54 Niagara Mohawk Power Corp. v. FPC, 379 F.2d 153, 159 (DC Cir. 1967). 60. We also disagree with the commenters that claim that any concerns with current transmission planning and cost allocation processes are better dealt with on a case-specific basis rather than through a generic rule. While the concerns discussed above that are driving the need for these reforms may not affect each region of the country equally, we remain concerned that the existing transmission planning and cost allocation requirements of Order No. 890 are inadequate to ensure the development of more efficient and cost-effective transmission. It is well established that the choice between rulemaking and case-by-case adjudication “lies primarily in the informed discretion of the administrative agency.” 55 It is within our discretion to conclude that a generic rulemaking, not case-by-case adjudications, is the most efficient approach to take to resolve the industry-wide problems facing us. 55 SEC v. Chenery Corp., 332 U.S. 194, 203 (1947). See also Alaska Power & Telephone Co., 98 FERC ¶ 61,092, at 61,277 (2002); Trailblazer Pipeline Co., 79 FERC ¶ 61,274, at 62,183 (1997). 61. Nevertheless, the Commission recognizes that each transmission planning region has unique characteristics and, therefore, this Final Rule accords transmission planning regions significant flexibility to tailor regional transmission planning and cost allocation processes to accommodate these regional differences. The Commission recognizes that many transmission planning regions have or are in the process of taking steps to address some of the concerns described in this Final Rule. We encourage those regions to use the objectives and principles discussed in this Final Rule to guide continued development and compel them to abide by the requirements of this Final Rule. 62. The Commission recognizes the scope of these requirements, and to that end the Commission will continue to make its staff available to assist industry regarding compliance matters, as it did after Order No. 890. As stated above, as public utility transmission providers work with their stakeholders to prepare compliance proposals, the Commission encourages frequent dialogue with Commission staff to explore issues that are specific to each transmission planning region. The Commission will monitor progress being made. D. Use of Terms 63. Before turning to the requirements of this Final Rule, the Commission defines several of the key terms used herein. For purposes of this Final Rule, there is a distinction between a transmission facility in a regional transmission plan and a transmission facility selected in a regional transmission plan for purposes of cost allocation. Transmission facilities selected in a regional transmission plan for purposes of cost allocation are transmission facilities that have been selected pursuant to a transmission planning region's Commission-approved regional transmission planning process for inclusion in a regional transmission plan for purposes of cost allocation because they are more efficient or cost-effective solutions to regional transmission needs. Those may include both regional transmission facilities, which are located solely within a single transmission planning region and are determined to be a more efficient or cost-effective solution to a regional transmission need, and interregional transmission facilities, which are located within two or more neighboring transmission planning regions and are determined by each of those regions to be a more efficient or cost-effective solution to a regional transmission need. Such transmission facilities often will not comprise all of the transmission facilities in the regional transmission plan; rather, such transmission facilities may be a subset of the transmission facilities in the regional transmission plan. For example, such transmission facilities do not include a transmission facility in the regional transmission plan but that has not been selected in the manner described above, such as a local transmission facility or a merchant transmission facility. A local transmission facility is a transmission facility located solely within a public utility transmission provider's retail distribution service territory or footprint that is not selected in the regional transmission plan for purposes of cost allocation. 64. In distinguishing between transmission facilities selected in a regional transmission plan for purposes of cost allocation and other transmission facilities that also may be in the regional transmission plan, we seek to recognize that different regions of the country may have different practices with regard to populating their regional transmission plans. In some regions, transmission facilities not selected for purposes of regional or interregional of cost allocation nonetheless may be in a regional transmission plan for informational purposes, and the presence of such transmission projects in the regional transmission plan does not necessarily indicate an evaluation of whether such transmission facilities are more efficient or cost-effective solutions to a regional transmission need, as is the case for transmission facilities selected in a regional transmission plan for purposes of cost allocation. By focusing in parts of this Final Rule on transmission facilities selected in a regional transmission plan for purposes of cost allocation, we do not intend to disturb regional practices with regard to other transmission facilities that also may be in the regional transmission plan. 65. We also clarify that the requirements of this Final Rule are intended to apply to new transmission facilities, which are those transmission facilities that are subject to evaluation, or reevaluation as the case may be, within a public utility transmission provider's local or regional transmission planning process after the effective date of the public utility transmission provider's filing adopting the relevant requirements of this Final Rule. The requirements of this Final Rule will apply to the evaluation or reevaluation of any transmission facility that occurs after the effective date of the public utility transmission provider's filing adopting the transmission planning and cost allocation reforms of the pro forma OATT required by this Final Rule. We appreciate that transmission facilities often are subject to continuing evaluation as development schedules and transmission needs change, and that the issuance of this Final Rule is likely to fall in the middle of ongoing planning cycles. Each region is to determine at what point a previously approved project is no longer subject to reevaluation and, as a result, whether it is subject to the requirements of this Final Rule. 56 Our intent here is that this Final Rule not delay current studies being undertaken pursuant to existing regional transmission planning processes or impede progress on implementing existing transmission plans. We direct public utility transmission providers to explain in their compliance filings how they will determine which facilities evaluated in their local and regional planning processes will be subject to the requirements of this Final Rule. 56 We note that existing planning processes already include specific points at which a project will no longer be subject to reevaluation. 66. Finally, nothing in this Final Rule should be read as the Commission granting approval to build a “transmission facility in a regional transmission plan” or a “transmission facility selected in a regional transmission plan for purposes of cost allocation.” For purposes of this Final Rule, the designation of a transmission project as a “transmission facility in a regional transmission plan” or a “transmission facility selected in a regional transmission plan for purposes of cost allocation” only establishes how the developer may allocate the costs of the facility in Commission-approved rates if such facility is built. Nothing in this Final Rule requires that a facility in a regional transmission plan or selected in a regional transmission plan for purposes of cost allocation be built, nor does it give any entity permission to build a facility. Also, nothing in this Final Rule relieves any developer from having to obtain all approvals required to build such facility. III. Proposed Reforms: Transmission Planning 67. This section of the Final Rule has three parts: (A) Participation in the regional transmission planning process; (B) nonincumbent transmission developers; and (C) interregional transmission coordination. A. Regional Transmission Planning Process 68. This part of the Final Rule adopts several reforms to improve regional transmission planning. First, building on the reforms that the Commission adopted in Order No. 890, this Final Rule requires each public utility transmission provider to participate in a regional transmission planning process that produces a regional transmission plan and complies with existing Order No. 890 transmission planning principles. Second, this Final Rule adopts reforms under which transmission needs driven by Public Policy Requirements are considered in local and regional transmission planning processes. By “local” transmission planning process, we mean the transmission planning process that a public utility transmission provider performs for its individual retail distribution service territory or footprint pursuant to the requirements of Order No. 890. These reforms work together to ensure that public utility transmission providers in every transmission planning region, in consultation with stakeholders, evaluate proposed alternative solutions at the regional level that may resolve the region's needs more efficiently or cost-effectively than solutions identified in the local transmission plans of individual public utility transmission providers. 57 This, in turn, will provide assurance that rates for transmission services on these systems will reflect more efficient or cost-effective solutions for the region. Each of these reforms is discussed more fully below. 57 As in Order No. 890, the transmission planning requirements adopted here do not address or dictate which transmission facilities should be either in the regional transmission plan or actually constructed. See Order No. 890, FERC Stats. & Regs. ¶ 31,241 at P 438. We leave such decisions in the first instance to the judgment of public utility transmission providers, in consultation with stakeholders participating in the regional transmission planning process. 69. Part A of section III has four subsections: (1) Need for reform concerning regional transmission planning; (2) legal authority for transmission planning reforms; 58 (3) regional transmission plan and Order No. 890 transmission planning principles; and (4) consideration of transmission needs driven by Public Policy Requirements. 58 Because the legal authority concerns raised by commenters with regard to our regional transmission planning reforms and our interregional transmission coordination reforms are so closely related, we address these concerns together. 1. Need for Reform Concerning Regional Transmission Planning a. Commission Proposal 70. In the Proposed Rule, the Commission explained that, since the issuance of Order No. 890, it has become apparent to the Commission that Order No. 890's regional participation transmission planning principle may not be sufficient, in and of itself, to ensure an open, transparent, inclusive, and comprehensive regional transmission planning process. The Commission explained that, to meet that principle, each public utility transmission provider is currently required to coordinate with interconnected systems to: (1) Share system plans to ensure that the plans are simultaneously feasible and otherwise use consistent assumptions and data; and (2) identify system enhancements that could relieve congestion or integrate new resources. 59 The Commission thus did not require development of a transmission plan by each transmission planning region. Moreover, the Commission did not require regional transmission planning activities to comply with the transmission planning principles established in Order No. 890. 60 As such, the Commission proposed to require each public utility transmission provider to participate in a regional transmission planning process that satisfies the existing Order No. 890 transmission planning principles 61 and that produces a regional transmission plan. 59 Proposed Rule, FERC Stats. & Regs. ¶ 32,660 at P 45 (citing Order No. 890, FERC Stats. & Regs. ¶ 31,241 at P 523). 60 See Entergy Services, Inc., 124 FERC ¶ 61,268, at P 104 (2008). 61 These transmission planning principles are: (1) Coordination; (2) openness; (3) transparency; (4) information exchange; (5) comparability; (6) dispute resolution; and (7) economic planning. 71. The Commission also explained that, while it intended Order No. 890's economic planning studies transmission planning principle to be sufficiently broad to identify solutions that could relieve transmission congestion or integrate new resources and loads, including transmission facilities to integrate new resources and loads on an aggregated or regional basis, 62 it recognized that its statements with respect to the Order No. 890 economic planning studies transmission planning principle may have contributed to confusion as to whether Public Policy Requirements may be considered in the transmission planning process. 63 The Proposed Rule stated that, when conducting transmission planning to serve native load customers, a prudent public utility transmission provider will not only plan to maintain reliability and consider whether transmission facilities or other investments can reduce the overall costs of serving native load, but also consider how to enable compliance with relevant Public Policy Requirements. The Proposed Rule further stated that, to avoid acting in an unduly discriminatory manner, a public utility transmission provider must consider these same needs on behalf of all of its customers. The Commission also noted that providing for incorporation of Public Policy Requirements in transmission planning processes, where applicable, could facilitate cost-effective achievement of those requirements. 64 The Commission therefore proposed to require each public utility transmission provider to amend its OATT so that its local and regional transmission planning processes explicitly provide for consideration of Public Policy Requirements. 62 Order No. 890's economic planning studies transmission planning principle requires that stakeholders be given the right to request a defined number of high priority studies annually through the transmission planning process, which are intended to identify solutions that could relieve transmission congestion or integrate new resources and loads, including facilities to integrate new resources or loads on an aggregated or regional basis. See Order No. 890, FERC Stats. & Regs. ¶ 31,241 at P 547-48. 63 Proposed Rule, FERC Stats. & Regs. ¶ 32,660 at P 55-57 & n.76. 64 Id. P 63. b. Comments 72. A number of commenters support the Commission's preliminary determination in the Proposed Rule that there is a need to enhance the regional transmission planning process. 65 In supporting the proposal to implement new regional transmission planning requirements, Pennsylvania PUC argues that the current regional transmission planning process does not lend itself to the sort of open and transparent processes that allow state commissions to fully contribute to the regional transmission planning arena. Iberdrola Renewables states that the proposed reforms would advance the sound development of substantial new renewable energy resources, which it argues is critical to the nation's energy security, economic well-being, and the environment. AWEA states that existing transmission planning processes are too parochial in design and practice, and it suggests that the proposed transmission planning reforms will remedy these deficiencies. 65 E.g., 26 Public Interest Organizations; AWEA; Atlantic Grid; Clean Line; East Texas Cooperatives; Energy Future Coalition Group; Gaelectric; Iberdrola Renewables; Massachusetts Departments; NextEra; Pennsylvania PUC; Western Grid Group; and Wind Coalition. 73. However, other commenters argue that there is no need for reform of regional transmission planning requirements, at least on a nationwide basis. 66 Ad Hoc Coalition of Southeastern Utilities and Southern Companies argue that any problems that may exist regarding regional transmission planning are local in nature and the Commission should not undertake comprehensive, generic reform. They argue that the regional transmission planning concerns expressed in the Proposed Rule are not present in the Southeast. ColumbiaGrid, Bonneville Power, Avista, and Puget Sound argue that regional transmission planning in the Northwest is robust. WestConnect makes a similar point regarding its collaborative planning process. Avista and Puget Sound state that the proposed reforms could threaten the continued viability of ColumbiaGrid's successful collaborative approach to planning because of concerns that some ColumbiaGrid members may not participate in that process if the Proposed Rule's reforms are adopted. 66 E.g., Ad Hoc Coalition of Southeastern Utilities; Avista and Puget Sound; Bonneville Power; ColumbiaGrid; Indianapolis Power & Light; Southern Companies; and WestConnect. 74. Others argue that the Commission should allow existing regional transmission planning processes to mature before taking action. 67 Sacramento Municipal Utility District contends that comprehensive transmission planning currently exists, planning studies are being performed, results are being evaluated, and interested stakeholders are actively engaged and, consequently, the Commission need not and should not take further action. Modesto Irrigation District states that existing regional and interconnectionwide transmission planning processes in the West provide an effective and comprehensive way to determine transmission needs and the transmission projects that efficiently address those needs in a manner that is consistent with the bottom up, stakeholder-driven transmission planning processes found in Order No. 890. 68 In reply, California Transmission Planning Group states that it agrees with commenters in the Western Interconnection that existing regional and interconnectionwide processes should continue to mature. It argues that comments expressing frustration with its planning process are indicative of the need to provide such processes time to mature, noting that its work has matured rapidly in the year since it was formed. Coalition for Fair Transmission Policy states that transmission investment has accelerated in recent years and, as a result, current transmission planning processes are working. 67 E.g., California Transmission Planning Group; Sacramento Municipal Utility District; and WestConnect. 68 In describing these comments, we use the terms “interconnectionwide” and “regional” even though many commenters in the western United States used the term “regional” for interconnectionwide and “subregional” for regional. However, we will continue to use the terms “interconnectionwide” and “regional” in this Final Rule to make these comments clearer to readers outside of the West. 75. Others argue that the Proposed Rule would lead to undesirable outcomes. California Transmission Planning Group argues that the Proposed Rule would require it to transform itself from a regional coordinator of transmission studies and planning into a quasi-adjudicatory arbiter of the relative economic merits of specific transmission projects or alternatives and a gatekeeper to cost recovery and ratemaking mechanisms. California Transmission Planning Group also notes the legal constraints on many of its public agency members from assuming certain planning-related responsibilities. NorthWestern Corporation (Montana) does not believe the proposed approach is workable in the unorganized market areas in the West because the transmission provider, not the regional planning entity, has the obligation to the Commission through its tariff. 76. North Carolina Agencies argue that transmission planning must be initiated at the local and regional levels subject to state-level authority and based on the needs of customers who bear the burdens and benefits of the decisions resulting from the planning process. North Carolina Agencies also state that transmission developers who offer transmission projects as an alternative to locally planned solutions must be required to participate in and have their proposals considered as part of the relevant state planning process. Imperial Irrigation District points to potential confusion in the West, and states that it believes that the creation of a new regional transmission planning authority would impede, not hasten, transmission development. 77. However, Multiparty Commenters urge the Commission not to be swayed by arguments that reform of the transmission planning and cost allocation processes are not necessary simply because there has been an increase in transmission investment in the last few years, asserting that more investment does not mean that there is enough transmission being built to satisfy future needs, such as the interconnection of renewable resources. NextEra disagrees with commenters asserting that revising transmission planning procedures would disrupt existing processes under Order No. 890, arguing that those processes should be improved if there is a need to do so, as it would be wasteful to withhold needed reforms to observe how current processes would evolve. Powerex states that, although progress has been made in transmission planning processes since Order No. 890 was issued, more reforms are needed to ensure transparency and a level playing field for all stakeholders. National Grid agrees that the Commission should not wait to exercise its authority to require improvements to transmission planning processes. Twenty-six Public Interest Organizations argue that Southern Companies' claims that the transmission planning deficiencies identified in the Proposed Rule do not pertain to them and that implementation of the Proposed Rule would harm existing processes are unsupported by the facts and may reflect the inability of planning authorities to recognize the limits of their own procedures. c. Commission Determination 78. We conclude that it is necessary to act under section 206 of the FPA to adopt the regional transmission planning reforms of this Final Rule, as discussed more fully below, to ensure just and reasonable rates and to prevent undue discrimination by public utility transmission providers. Our review of the record, including the comments submitted by numerous entities representing a variety of diverse viewpoints, makes clear to us that reform is necessary at this time. Specifically, we conclude that the existing requirements of Order No. 890 are inadequate to ensure that public utility transmission providers in each transmission planning region, in consultation with stakeholders, identify and evaluate transmission alternatives at the regional level that may resolve the region's needs more efficiently or cost-effectively than solutions identified in the local transmission plans of individual public utility transmission providers. Moreover, the existing requirements of Order No. 890 do not necessarily result in the development of a regional transmission plan that reflects the identification by the transmission planning region of the set of transmission facilities that are more efficient or cost-effective solutions for the transmission planning region. 79. As the Commission explained in the Proposed Rule, when an individual public utility transmission provider engages in local transmission planning, it considers and evaluates transmission facilities and non-transmission alternatives that are proposed and then develops a local transmission plan that identifies what transmission facilities are needed to meet the needs of its native load (if any), transmission customers, and other stakeholders. 69 Through this process, the public utility transmission provider evaluates the various alternatives available to determine a set of solutions that meet the system's needs more efficiently or cost-effectively than other proposed solutions. At the regional level, the Commission has relied on such processes when evaluating filings to help ensure that the recovery of costs associated with transmission facilities recovered through Commission-jurisdictional rates is just and reasonable. 70 69 Proposed Rule, FERC Stats. & Regs. ¶ 32,660 at P 51. 70 See, e.g., Transmission Technology Solutions, LLC, et al. v. Cal. Indep. Sys. Operator Corp., 135 FERC ¶ 61,077, at P 84 (2011) (rejecting complaint regarding California ISO transmission planning process and stating “we find that CAISO reasonably concluded that PG&E's project is ultimately the most prudent and cost-effective solution. We find that for each of the incumbent and non-incumbent proposed projects, CAISO adequately considered lower cost alternatives, selected economically efficient solutions, accounted for more than just capital costs, and considered additional project benefits.”). 80. In some transmission planning regions, a similar level of analysis is undertaken by public utility transmission providers at the regional level, resulting in the development of a regional transmission plan that identifies those transmission facilities that are needed to meet the needs of stakeholders in the region. This occurs, for example, in each of the existing RTO and ISO regions, which, we note, serve over two-thirds of the nation's consumers. 71 In other transmission planning regions, however, as permitted by Order No. 890, public utility transmission providers use the regional transmission planning process as a forum to confirm the simultaneous feasibility of transmission facilities contained in their local transmission plans. We conclude that it is necessary to have an affirmative obligation in these transmission planning regions to evaluate alternatives that may meet the needs of the region more efficiently or cost-effectively. Given the potential impact such investments could have on rates for Commission-jurisdictional service, we conclude it is necessary to act at this time to enhance the transmission planning-related requirements imposed in Order No. 890. 71 See IRC Brings Value to Reliability and Electricity Markets, available at http://www.isorto.org/site/c.jhKQIZPBImE/b.2603917/k.B00F/About.htm . As discussed in section V below, to the extent existing transmission planning processes satisfy the requirements of this Final Rule, public utility transmission providers need not revise their OATTs and, instead, should describe in their compliance filings how the relevant requirements are satisfied by reference to tariff sheets already on file with the Commission. 81. In the absence of the reforms implemented below, we are concerned that public utility transmission providers may not adequately assess the potential benefits of alternative transmission solutions at the regional level that may meet the needs of a transmission planning region more efficiently or cost-effectively than solutions identified by individual public utility transmission providers in their local transmission planning process. For example, proactive cooperation among public utility transmission providers within a transmission planning region could better identify transmission solutions to more efficiently or cost-effectively meet the reliability needs of public utility transmission providers in the region. Further, regional transmission planning could better identify transmission solutions for reliably and cost-effectively integrating location-constrained renewable energy resources needed to fulfill Public Policy Requirements such as the renewable portfolio standards adopted by many states. Similarly, the development of transmission facilities that span the service territories of multiple public utility transmission providers may obviate the need for transmission facilities identified in multiple local transmission plans while simultaneously reducing congestion across the region. Under the existing requirements of Order No. 890, however, there is no affirmative obligation placed on public utility transmission providers to explore such alternatives in the absence of a stakeholder request to do so. We correct that deficiency in this Final Rule. 82. Based on our review of the record and comments in this proceeding, we also require each public utility transmission provider to amend its OATT to explicitly provide for consideration of transmission needs driven by Public Policy Requirements in both local and regional transmission planning processes. As the Commission noted in the Proposed Rule, existing transmission planning processes generally were not designed to account for, and do not explicitly consider, transmission needs driven by Public Policy Requirements. While transmission planning processes in some regions have evolved to reflect compliance with Public Policy Requirements, our review of the comments indicates that some transmission planning processes do not consider transmission needs driven by Public Policy Requirements. 72 As a result, some regions are struggling with how to adequately address transmission expansion necessary to, for example, comply with renewable portfolio standards. These difficulties are compounded by the fact that planning transmission facilities necessary to meet state resource requirements must be integrated with existing transmission planning processes that are based on metrics or tariff provisions focused on reliability or, in some cases, production cost savings. 72 For example, PJM acknowledges in its comments that under its existing transmission planning process, it cannot build transmission to anticipate the development of future generation, including renewable energy resources, that are not associated with specific generator interconnection requests. 83. As the Commission explained in the Proposed Rule, consideration of Public Policy Requirements raises issues similar to those raised in the Commission's discussion in Order No. 890 of the economic planning studies transmission planning principle. 73 When conducting transmission planning to serve native load customers, a prudent transmission provider will not only plan to maintain reliability and consider whether transmission upgrades or other investments can reduce the overall costs of serving native load, but also consider how to plan for transmission needs driven by Public Policy Requirements. 74 Therefore, we conclude that, to avoid acting in an unduly discriminatory manner against transmission customers that serve other loads, a public utility transmission provider must consider these same transmission needs for all of its transmission customers. Moreover, given that consideration of transmission needs driven by Public Policy Requirements could facilitate the more efficient and cost-effective achievement of those requirements, we conclude the reforms adopted herein are necessary to ensure that rates for Commission-jurisdictional services are just and reasonable. 73 In Order No. 890, the Commission intended the economic planning studies principle to be sufficiently broad to identify solutions that could relieve transmission congestion or integrate new resources and loads, including facilities to integrate new resources and loads on an aggregated or regional basis. Order No. 890, FERC Stats. & Regs. ¶ 31,241 at P 523. 74 Proposed Rule, FERC Stats. & Regs. ¶ 32,660 at P 63. 84. Turning to the commenters opposed to these reforms, we are not persuaded by those who argue that any problems with existing transmission planning are local in nature and that the Commission should not undertake comprehensive, generic reform. As we explain above in the section on the general need for the reforms in this Final Rule, the Commission need not make specific factual findings to promulgate a generic rule to ensure rates, terms and conditions of jurisdictional services are just and reasonable and not unduly discriminatory or preferential. 75 As for those commenters that argue that the Commission should allow existing regional transmission planning processes to mature before acting, we believe that the discussion above illustrates that the requirements of the pro forma OATT are inadequate to ensure the development of more efficient or cost-effective solutions to regional needs. As we explained in section II above, while transmission planning processes have improved since the issuance of Order No. 890, we are concerned that the existing Order No. 890 requirements regarding transmission planning, as well as cost allocation, are insufficient to ensure that the evolution of transmission planning processes will occur in a manner that ensures that the rates, terms and conditions of jurisdictional services are just and reasonable and not unduly discriminatory or preferential. At the same time, in response to North Carolina Agencies, we do not intend our reforms to preclude the ability of states to actively plan at the local level. 75 See discussion supra section II.C. 2. Legal Authority for Transmission Planning Reforms 76 76 As noted above, because the legal authority concerns raised by commenters with regard to both our regional transmission planning reforms and our interregional transmission coordination reforms are so closely related, we address these concerns together in this section of the Final Rule. a. Commission Proposal 85. In the Proposed Rule, the Commission explained that the proposed reforms in the areas of regional transmission planning and interregional transmission coordination are intended to correct deficiencies in transmission planning and cost allocation processes so that the transmission grid can better support wholesale power markets and thereby ensure that Commission-jurisdictional services are provided at rates, terms and conditions that are just and reasonable and not unduly discriminatory or preferential. The Commission also noted that the Proposed Rule builds on Order No. 890, in which the Commission required each public utility transmission provider to have a coordinated, open, and transparent regional transmission planning process, among other things, in order to remedy opportunities for undue discrimination in the provision of transmission services. 77 77 Proposed Rule, FERC Stats. & Regs. ¶ 32,660 at P 1-2. b. Comments 86. Several commenters argue that the Commission has adequate statutory authority to undertake the planning reforms in the Proposed Rule. 78 Iberdrola Renewables contends that the Commission has a firm legal basis to adopt the proposed reforms and has already relied on its authority to require regional transmission planning efforts in Order No. 890. In response to comments arguing that the Proposed Rule oversteps the Commission's authority, Exelon states that the proposed coordination reforms are well within the Commission's statutory authority to remedy the potential for undue discrimination in transmission planning activities, citing FPA sections 205 and 206, as well as New York v. FERC. 79 ITC Companies' reply comments also argue that the Commission has the legal authority to implement its proposals, citing the Commission's plenary authority over interstate transmission under FPA section 201 and noting that courts have broadly defined transmission in interstate commerce due to the interconnected nature of the transmission grid. Multiparty Commenters agree that the proposed reforms are within the Commission's plenary authority, and they believe that the Proposed Rule properly identifies deficiencies in transmission planning and cost allocation, and that requirements for transmission planning and cost allocation are necessary for fully competitive wholesale markets and thus fall squarely within the Commission's jurisdiction. 78 E.g. , Iberdrola Renewables; 26 Public Interest Organizations; Exelon; ITC Companies; LS Power; and Multiparty Commenters. 79 535 U.S. 1 (2002). 87. In response to those asserting that the Commission cannot require interregional agreements to coordinate planning because of section 202(a)'s voluntary coordination language, commenters assert that such arguments are contrary to precedent affirming Order Nos. 888 and 2000. Exelon notes that Public Utility District No. 1 of Snohomish County v. FERC , 80 which affirmed Order No. 2000, found that mandatory RTO rules did not run afoul of section 202(a). ITC Companies also assert that section 202(a) does not prohibit interregional planning agreements, contrary to some comments. Multiparty Commenters also argue that section 202 does not impose a limitation on the Commission's section 206 jurisdiction. In addition, commenters such as ITC Companies and Multiparty Commenters argue that the proposals do not preempt state jurisdiction over siting decisions. Twenty-six Public Interest Organizations argue that the FPA requires the Commission to address identified transmission planning deficiencies. 80 272 F.3d 607 (DC Cir. 2001). 88. Some commenters argue that the Commission may consider public policy requirements. Exelon disagrees with those asserting that the Commission cannot require public utility transmission providers to consider the impacts of public policies under federal and state laws and regulations, and argues that the Commission is not establishing an independent obligation to satisfy such public policy requirements. Exelon states that courts have consistently recognized the Commission's need to adjust its regulation under the FPA to meet the changing needs of the industry. 81 LS Power explains that the proposal regarding public policy requirements is not an effort to pursue those goals but rather to ensure that transmission service is offered at just and reasonable rates. EarthJustice argues that, contrary to commenters challenging the Proposed Rule with respect to the consideration of public policy requirements, the Commission did not propose to infringe on state jurisdiction. EarthJustice argues that there is substantial evidence to support the Commission's conclusions in the Proposed Rule. 82 81 Exelon (citing New York v. FERC , 535 U.S. 1 (2002)), Transmission Access Policy Study Group v. FERC , 225 F.3d 667 (DC Cir. 2000), and Public Util. Dist. No. 1 of Snohomish Cty v. FERC , 272 F.3d 607 (DC Cir. 2001). 82 EarthJustice (citing Louisiana Pub. Serv. Comm'n v. FERC , 551 F.3d 1042, 1045 (DC Cir. 2008)). 89. Some commenters, however, assert that the Commission lacks jurisdiction to mandate the transmission planning reforms included in the Proposed Rule. 83 These commenters cite to section 202(a) of the FPA, which provides that coordination and interconnection arrangements are to be left to the voluntary action of public utilities. California ISO points to Central Iowa Power Coop. v. FERC , 84 which held that, in light of the voluntary nature of coordination under FPA section 202(a), the Commission's authority under FPA section 206 does not include the authority to require modifications to an otherwise just and reasonable tariff or jurisdictional agreement simply because the Commission has concluded that alternative terms and conditions would better promote the interconnection and coordination of transmission facilities. 83 E.g. , Ad Hoc Coalition of Southeastern Utilities; California ISO; ColumbiaGrid; Nebraska Public Power District; North Carolina Agencies; and Sacramento Municipal Utility District. 84 606 F.2d 1156 n. 36 (DC Cir. 1979) ( Central Iowa ). 90. Several commenters state that the Commission's statutory authority is limited with respect to transmission siting decisions. 85 North Carolina Agencies assert that, with the exception of the Commission's limited backstop authority under FPA section 216, transmission planning and expansion fall strictly within the purview of state regulatory agencies and the Proposed Rule takes into account neither the Commission's lack of authority nor the long-standing authority of the states. Some commenters also explain that the states have authority with respect to integrated resource planning. 86 85 E.g. , North Carolina Agencies; Florida PSC; Illinois Commerce Commission; and Nebraska Public Power District. 86 E.g. , Alabama PSC; Ad Hoc Coalition of Southeastern Utilities; Nebraska Public Power District; Florida PSC; and Commissioner Skop. 91. Several others state that the Commission should confirm that transmission planning, even with the reforms adopted by this Final Rule, continues to be driven by the needs of load-serving entities. 87 Entities such as Ad Hoc Coalition of Southeastern Utilities, APPA, and Nebraska Public Power District point to FPA section 217(b)(4) as the only provision in the FPA that charges the Commission with transmission planning responsibilities, expressing concern that the proposed transmission planning reforms might be read to imply a greater focus on interests of stakeholders other than load-serving entities. National Rural Electric Coops argue that Order No. 890 struck an appropriate balance among interests and should be preserved. 88 APPA argues that the failure to address section 217 makes the Proposed Rule legally deficient. Additionally, several commenters contend the Commission's proposal is inconsistent with section 217, which they state recognizes the primacy of a franchised utility's obligation to do what is needed to fulfill its obligation to service, including the implementation of state-authorized plans for transmission construction. 89 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2011-19084. Public record. Not legal advice.